Air Asia in the Kingdom of Thailand Essay
Air Asia in the Kingdom of Thailand
1. Air Asia in General
Air Asia Berhad is a Malaysian low-cost airline headquartered in Kuala Lumpur, Malaysia. It has been named as the world’s best low-cost airline and a pioneer of low-cost travel in Asia and is now currently the largest low fare, no-frills airline in Asia. It is also one of the largest airlines in all of Asia in terms of passengers carried. AirAsia group operates scheduled domestic and international flights to 85 destinations spanning 25 countries.
Its main hub is the Low-Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA). Its affiliate airlinesThai AirAsia, Indonesia AirAsia, Philippines AirAsia and AirAsia Japan have hubs in Don Mueang International Airport, Soekarno–Hatta International Airport, Clark International Airport and Narita International Airport respectively. Oct 2012, Air Asia has formed a joint venture with Tata Sons in India, the airline is to be named as India AirAsia. Its hub will be Chennai International airport. The operation to be commerced by Oct 2013. AirAsia’s registered office is in Petaling Jaya, Selangor while its head office is at Kuala Lumpur International Airport. In ① 2. History of Air Asia
AirAsia was established by a a government-owned conglomerate, DRB-Hicom in 1993. and it began operations on 18 November 1996. On 2nd December 2001, due
to heavily in debt, the former CEO of Time Warner , Tony Fernandes’ s company Tune Air Sdn Bhd purchased AirAsia at a price of one ringgit, which was US$0.26 that time) under the condition of bearing US$11 million worth of debt. Under the leadership of Fernandes, AirAsia started to make profits in 2002 with launching its new routes from its headquarter located in KL. By offering promotional air fares as low as one Malaysian Ringgit (USD 0.27 at that time); Air Asia successfully undercut the country’s former monopoly operator Malaysian Airlines. 3. Financial and Operational Performances of Air Asia
Revenue: RM5.0 billion/US$1.62 billion(2012)
Net income: RM 1.88 billion/US$0.61 billion
Passengers Carried: AirAsia Group carried 33.826 million passengers in the financial year ended Dec 31, 2012 (FY12) an increase of 13% from the 29.859 million carried in 2011.③By end of June 2013, recording a strong load factor of 80%, an increase of 1% from the same period last year.④ 4.Fleets.
5. Safety Record.
No incident or accident record. The only major Air Asia safety incident has been reported is a plane skidding off the runway at Kota Kinabalu International Airport in Malaysia, this was in November of 2004, with 2 passengers suffering minor injuries. no incidences since then
6.. Vision, Mission and Value Statement of AirAsia
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. Mission
1 To be the best company to work for whereby employees are treated as part of a big family 2 Create a globally recognized ASEAN brand
3 To attain the lowest cost so that everyone can fly with Air Asia 4 Maintain the highest quality product, embracing technology to reduce cost and enhance service levels
Chapter 2. Thai Air Asia
Thai AirAsia launched domestic operations on February 2004.
On 15 February 2006 it was announced that Asia Aviation, a registered Thai company, had taken Shin Corp.’s 50% stake in Thai Air Asia. Asia Aviation which was a joint venture set up by Shin Corp., which held 49% of Asia Aviation’s shares while 51% was held by Thai investor Sittichai Veerathammanoon.⑤
In May 2007, Thai Air Asia’s management acquired 100% of Asia Aviation. Today, Thai Air Asia is 55% owned by Asia Aviation, 45% owned by Air Asia International.Thai Air Asia was the only low-cost airline operating both domestic and international flights from Suvarnabhumi Airport.The airline transferred all operations from Suvarnabhumi Airport to Don Mueang International Airport effective 1 October 2012..
While AirAsia Berhad reported a healthy showing for the airline in the group for the second quarter ended June 30, 2013 (Q2), recording a strong load factor of 80%, an increase of 1% from the same period last year, Thai Air Asia recorded a of 82% in Q2, a 3% increase y-o-y. The number of passengers carried rose 25% to 2.4 million, and was due to the additional frequencies in routes such as Bangkok to Hong Kong, Wuhan and Phuket.
As of today, Thai Air Asia owns 30 Airbus planes. Now Thai Air Asia is looking to expand its flight fleet to reach 45 aircraft on delivery of new Airbus orders.
Thai Air Asia will focus more on the domestic market by increasing its flight frequencies on existing routes to raise its share of this market to more than 40 per cent by the end of the year from 38 per cent currently.
The plan will be supported by delivery of seven new Airbus A320s this year. Over the next three years, its market share at home is projected to increase to more than 50 per cent, with the arrival of six new A320s each year until 2015. This is stated by Tassapon Bijleveld, the company’s chief executive officer. In 2015, its fleet will comprise about 46 aircraft, up from 34 by the end of this year. Currently, Thai Air Asia operates 174 flights a day to 30 destinations from Don Mueang International Airport, 12 domestic and 18 international. Domestically, its key markets include Phuket, Hat Yai, Krabi and Chiang Mai.
The carrier will also increase its frequencies on existing regional routes to China and Indochina. It projects carrying 10 million passengers, up from 8.3 million last year. Its cabin factor is projected at 82 per cent, the same as in 2012. Tassapon said the company would add only four new destinations to its network this year. They will be two cities in China, one in Indochina, and one in Bhutan or Nepal. Last year, nine new destinations were introduced both at home and regionally, including Wuhan, Chongqing and Xi’an in China. The airline enjoys an 82-per-cent combined cabin factor in those three cities. In 2011, Thai Air Asia revenue was Bt16 billion.
Chapter 3. PEST Analysis of Air Asia in Thailand This analysis will help us to understand what the external factors are that influence Thai AirAsia Company to make strategies for current situation and future development planning in Thailand.
1. Political Factors:
The political situation in has not been as stable in recent years. On 17th June 2013, PM Yingluck Shinawatra has confirmed that Thailand has political stability….and she said the Thai government was willing to cooperate with private sector and to continue its support for foreign investment.⑥ It certainly helped to keep the foreign investment and foreign companies such as Air Asia to sustain a high level of confidence in the Thai Government. However there are terrorism activities in Southern Thailand that may cause concern regarding investment in southern Thailand. Political factors also influence Air Asia flight routes. Currently there is no flight operated by Air Asia from Thailand to Laos, despite the factor that Air Asia does operate routine flights from Kuala Lumpur to Vientiane.
This Bangkok-Vientiane flight route currently has only been operating by Bangkok Airways exclusively, due to political lobbying done by the Bangkok Airways and seat demand between these cities only supporting one carrier. Government policy support:Air Asia founder Tony Fernandes met with Prime Minister Yingluck Shinawatra to ask the government to help Asia’s biggest low-cost carrier to expand its flight network here so that the country is strategically located for regional tourism.Yingluck assigned the transport minister to discuss with AirAsia potential destinations in the country to connect with neighboring nations.⑦§
2. Economic Factors:
Thailand is a member of WTO, ASEAN, APEC, IOR-ARC. It is also the economic center of ASEAN; itself is a rapidly rising emerging market. In 2012, its GDP was USD366 Billion while GDP Per Capita reached USD5, 390, GDP growth achieved 6.5%. Neighboring with other emerging countries, such as China, India. Currency: The strengthening baht has not benefited the company, especially its fuel bill. It will have a closer look at the situation, but believes it is only short-term. CEO of Thai AirAsia believes the suitable rate is slightly more than Bt30 to the US dollar.
Currently, the company generates its sales in different foreign currencies such as the rupiah, the Dong and the Hong Kong dollar. Baht revenue makes up 50 per cent of the total. Thailand is recognized by the World Bank as “one of the great development success stories” in social and development indicators. As of the first quarter of 2013 Thailand’s unemployment rate is 0.7 percent, the fourth-lowest unemployment rate in the world .The average headline inflation rate of the first five months of 2013 stands at 2.80 percent (Year on Year) with a policy interest rate of 2.50 percent. The latest figure of GDP PPP is US$11,000.00⑧
3. Social Factors:
75% ethnic Thai, 11% Thai Chinese, 14% made up of various other groups. Language: Thai as the educational and administrative language, also Malay and Yawi-speaking Muslim’s of the south takes 2.3%. Thailand as a world famous tourist destination for its diverse, tropical, friendly tourism environment. Tourist annual figures reach 12,744,374 the first 2 quarters of 2013, increases 20.01% year on year.
While Chinese visitors reach 3 million. That encourages and enables Thai AirAsia to expand its business with ASEAN and China. The Thai government set up minimum wages rules, 300 Baht per day as the minimum, 15,000 baht for employees with BA. The existence of low-income earners who want cheap air transport services also facilitates the growth of Air Asia by providing a ready market for its business. The population of approximately 66 million also provides a ready market.
Massive marketing campaigns changes peoples buying behaviors in regard to choose air travels,e,g. Mr. Fernandes TV series, the Apprentice. Air Asia is able to employ workers with diverse social and cultural backgrounds. This enables the company to comprehensively understand the social and cultural needs of the target market, and consequently be able to provide services that meet the needs of customers. 4. Technological Factors(This is to be put in details in Chapter 6) E-tickets
New fleets to cut down fuel inefficiency
Mobile booking system
Chapter 4. Porters Five Forces Analysis of Air Asia
1. Threats of New Entrants: Varies. It mainly depends on:
Brand Loyalty of customers: if the customers of AirAsia do NOT have brand loyalty, hence the threats of new entrants are high. The high numbers of competitors in the industry also may decrease AirAsia’s customer loyalty. Most of travelers prefer low cost air fares; it may make new entrants spend little to compete with AirAsia. Capital Investment: to get into the aviation industry, it requites huge start-up capital, there fore; the threat of increased competition is low. Product differentiation: AirAsia offers customers different products, such as holiday packages which is affordable around Asia other than air tickets sales. AirAsia group also owns Tune Asian Chained hotels which also operate in Thailand, this makes new entrants hard to compete. 2. Threats of Existing Rivals–High
Number of rivals: In Asia, there are approx 60 low fares and no frills airlines competing with AirAsia, while there are two low costs airlines in Thailand, Nokair, Thai Smiles which is a new budget airline created by Thai Airways International and Orient Thai Airlines. High fixed and exit costs include finance costs, hire costs and staff cost, in order to gain more market share, competitors constantly reduce prices. In another hand, it is hard for airline to exit the industry due to they have to pay the loans, staff retrenchment and flight cancellation refunds. This is another factor that makes the industry highly competitive. Customers easily switch: customers look at prices and flight schedules to fit into their needs. Products Similarities. Most low cost airlines offer very similar products, it puts pressure on the airlines to create more attractive products, at the same time, beneficial.
3. Threats of New Substitutes -High.
In airline business, substitutes can be seen as two types, direct and indirect. For direct substitutes, customers can easily switch to another airline for both domestic and international flights. For indirect substitutes which are bus, trains, cruises etc. In Thailand, people have options to travel by bus, train and boats to various destinations, Thai government also initiated a high speed train development project, Bangkok was selected as the main terminal for all routes due to its central context nature. Routes planned from Bangkok to the North Chiang Mai, the east and the south. This project may not be finalized until 2032, however it creates potential threats to airline industry, such as Thai Air Asia.
4. Bargaining Power of Buyer-High
For most of customers, the only concern is how to get to the destination cheaply. First of all, there are many different airlines that customers can choose from. Secondly, one of the mainly differences between AirAsia and other low cost airlines is AirAsia’s holiday package, it may attract customers, however it may not work as customers may want their freedom of choices in holidays. Thirdly, AirAsia may lose its cost advantage while customers do not mind paying for a bit extra as after adding all the costs of meals, premium seats, entertainment on AirAsia flights, it may work out more expensive than other full-serviced airlines.
5. Bargaining Power of Supplier-Varies on Different Types of Suppliers In the low cost airlines industry, the suppliers are aircraft, food, aviation fuel, merchandises. Bargaining power of food, merchandise suppliers is low as there are many options for AirAsia to choose from. Bargaining power of fuel. The prices of aviation fuel provided by handful suppliers in most countries
are set, so there would be no bargaining power of the aviation fuel suppliers. However, in the case of AirAsia, it has hedged 100% of its fuel requirements for the next three years, it could affect AirAsia’s business if the price of aviation fuel drops due to potential hidden global financial crisis, in this case, the bargaining power of aviation fuel supplier is high.
Chapter 5. SWOT Analysis of Air Asia
Very strong management team with strong links with government and airline industry leaders. Thai AirAsia is working in partnership with Shin Group holds 50% share ,a company which owned by the family of Thai PM Yingluck Shinawatra. This has helped AirAsia to open up and capture a sizable market in Thailand and later helped Thai AirAsia to open more routes domestically. By working closely with Airbus, AirAsia managed to get big discounts for aircraft purchase which is more fuel efficient compared to Boeing 737 planes which is widely used by many other airlines. Excellence in strategy formulation and execution.
The operational strategy is no frill, landing in secondary airport, People strategy: employees come first, brand strategy: linking services with other services providers like hotels, car rentals. Simple proven a successful biz model that consistently delivers lowest fares. Multi-skilled staff makes the operations more efficient and saves costs. Working with brand names to promote itself: such as Citic Bank, Formula 1, Manchester United.
AirAsia did not use online travel agent before, however it has formed its online travel agent partnership with Expedia, the world’s largest online travel company. Low Cost airline leader in Asia, brand recognition. AirAsia has been awarded a number of international aviation awards, such as the World’s Best Low Cost Airline by Skytrax. Excellence in use of IT: marketing, promotions uses, such as email alerts, desktop widget which was jointly developed with Microsoft for new promotions; direct purchase of tickets by consumers thus saving on airline agent fees also to build its brand. Single type fleet to minimize maintenance fee and easy for pilot dispatch. 2. Weaknesses
Air Asia does not have its own maintenance, repair and overhaul (MRO) facility. It outsources its maintenance to other companies, such as MAS. It may be a good strategy when they first started with only Malaysia as the hub and few planes to maintain. But now, with few hubs (Malaysia, Thailand and Indonesia) and over 100 planes currently owned and about another 100 planes to be received in the next few years, AirAsia has to ensure proper and continuous maintenance of the planes which will also help to keep the overall costs low.
It is a competitive disadvantage not to have its own MRO facility. However it heavily depends on where the planes are landed. Complaints from Customers on AirAsia’s services: for examples, being charged for lots of things and not able to change flights or get refunds if customers could not make the trips they’ve planned. Good customer services management is vital especially when competition is getting very intense. Non-central locations of secondary airports where AirAsia plans are landed. 3. Opportunities.
The increasing aviation fuel may appear to be a threat to AirAsia at the first glance, however as a being a low cost airline leader, AirAsia has an upper hand advantage because its cost will still be the lowest among all the regional airlines. Thus, AirAsia has a great opportunity to capture some of the existing customers, however there will also be some reduction in overall travel especially casual or budget travelers .Growth in Asia Middle Class: Rapid growth in China, India, Indonesia, Vietnam, Thailand and Malaysia will cause Asia’s share of the new middle to more than double from its current 30%. By 2030, Asia will take 64% of the global middle class and account for over 40% of global middle-class consumption.
This is a great opportunities for low cost airlines especially leaders like AirAsia to seize the opportunities to continue its dominate position by expanding its business in these emerging countries. Thai AirAsia has implemented expansion strategies to reach more Chinese cities. Differentiation from traditional low cost model by adding customers services or operations as a full serviced airline with low fare, such as providing customers with package with full services. Ongoing industry consolidation has opened up more prospects for new routes and airport deals .4. Threats
Full services airlines start to cut down costs to compete with LCCs Entrants of other LCCS. E.g. Thai Smiles created by Thai Int’l airways. High fuel prices decreases yield. Accidents, terrorist attacks and disasters affect customers’ confidence to travel by air. Increases of labor costs, operation costs. Air control and government restrictions
Chapter 6. Strategic Planning of Air Asia in Cost and Marketing The key components of the LCC business model are the following; + High aircraft utilisation
+ No frills
+ Streamline Operations
+ Basic Amenities
+ Point to point network
+ Lean Distribution System
As previously mentioned Air Asia is a low cost airline which has had great success over the last decade because of its business plan that seeks to keep costs down.The company has out performed most low cost budget airlines because its strategic plan that allows it to innovate and remain reasonably flexible.
By outsourcing many of its services and increasing staff productivity and output Air Asia has maintained a lead over its rivals in reducing its costs. An example of this is that Air Asia keeps the weight of its planes down by removing such things as screens in the backs of seats. The removal of the entertainment system and several weight saving initiatives allows Air Asia to reduce fuel costs. Not only does an entertainment system involve the weight of screens but also the weight of the wiring associated with the installation of an entertainment system. Another cost factor is the maintenance costs for the entertainment system which has been eliminated.
Air Asia now allows passengers to book and pay for entertainment which is provided on Samsung tablets. Air Asia is in a position to negotiate deals with tablet suppliers as they can promote a tablet companies product by letting passengers experience and use the product.
The company actively seeks to expand its network by adding emerging destinations such as Lombok and Bandung in Indonesia, Chengdu and Hangzhou. These are often seen as potential and profitable emerging markets. For example Air Asia chose to fly direct flights to Chengdu because previous international passengers flying from Chengdu had to fly by either Shanghai or Guangzhou. As a city of over 7 million people with a rising middle class Air Asia believed that by offering direct flights out of China to tourist centers’ would appeal to the increasing number of Air Travelers.
Air Asia also runs a performance based salary package for its entire staff. Staff are able to obtain salary bonuses if the work they do helps maintain the companies drive for efficiency and cost reduction. Some of the functions usually performed by outside staff are now undertaken as part of the duties by cabin staff.
Another important strategy employed by Air Asia is the use of its website and its customers and non customers to actually do things for Air Asia on an almost voluntary basis. A good example of this was when Air Asia required a mural for its newly opened Indian operations it ran a competition on its website asking people to submit designs with the offer a two free fights to Kuala Lumpur and the chance for the graphic artist to have his or her work seen by millions of people. This resulted in Air Asia receiving almost free the work of thousands of graphic artists and members of the public.
Involving the public and customers in cost saving activities is a strategy that Air Asia uses very effectively. Customers use the company’s website in a variety of ways. They save the company money when they book online and print their own tickets. They order meals allowing the company to know what and how many meals are needed on the aircraft The have an agreement with a group called option town which allows this group to sell people unoccupied seats on aircraft for a reduced fee which means Air Asia can actually generate income from unsold seats.
When booking a seat on Air Asia the company also offers insurance at the same time so it profits from its association with an insurance company. Many people booking online often fail to uncheck a box that would allow them to exempt themselves from the policy. As the box is already ticked and people often don’t notice it they end up with the insurance and although there is a way to remove it most people continue with it as going back in the web booking process can be time consuming. These are all part of a complex marketing and cost reduction strategy employed by Air Asia.
Television has been used extensively to promote Air Asia as an attractive lost cost carrier. The recent TV show “The Apprentice Asia” was not just a game show. It was an avenue to increase Air Asia’s profile world wide. It allowed viewers to see how Air Asia operates and the professionalism of its management and staff. It also allowed Air Asia to interview thousands of highly talented people seeking a position within the Air Asia Company.
Air Asia uses the social media effectively in its advertising and brand promotion. During the screening of “The Apprentice Asia” it offered “Netizens” a chance to win Air Asia flights by commenting about favourite contestants on Twitter and Facebook. This was designed to not only promote the show but also to boost ratings.
The company also enters into agreements with car hire companies, accommodation chains, merchandise suppliers and service suppliers to boost revenue and offer benefits to its customers. Until recently Air Asia customers have only been able to book flights on the Air Asia website or at travel agents. Internet travel companies, such as Zuji, did not list Air Asia flights. However a recent agreement will see Air Asia flights being listed on Expedia the world’s largest internet flight booking agency.
Technology is also one of the major components of the Air Asia strategic plan with nearly all aspects of its supply chain depend on technology to maintain its price advantage over other low cost carriers.
Air Asia has ensured its adoption of new technology is inline with its business plan and the benefits from new technology are implemented quickly. With the decline in sales in computers and the increase in tablets and smart phones the company has introduced a number of Apps to allow customers to book flights and other products using these devices. By introducing access via these new platforms Air Asia is able to stay with the technological changes and consumer practices.
Conclusions and Recommendations
From the research and study I have made of Air Asia I have come to the conclusion that the Air Asia organization has created a very comprehensive and effective business model that incorporates a number of innovative features that have led to the company’s success in the low cost carrier industry. I believe that Air Asia has put in place a system that allows it to respond quickly to changing economic situations. The management structure encourages input from a wide range of sources both within the company as well as from outside. With the continued aim to offer the lowest fares possible the company has the potential to grow even bigger and more successful within the industry. I would recommend that the company continue with this approach as it has the potential to take advantage of the increasing demand for air travel being generated by the growing middle class in Asia Bibliography
②http://www.hindustantimes.com/business-news/SectorsAviation/AirAsia-India-gets-home-ministry-nod/Article1-1104843.aspx ③http://www.thestar.com.my/Business/Business-News/2013/02/04/AirAsia-Group-carried-338m-passengers-in-2012-up-13-onyear.aspx ④http://www.webintravel.com/news/the-wrap-airasia-group-carried-99mil-passengers-in-q2-_3887 ⑤http://en.wikipedia.org/wiki/Thai_AirAsia
⑥http://www.thaivisa.com/forum/topic/647412-pm-yingluck-to-british-businessmen-thai-politics-has-stability/ ⑦http://www.nationmultimedia.com/business/AirAsia-execs-seek-govt-support-to-make-Thailand-a-30199975.html ⑧figures from Wikipedia: http://en.wikipedia.org/wiki/Economy_of_Thailand
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