PEST Analysis Of AirAsias Essay

1.1Background AirAsia was set up by Dato’ Tony Fernandes in 2001. In December 2001, Fernandes and his partners set up Tune Air Sdn Bhd (Tune Air), an airline holding company then bought over AirAsia. Now, AirAsia has become one of the most successful airlines in the Southeast Asian region and the pioneer of low cost and no frills travel in Malaysia. The leading low fare airline in the Asia – AirAsia has been expanding rapidly since 2001, to become an award winning and the largest low cost carrier in Asia. With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand and Indonesia. To date, AirAsia has flown over 55 million guests across the region and continues to spread its wings to create more extensive route network through its associate companies, Thai AirAsia and Indonesia AirAsia. AirAsia believes in the no-frills, hassle-free, low fare business concept and feels that keeping costs low requires high efficiency in every part of the business. Efficiency creates savings which are then passed on to guests so that affordable air travel can become a reality. Through our philosophy of ‘Now Everyone Can Fly’, AirAsia has sparked a revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice of transport. As AirAsia continuously strives to promote air travel, we also seek to create excitement amongst our guests with our range of innovative and personalized service. The aim of the investigation The aim of this analysis is to conduct a PEST and SWOT analysis in the context of AirAsia’s international business operations, identifying the major variables involved and the impact of the specific threats and opportunities confronted by AirAsia .Besides that, The purpose of this report is to identify its stakeholders and core competencies, carry out a investigation of its external environment, review a strategic analysis of Airasia to identify opportunities and threats it might face, and to isolate key strengths and any weaknesses that need dealing with. Moreover a SWOT analysis will be carried out to assess the extent to which its strategies are suitable to what is happening in its present environment. Finally, after  identifying competitive strategy a Strategic plan will be made to gain competitive advantage. Chapter 2 DISCUSSION 2.1 Company Overview AirAsia is currently one of the leading low cost airlines in South East Asia which has expanded rapidly and it’s still the second largest air carrier in Malaysia. It dynamic nature of business is based on domestic and international flights, holiday and business arrangements for its customers domestically and internationally around the region with the low fare, safe and convenience means of transportation. (www.airasia.com). AirAsia’s vision To be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares. AirAsia’s mission To be the best company to work for whereby employees are treated as part of a big family Create a globally recognized ASEAN brand To attain the lowest cost so that everyone can fly with AirAsia Maintain the highest quality product, embracing technology to reduce cost and enhance service levels AirAsia’s values AirAsia make the low fare model possible through the implementation of the following key strategies: SafetyFirst: Partnering with the world’s most renowned maintenance providers and complying with the with world airline operations. High Aircraft Utilisation: Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity. Low Fare, No Frills: Providing guests with the choice of customizing services without compromising on quality and services. Streamline Operations: Making sure that processes are as simple as possible. Lean Distribution System: Offering a wide and innovative range of distribution channels to make booking and travelling easier. Point to Point Network: Applying the point-to-point network keeps operations simple and costs, low. Products and Services offered By Air Asia In-flight services: †¢ Air Asia offer food and drinks on board programme . †¢ In-flight services customise meals and merchandise package upon request e.g. caps, T-shirts, and pants. Online services: †¢ Online booking makes it more convenient for its customers to book online anywhere anytime. †¢ Flight information is available to help customers make enquiries on flight schedules arrival and departure time and date. †¢ Chatter –flight: Created for a group of people, business travellers for purposes like meetings, conventions, leisure or even exhibition. Channels of distribution A number of alternate ‘channels’ of distribution may be available: Selling direct: †¢ Outbound sales forcer †¢ Via mail order, Internet †¢ Telephone sales Selling indirect: †¢ Agent, who typically sells direct on behalf of the producer †¢ Distributor (also called wholesaler), who sells to retailers †¢ Retailer (also called dealer or reseller), who sells to end customers Sales and Marketing AirAsia is an international company, and going global invites a lot of competition. AirAsia has to deal with the competition of local companies in the same field- Airline services. Competition for AirAsia would also be encountered in the virtual world-the internet. As they entered into the use of modern technology such as the public domain would invite competition on the global scale. Different localities and countries have different technological standards, and quality control policies, which AirAsia would have to adhere to, by adherence to these policies; certain intended developments may be possible in certain communities but not acceptable in others. According to CEO’s of the company, Mr. Fernandez, there are a lot workers or low pay salaries earners who would like to travel often to meet their families especially during special occasions but due to how expensive it was that time, their desire are not fulfilled. By introducing a low fare will give all those people opportunity to travel if not more than once in a year. This enables them to identify their target market. Reduced price sales  is one of the basics of securing a target market for AirAsia. They reduce their price to suit their class of customers Branding AirAsia went into intensive General advertisements and other high profile activities, which contributed to the high offering of their company’s image. They came with a brand â€Å" Now every one can fly† These points of contact with their target customer help them to build their image, which in turn created loyalty from their customers. Group Discounts and Offers Discounts or other offers can help exposure business to new customers, resulting in a sales increase . AirAsia is a ticketless Airline that allows customers to purchase their ticket online with at a discounted rate. They also have a scheme of group discount and this help to get more target market, especially internet based customers. 2.2Core competencies: Computer Reservation System (CRS) AirAsia’s CRS (Open Skies by Navitaire) has helped it to grow at a dramatic pace in the past couple of years. Tony Fernandes, CEO AirAsia described that Navitaire’s Open Skies technology has truly enabled Airasia’s growth from 2 million passengers to 7.7 million passengers in less than two years. Open Skies scaled easily to accommodate our growth. It is an integrated web-based reservation and inventory system. It includes Internet, call center, airport departure control and more. It is a direct sales engine that effectively eliminates the middleman (travel agents) and the sales commissions that need to be paid to them. Enterprise Resource Planning System (ERP) AirAsia has recently (May 2005) opted for a full fledged ERP system implemented by Avanade consultants. By implementing this package AirAsia is looking to successfully maintain process integrity, reduce financial month-end closing processing times, and speed up reporting and data retrieval processes. Self Check In With the use of the new self check in service a quicker and more convenient way to check in using mobile phones, laptops etc, connecting to the internet. This system is easier and faster for customers and their family to  check in at or before they get to the airport without having to queue up at the counter to check in. Air Asia credit card Air Asia offers a choice of credit card facilities to fit in their customers travel life style be it business, leisure, training or holidays. With an Air Asia credit card a customer can purchase any goods or services while travelling anywhere in the world online. Go Holiday services Air Asia has a product called Go Holiday, with the help of E-commerce Air Asia is able to display their coverage maps, holiday resorts, first and average class hotels, car rental services, and activities in different countries with their different rates and prices on Air Asia’s web page.. Using E-commerce, customers are able to select and make a holiday and travel arrangement with a hotel of their choice and class, a pick up car and even medical services. And payments for all this can be done on the internet using credit cards or other online E-payment methods ahead of travel time. Foreign workers and Contractors strategy AirAsia also target most foreign workers from Indonesia, Singapore, Thailand, China, Macau who may not afford the expensive flight home and offer them the cheap fare which attracted most of them as would go home very often without paying much. 2.3 The Competitors Companies in all industries have direct as well as indirect competitors. Direct competitors in the aviation industry are companies that offer flights to similar destinations on comparable terms of travel. Direct competitors include: Malaysia Airlines: offering flights in same routes . Singapore Airlines: offering flights on same routes between London and Kuala Lumpur. Thai Air : operating flights between Bangkok an Kuala Lumpur. Air Srilanka: operating flights between Colombo and Bangkok. AirAsia are facing strong competition with major international and national airlines on the market shares In contrast to other airlines ,AirAsia offers better value for money 2.4Analysis of Environmental Factors In analyzing the macro-environment, it is important to identify the factors that might affect a number of vital variables that are likely to influence the organization’s supply and demand levels and its costs (Kotter and Schlesinger 1991). The external environment of any organization can be analyzed by conducting a PEST analysis. The acronym PEST is used to describe a framework for the analysis of a range of macro environmental factors including the Political, Economical Social and Technological environment. PEST Analysis for AirAsia: Political Flying outside Malaysia is difficult. Bilateral agreement is one of the main obstacles in the way of low cost carriers. Landing charges is also another big influencing factor on costing of low fare airlines. The low- cost airline industry in south-east Asia has been underdeveloped because the aviation market is tightly regulated by bilateral air rights agreements. Threat of terrorism, people is afraid to fly after the September 11 terrorist attacks incident. Economic In spite of strong competition from Malaysian Airline (MAS), AirAsia’s low-cost carriers offering cheap tickets and few in-flight services are gaining attraction in the region. Current recession hit the aviation business. But with this economy slowing down, more people will want to enjoy its cheap tickets. Oil prices is another regulatory factor for this type of airlines. If oil prices go high, it is very difficult to control cost of operation. Social Passengers are reluctant to board a no-frills airline for a long-haul flight. Increasing world’s population, tourists and number of educated people helpful for the growth of aviation industry. Outbreak of the Severe Acute Respiratory Syndrome (SARS) has scare people to fly. AirAsia commit to â€Å"Safety First†; comply with all regulatory agencies, set and maintain consistently high standards; ensure the security of staff and guests. Technology AirAsia provides online service that combines air ticketing with hotel  bookings, car hire and travel insurance. To help keep costs in check, Air Asia has pushed internet booking services. AirAsia also recently introduced GO Holiday, the airline’s online programme where guests can book holiday packages online in real time AirAsia has bought in A320 to replace Boeing 737. The Airbus A320’s improved fuel efficiency and extra capacity which leads to better performance and reliability. SWOT analysis for AirAsia Strengths Low operational and maintenance cost by having a single aircraft type fleet i.e. from Boeing 737 to Airbus A-320. Economy of scales benefits. Low operating cost due to being No Frill, online reservations system, quick check in etc. There is huge untapped market in the region, especially for business travellers and â€Å"for-the-first-time-flying† segment. As it is low cost airlines, it can target customers who are currently using non-aircraft modes like, Bus, Trains, car to travel to distances. Weakness Huge investment to purchase air planes and implementing latest technologies there is high amount of operational cost. Rising fuel price. Increased the operational cost. The flight times are more or less limited to 2.5 hours. So they cannot operate flights of longer duration without any Frill, so No-Frill becomes impossible to implement for passengers. Opportunity Low fares offer by AirAsia has encourage people from all walks of life style to fly. Especially, during economy down turn. Airbus A320 would encourage greater passenger capacity and offer comfortable service to customers. Introduction of SMS booking allows customer to book their seat at anytime and anywhere. With the commitment in ensuring the security of staff and customers, customer will have more confident to fly via AirAsia. Threats There are more no-frills airlines may take off in Asia to meet increasing consumer demand following the success story of Malaysia’s budget carrier AirAsia. Singapore Airlines plans to launch a budget carrier, they see the success of AirAsia. They know how big the market is and how good the opportunity is in Asia. Travelers may not choose AirAsia if they are to  travel long distance flight. They will prefer airlines such as MAS or SIA which provide better services. Demand to fly decreased via terrorism and outbreak of the SARS. 2.5 Marketing Plan Cost advantages activities: AirAsia already introduced cost advantages activities. Some of them describe below: Utilising one type of aircraft (Boeing 737-300 which will be fully replaced with Airbus A320) results in reduction of maintenance cost (one of the major expenses in airline industry), scheduling cost, administrative cost, and inventory of parts. Creative and low-cost advertising significantly reduces marketing cost. On the other hand, AirAsia direct sales through internet, call centres, walk-in airport sales, and sales offices significantly reduce the commission fee to travel agents as AirAsia only assigned its sales to limited travel agents AirAsia assigned multi-skilled cabin crews (2-3crews/flight), cost-effective training, performance based reward and incentives systems Target Market: Low- income Customers and tourism segment Malaysia emergence as a regional business and tourism hub has provided AirAsia plenty of room for growth and has fuelled regional air passenger traffic. Transit passengers Kuala Lumpur is the operational hub for AirAsia, which is the best connection point between Europe and Asia/Australia has supported the growth of their business. AirAsia has been using this â€Å"connection point† to promote their business. 2.6 Proposed Strategy for further expansion of AirAsia Extending New Routes: Extending current services into new markets may be helpful to further growth of this company. It is possible to achieve this strategy by launching existing services into new geographical area or new market segments. Adding new routes and destinations are possible; especially there is growth Malaysia and East Asia tourism. Activities related to this strategy: Marketing research Feasibility Study Contract with hotels and tourist agency at new destinations Finding out strategic partner Marketing new routes and destination Time frame and cost: It will take 1 to 2 years to start a new route and estimated cost around $200 million to new aircraft and for marketing cost. Organizational change: Recruiting new employees Arranging training for new employees Opening new office in new destination Evaluation criteria: New destinations are implemented to achieve new market development. Flight number in new destination is the best way to measure result of this strategy. Private Suite for business customer: Introducing new services into existing markets implies product development. This strategy involves the development of fresh competencies and requires business to expand customized services which can apply to current markets. That’s why Emirate Airlines introduce high quality first class private lounges to attract business travelers. Activities related to this strategy: Technical and feasibility Study Allocated budget Contract with a company to install new facility. Installation and modification of aircraft’s onboard facilities Time frame and cost: It will take 6 months to 1 year to complete installation new facilities in a single aircraft and estimated cost around $0.2 million to new aircraft and for marketing cost. Organizational change: Recruiting new employees to serve business customer Contract with new or existing company for catering service for business customer. Evaluation criteria: Quantitative measurement of this product would be number of booking or occupancy. Chapter 3 CONCLUSION 3.1 Conclusion By studying PEST, SWOT and marketing analysis, it could be said that AirAsia  is situated in standard cycle markets where it get competitive advantage for its business policy and strategy. Providing customers with superior products and services with low fare is synonymous to the AirAsia brand. However, it is necessary that Airasia should re-evaluate its strategies and focus on core values and competencies. For this why, AirAsia should reconsider their market and specific routes to obtain value other than price and survive the competition. From this study, it is possible to say that still there is some other option to expand this company. Adding new route and introducing business class suite may be suitable option for AirAsia for further growth. 3.2 Recommendations To remain leader in the market in serving customers, AirAsia has to re-evaluate their current strategy. Recommendation for improvement can be outlined as follows: AirAsia should make any major changes to their strategy after proper technical and feasibility study to avoid unnecessary risks. Oil price is a big factor to low fare airlines. So this company should make longer contracts with fuel suppliers for more stability As Airasia operates their fight very frequently, so they should have a spare aircraft at each location to avoid delays. AirAsia should consider environmentally friendly operation system as such as carbon offsetting to save environment. REFFERENCE Daniels, J. D. & Radebaugh, L. H. (1998), International Business ‘Environments and Operations, 8th edition, Addison-Wesley, USA. Peng Mike W, 2006, Global Strategy, Thompson, United States Porter Michael E, 1998, Competitive Advantage, The Free Press, United States. Websites: www.airasia.com www.navitaire.com/res