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95568462 Air Asia Final

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    College of Social Sciences

    Birmingham Business School

    International Business Strategy

    MSc International Business

    ID: 1136816

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    Table of Content

    1. List of Strategic Issues1

    1.1. Market Based View..1

    1.2. Resource Based View.1

    1.3. Organisational Based View.2

    1.4. Key Strategic Issues.3

    2.0 GENERATING STARTEGIC OPTIONS.4

    3.0 STRATEGIC EVALUATION AND SELECTION...5

    3.1. Disinvestment in Air Asia X.5

    3.2. Separation of Air Asia from Air Asia X..5

    3.3. Suitability Criteria- Air Asia.6

    3.4. ACCEPTABILITY Criteria- Air Asia...7

    3.5. FEASIBILITY Criteria- Air Asia...8

    3.6. STRATEGIC EVALUATION.8

    4.0. FUTURE STRATEGIC RECORMENDATION.9

    5.0. APPENDIX AND REFFRENCES.11

    Appendix 1. KSF Analysis of Long-haul model and LCC model.11

    Appendix 2.An Analysis of the Porters Five Forces.11

    Appendix 3.VRIO Framework13

    Appendix 4.Government as important a Stakeholder....13

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    Appendix 5.Strategic Option 1.....14

    Appendix 6. Strategic Option 2....15

    References.. ..16

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    EXECUTIVE SUMMARY

    This is a strategic report aimed at analysing, the key strategic

    issues that Air Asia is facing in 2009 and also generating future

    strategic choices for the for the company based on a Suitability

    Feasibility and Acceptability (SFA)analysis of the strategic

    Options that have been selected . Considering the result of theSFA analysis recommendations will be made addressing the

    issues that have been identified.

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    Air Asia Strategic Report

    1. LIST OF STRATEGIC ISSUES

    1.1. Market Based View

    a. Integrating Air Asia and Air Asia X.

    The key success factor in the long haul and the low cost carrier model are different.

    The analysis of Key Success Factor (KSF) tells us that the two companies should

    not be integrated as the companies will lose focus, based on the differences of the

    KSF. (see appendix 1)

    b. Potential growth in the South East Asian Region

    This South East Asian Region is experiencing a very high growth which will translate

    in the growth of the market for the low cost flight with in the region. The low cost

    airline industry has been very profitable as compared to long haul airline industry in

    2009 (flightglobal, 2011). This region has seen the increase in the number of low-

    cost airline operators to over 20 since Air Asia started in 2001(flightglobal, 2011).

    This region is experiencing high economic growth which creates a growing market

    for Low cost carrier airlines.

    1.2. Resource Based View

    c. The use of joint ventureto spread the risk of its expansion strategy in to

    other markets.

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    The use of joint venture in Air Asias expansion strategy in South East Asia

    has been successful in the market as it benefits from

    Shared risk involved in the investment

    Local support of the state and the people

    d. The transfer of the resource and capabilities

    Will this contribute to its Air Asia Xs competitive advantage? (Consider

    appendix 3)

    The VRIO Framework analysis shows that competitors in the long haul airline

    industry have high capabilities. This will reduce the value of the capabilities

    when transferred.

    e. Air Asias focus on improving its capability in maintaining a very low

    operation cost with high quality in costumer services.

    In an industry where low price is very important, the capability of

    being able to maintain a low operation cost is a very important

    strategic issue.

    Its success has been greatly due to the ability to maintain a very

    low operating cost while ensuring high quality services to

    customers.

    1.3. Organisational Based View

    f. The relationship with the Malaysian Government must be well maintained

    to avoid conflict with the Malaysian government. (see Appendix 4)

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    1.4. Key Strategic Issues

    After consolidating the strategic issues, these are the key strategic issues that will be

    considered

    1. Issues number 1 and 2 stated above can be merged to the form the Strategic

    Market Growth issue. This is because they all focus on Growth of the

    company.

    2. Issues 3 ,4 and 5 will be merged to form Contentiously Improve on R&C.

    this is they are all related to the capabilities of the company and they will all

    be used in the implementation of a growth strategy.

    3. Maintain good relationship with the Malaysian government

    Short term longterm

    HighUrgency

    Conteniously Improve onR&C

    Strategic Market Growth

    Low

    urgency

    maintain good relationship

    with the Malyasiangovernment

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    2.0 GENERATING STARTEGIC OPTIONS

    Level of

    Strategy

    Strategic option 1

    Separate Companies

    Strategic option2

    DisinvestmentBroad Level Avoid loss of Focus by separating

    Air Asia and Air Asia X and focuson growing the south east Asianmarket

    Disinvestment in Air Asia X.

    Specific level1

    Market development in south eastAsia ( high economic Growth)

    Market Penetration Alliancewith Malaysian Airways togenerate trunk routs from itslong haul routes (increase intraffic)

    Specific level2

    forming joint venture in differentcountries

    Acquire struggling low costairlines in other countries,

    Functionaland

    supporting

    Transfer Resources andcapabilities to the joint venture.

    Increase marketing strategy aimedat reducing the treat of substitute(train or rad transport). Increasingspending on MarketingCampaigns to

    Influence MalaysianGovernment to ease visa

    regulation and promotetourism.Improve and transfercapabilities to acquiredAirlines.

    Note: See appendix 5 for details on Strategic option 1

    See appendix 6 for details on Strategic option 2

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    3.0 STRATEGIC EVALUATION AND SELECTION

    3.1 Disinvestment in Air Asia X

    Advantages Disadvantages

    This will enhance the relationship with theGovernment. A very important OBVperspective

    Control over trunk routs will be lost.

    Create finance for required expansion Disinvestment will be seen in the media asbad image for the company

    Create a clear focus for the company (LCCmodel)

    Might make some stakeholders unhappy(employees, due to loss of job)

    3.2 Separation of Air Asia from Air Asia X

    Advantages Disadvantages

    Have high influence over trunk routs, caninfluence the movement of traffic to itsadvantage.

    Will damage the relationship with theMalaysian Government. (very critical OBVissue in the long run)

    Both companies will focus on their

    particular market without having to lossfocus in their different target markets

    The relationship between the two

    companies might limit the freedom eachcompany has to make decisions.

    Share of operational activates will helpkeep cost low for both companies. ( Onlinebooking)

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    3.3. Suitability Criteria- Air Asia

    Concepts (MBV) Separation Disinvestment

    5 forces Reduces industry rivalry. (+) reduce the threat of

    substitute (+)Market andcustomer segment

    Focused on more than onesegment (Low cost and long haul)and still maintains clear focus byseparation. (+)

    Focused on one type ofsegment (people lookingfor low cost travel). ( - )

    CompetitorRetaliation

    Lead to Malaysia Airlinesentering the LCC in retaliation. (-)

    Will reduce competitorpower and escaperetaliation by MalaysiaAirlines. (+)

    KSF Clear focus on KSF with fairpossibility of a strategic drift dueto interest in Air Asia X (+)

    Clear focus on KSF. Lessprobability for a strategicdrift (+)

    Concepts (RBV)

    R&C Development Transfer of capabilities will be ofhigh value in Air Asia X and thejoint ventures. (+)

    Transfer or capabilities willbe of very high value in theCompanies acquired.

    (Same Market). (+)

    Distinctivecompetency asbasis of CA

    The distinctive competencies willnot be source of Competitiveadvantage a in Air Asia X. (-)

    The distinctivecompetencies will besource of Competitiveadvantage in the successof the acquisition. (+)

    Concept (OBV)

    Stockholders

    perspective

    Support of Malaysian

    Government will be lost(competition with Malaysiaairlines). (-)

    Support with of the

    Malaysian Government willbe of high Value in thelong term. (+)

    Note: (+): Favourable strategy. (-): Unfavourable Strategy.Ranking;Separation( 4+/3-) Disinvestment(6+/1-) Disinvestment is thesuitable option

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    3.4. ACCEPTABILITY Criteria- Air Asia

    CONCEPT SEPATATION Disinvestment

    RISK Air Asia X might not be profitable in

    the short run. (High Competition inindustry). (-)

    Problems with unsatisfied

    laid off workers (cost ofcompensating workers). (-)

    RETURNE Low profit expected in Air Asia Xdue to the nature of the industryand Competition. (-)

    Re investing the funds in theSouth east Asian region willprovide high returns due tothe high level of growth thatis expected in the region. (+)regarded as big player in theregion (+)

    REACRTION OFStockholders

    Positive for; customers, suppliers,employees,negative for; Government,shareholders ( fall in value ofshares of Air Asia X due to lowprofit) (-)

    Positive for; customers,Government, suppliers,shareholders.Negative for; employees. (+)

    Note: (+): Favourable strategy. (-): Unfavourable Strategy.Ranking; Separation( 0+/3-) Divest(3+/1-) Divest is the Acceptable option

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    3.5. FEASIBILITYCriteria- Air Asia

    CONCEPT SEPATATION Disinvestment

    FinancialFeasibility

    Finance needed for joint venturecan be easily raised, (reputation

    of Air Asia in LCC industry). (+)

    The large number of airlinesin the industry supports the

    strategy of acquisition assome will be poorlymanaged and cheap toacquire. (+)The Divest in Air Asia X willcreate enough cash for theacquisition needed. (+)

    People and Skills Air Asia is highly experienced insetting up joint ventures.Considering the success in Jointventures ( Indonesia and

    Thailand) (+)

    The skills needed for thisstrategy is available as thecompany will need tomanage the transfer of the

    capabilities. (employeesfrom the divested company).(+)Air Asia is not experiencedin acquisition and the skillsrequired are different fromJoint ventures (-)

    IntegratingResources

    Transferring capabilities will beeasy to do and integrating theback office operation will see both

    companies benefit from it (+)

    The transfer of employeeswill make the process easierto integrate. (+)

    Note: (+): Favourable strategy. (-): Unfavourable Strategy.Ranking; Separation( 3+/0-) Divest(4+/1-) Both strategic options are equallyFeasible option

    3.6. STRATEGIC EVALUATION

    Strategic Choice Suitability Acceptability Feasibility

    Separation NO No Yes

    Disinvestment Yes Yes Yes

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    4.0. FUTURE STRATEGIC RECORMENDATION

    Recommended strategy Timeframe

    STRATEGICISSUES IT AIMSTO SOLVE

    DETAILEDACTION PLAN

    Broad level- Disinvestmentstrategy. The disinvestment inAir Asia X is highlyrecommended,Why-This will free up cash for Air

    Asia to use in its expansionstrategy in the South EastAsian region.The long haul airline industryis a mature industry and it hasbeen less profitable than theLCC industry (flightglobal,2011).The Competitors in theIndustry Emirates and BritishAirways have strong financialresources and might retaliateaggressively with very lowprices.

    1 to 2years

    ConteniouslyImprove on R&C-Disinvesting in AirAsia X andfocusing on LCC inSouth east Asia.

    How-Because of thePoor performanceof Air Asia X, itsshare price will below. Disinvesting inthe company in theshort run will meanselling at a loss.This loss in theshort run needs tobe taken to allowfor the growth inthe South eastRegion in the longrun.

    Specific level 1- Marketdevelopment Strategy in southeast Asia.Why-This region is expected toexperience high economicgrowth, this will translate to agrowth in the travel andtourism industry.This city has been

    experiencing the highestgrowth rate in China for over10 years (China Daily, 2010).This location of this city will be

    a strategic advantageconsidering the Cities with inthe 3 hours flying range.

    3to 5years

    ConteniouslyImprove on R&C

    How- this can bedone by targetingthe strugglingairlines in thespecial economiczones in China,ShenzhenThis will reduce thecost of entering themarket.

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    Specific level 2-Using a joint venture to enterthe marketConsidering the current creditcrisis, which is a short term

    problem (InternationalMonetary Fund, 2009), someairline will be struggling to livethrough it, making cost ofentering other countries low.Threat from competitors andsuppliers will be low

    1-2years

    Use of joint venturefor Expantion inSouth East Asia

    How- the strugglingairlines inShenzhen will bethe ones with verylow share prices.

    By using the localcompaniesresources andtransferring thecapabilities of AirAsia in theoperations of thejoint venture. AirAsia will benefitfrom local support(government and

    People) as it will besaving a strugglingairline.Air AsiasCapabilities andbrand reputationand the localcompaniesresources will beinvested in the jointventure

    Functional and supporting-Maintain a good relationshipwith the Malaysiangovernment.Why- being able to influencethe governments regulationcan be very important when itcomes to a marketdevelopment strategy. The

    regulations on visa restrictionand promotion of tourism willhave a big impact in theindustry.In 2009 the governmentVetoed AirAsias plan to buildits own airport(The EconomicTimes, 2011). This would havebeen different if therelationship with thegovernment was good.

    3to 5years

    Relationship Withthe government.

    How-Collaborating withthe Malaysia airlinewill provide trunktouts for Air Asia aswell as prevent airMalaysia Airlinesfrom entering theLow cost Industry.

    This alliance willput Air Asia in astrong position tobe able to influencethe government.

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    5.0. APPENDIX AND REFFRENCES

    Appendix 1.

    Key Success Factor Analysis of Long-haul model and LCC model

    KSF Strategic issue analysed Strategic issue

    identified

    Costumers In the long haul model the profitable

    customers are the first class

    customers who then subsidise the

    economy class customers. In the

    LCC model there is only one class

    of customers economy class.

    Different customers

    Different strategy needed

    Competitors The long haul market is one flooded

    with highly experienced competitors

    with strong financial resources and

    capabilities. In the LCC model

    market in South East Asia, Air Asia

    is a market Leader in the LCC

    model market

    Different Competitors

    Different Position in the

    different Markets

    Corporation The resources and capabilities that

    lead to the competitive advantage inthe LCC model are different from

    those that are needed in the long

    haul model.

    Different strategy needed

    Appendix 2.

    An Analysis of the Porters Five Forces

    Porters 5 Forces Strategic issue analysed Strategic issue

    identified

    Supplier Power A mixture of powerful

    suppliers as in the aircraft

    and fuel suppliers and less

    powerful suppliers the

    suppliers that provide the

    food and other running cost

    Fuel suppliers are very

    powerful cannot be

    changed

    Aircraft supplier power

    cannot be reduced

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    Threat of substitute This threat is high as the low

    cost airlines serves short

    routes which can be also be

    served by other means of

    transportation

    Reason to focus on low

    cost and quality service

    Entry Barriers Low entry barriers, easy to

    setup as no need to buy

    aircraft.

    Need for strong brand

    positioning

    Bargaining power of

    customer

    Large number of low air craft

    operators, wide variety of

    substitutes means of

    transport. Customers

    bargaining power high

    Continuously improve on

    services

    Industry

    Competition

    Very intense competition,

    more than 35 new low cost

    airline operators in 2009.

    Loss of focus will see other

    airlines taking Air Asias

    customers

    Focus on another market

    will lead to loss of focus

    for Air Asia

    VRIO FRAMEWORK

    VRIO The R&C of Air Asia when

    transferred in the long haul

    model will not serve as a

    competitive advantage for Air

    Asia X,

    Competitors have high

    R&C

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    Appendix 3.

    VRIO Framework

    This will use AirAsias Capability in a VRIO analysis to determine its effect in

    being competitive in the long haul airline industry.

    R&C Valuable Rare? Costly to

    imitate

    Exploited by

    organization

    Strength or

    weakness

    Financial yes No no Yes Non

    Low cost

    capability

    yes Fairly Fairly yes Strength

    HR

    strength

    and culture

    Yes Yes Yes Yes Strength

    Technology

    capability

    Yes No No Yes Non

    Reputation

    of Low cost

    no -- -- no Weakness

    Appendix4.

    Government as important a Stakeholder

    Considering the industry in which Air Asia is in the effect of government regulation

    can be very can be disastrous for the business, being able to influence the

    Malaysian government regulations on tourism and travel might provide big

    opportunity for market development.

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    Appendix 5.

    Strategic Option

    Broad Level- Air Asia and Air Asia X should not be merged, the KSF are different.

    Merging the two companies will lead to the company losing focus as it will be operating

    as hybrid, without a clear business strategy for the different airline industries (Long haul

    and Low-Cost).

    Air Aisa should focus only on LCC model in the South East Asia market. This market is

    experiencing very high economic growth in the whole region and Air Asia currently has

    recorded annual passengers of only 11.8 million out of a region with over 500 million

    people. Considering the number of new airline operators in the region a loss in focus

    might see the market leadership position of Air Asia change.

    Specific Level1- Air Asia should focus on market development in the South East Asian

    Market, considering the growth potential of the region and the low entry barrier in the

    industry.

    Air Asia X should operate as a separate company focusing on purely long haul.

    Specific Level 2- Air Asia can focus its expansion strategy by forming joint venture with

    low cost airline operators in different countries. This can be possible as the increase in

    the number of airlines will mean that some airlines will be struggling to make profit.

    Functional and Supportive- Air Asia should transfer increase its marketing effort

    aimed at expanding the market for low-cost flight, as the region is experiencing high

    economic growing this will be very important considering the High threat of substitute(means of transportation).

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    Appendix 6.

    Strategic Option 2

    Broad Level-Air Asia X should be sold and the funds used by Air Asia to fund the

    expansion in to the South East Asian Market. The funds can be used to acquire

    struggling airlines in countries with strategic location advantage in the region. This will

    improve the companys relationship with the Malaysian government, putting it in a good

    position to influence the governments regulations affecting the low cost airline industry

    Specific Level-An alliance with the Malaysia Airlines will help in increasing traffic byproviding trunk touts for Air Asia. This will boost its penetration strategy.

    Specific level 2-Acquiring struggling airlines in the region should be a good strategy

    when penetrating the market as in this case the market is growing (economic growth in

    the region).

    Functional and Supportive-Air Asias good relationship with the government is very

    important considering the growth in the region, regulations on travel and tourism will

    have a big impact in its business.

    Transfer of Capabilities to the acquired airlines will be the key to the success

    acquisition strategy

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    References

    Air Asia ( 2012), Corporate profile[online]. Available from:

    http://www.airasia.com/my/en/corporate/corporateprofile.page? [Accessed

    13/05/12]

    BBC (2012),Air Asia X ends European and Indian flights [Online]. Available

    from:http://www.bbc.co.uk/news/business-16526235 [Accessed 12/05/12]

    China Daily.Com (2010), Shenzhen heads toward a new era[Online].

    Available from:http://www.chinadaily.com.cn/opinion/2010-

    09/06/content_11259073.htm [Accessed 18/04/12]

    Facebook (2012), Air Asia [Online]. Available from:

    http://www.facebook.com/#!/AirAsia [ Accessed 12/05/12]

    FlightGlobal (2010), Low-cost carriers: growth expectations[Online.

    Available from;http://www.flightglobal.com/news/articles/low-cost-carriers-

    growth-expectations-355702/ [Accessed 12/05/12].

    GRANT,R.M (2010) Cases to accompany Contemporary Startegy

    Analysis Case Study: AirAsia; The Worlds Lowest Cost Airline7TH Ed.

    Wiley Publishers

    IMF (2009), The Pacific Way: Fostering Inclusive Growth and Building

    and Enhancing resilience to Shocks [Online]. Available from;

    http://www.imf.org/external/np/seminars/eng/2012/PIC/index.htm [Accessed

    12/05/12].

    OKTEMGIL.M. (2012): International Business Strategy. 07 21366. The

    means of achieving a sustainable advantage. University of Birmingham,

    Unpublished

    The Economic Times (2011), AirAsia delays delivery of 10 Airbus A320s

    [Online]. Available from;http://articles.economictimes.indiatimes.com/2011-

    02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrier [Accessed

    13/05/12].

    http://www.airasia.com/my/en/corporate/corporateprofile.pagehttp://www.bbc.co.uk/news/business-16526235http://www.chinadaily.com.cn/opinion/2010-09/06/content_11259073.htmhttp://www.chinadaily.com.cn/opinion/2010-09/06/content_11259073.htmhttp://www.facebook.com/#!/AirAsiahttp://www.flightglobal.com/news/articles/low-cost-carriers-growth-expectations-355702/http://www.flightglobal.com/news/articles/low-cost-carriers-growth-expectations-355702/http://www.imf.org/external/np/seminars/eng/2012/PIC/index.htmhttp://articles.economictimes.indiatimes.com/2011-02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrierhttp://articles.economictimes.indiatimes.com/2011-02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrierhttp://articles.economictimes.indiatimes.com/2011-02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrierhttp://articles.economictimes.indiatimes.com/2011-02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrierhttp://www.imf.org/external/np/seminars/eng/2012/PIC/index.htmhttp://www.flightglobal.com/news/articles/low-cost-carriers-growth-expectations-355702/http://www.flightglobal.com/news/articles/low-cost-carriers-growth-expectations-355702/http://www.facebook.com/#!/AirAsiahttp://www.chinadaily.com.cn/opinion/2010-09/06/content_11259073.htmhttp://www.chinadaily.com.cn/opinion/2010-09/06/content_11259073.htmhttp://www.bbc.co.uk/news/business-16526235http://www.airasia.com/my/en/corporate/corporateprofile.page
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