Recommendation for airasia to improve

Strategic Management And Leadership

A sophisticated but clear A discussion of how A statement of how A statement of how Very little relevant data, Almost not relevant data, discussion of what is successful the company is successful the company is successful the company is no attempt at evaluation no evaluation of success. meant by "successful" and consistent with at least consistent with two types consistent with one type of success how this applies to the two types of appropriate of appropriate data but of relevant data. company, supported by a data. Recognises that very little discussion. range of data types. "success" can be difficult

to evaluate.

8 An excellent set of key A very good set of reasons A good set of reasons, Acceptable set of reasons Either rather limited or No understanding of the reasons with good, clear with good explanations. some less than key, but but either too few or too else a scattergun list with reasons underpinning explanations. Very good Good research and good explanations. many to be considered a weak explanations. success. Very poor research and demonstration of Reasonable research and set of key reasons. Basic Research very limited - research. demonstration of business knowledge. demonstration of explanation, basic does not demonstrate Fails to demonstrate any business knowledge. business knowledge. research, adequate adequate business significant business

business knowledge. knowledge. knowledge.

8 Excellent discussion Very good discussion Good discussion based on Basic discussion based on Poor quality, partial No evidence the student supported by rigorous based on accurate analysis analysis that is generally analysis that is competent analysis that does not understands the topic and detailed analysis. covering most of the good but has gaps or small but no more. support any discussion. area. Analysis of very poor

relevant points errors. quality.

26 Excellent evaluation Very good evaluation with Good evaluation based on Basic evaluation based on Inadequate evaluation – No evidence the student supported by rigorous careful analysis based on relevant theory with good relevant theory. Analysis either the theory is not understands any relevant analysis based on relevant relevant theory with well data. competent but no more. relevant or the analysis is of theory. No evaluation. theory. The data has been researched data. poor quality. collected from a wide range of sources.

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78 TOTAL SM0374 STRATEGIC MANAGEMENT & LEADERSHIP

Le ad

er sh

ip

11 - 15 marks 9 - 10 marks 7.5 - 8.5 marks 6 - 7 marks 4.5 - 5.5 marks 0 - 4 marks

Su cc

e ss

fu l?

B u

si n

e ss

R e

as o

n s

A n

al ys

is a

n d

in te

rp re

ta ti

o n

o f

ca p

ab ili

ti es

Goal 1 Obj 3 met Goal 1 Obj 3 not met Goal 1 Obj 3 not met

21 - 30 marks 18 - 20 marks 15 - 17 marks 12 - 14 marks 9 - 11 marks 0 - 8 marks

Goal 1 Obj 1 exceeded

5 marks

Inadequate

Goal 1 Obj 1 exceeded Goal 1 Obj 1 exceeded

Goal 1 Obj 3 exceeded Goal 1 Obj 3 exceeded Goal 1 Obj 3 exceeded

7 - 10 marks 6 marks

Excellent Very Good Good Adequate BadGrade

0 - 2 marks

Goal 1 Obj 1 not metGoal 1 Obj 1 not met

3 marks

Goal 1 Obj 1 met

4 marks

7 - 10 marks 6 marks 5 marks 4 marks 3 marks 0 - 2 marks

Excellent discussion Very good discussion based Good discussion based on Basic discussion based on Either the topic area is not No evidence the student supported by rigorous and on accurate analysis analysis that is generally analysis that is competent relevant or the analysis is of understands any relevant detailed analysis good but has gaps or small but no more. poor quality. topic areas. Analysis of very

errors. poor quality.

13 More than two good Two good suggestions One relevant suggestion with One relevant suggestion with Suggestions lack relevance No evidence the student suggestions with excellent appropriate to the company good rationale based on a brief rationale based on and a convincing rationale understands much about the rationales based on with very good rationales identified factors OR two identified factors. based on identified factors. company at all. identified factors. based on identified factors relevant suggestions with

brief rationales.

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Other general comments :

0 - 4 marks

Fa ct

o rs

&

Su gg

e st

io n

s

Goal 2 Obj 4 exceeded Goal 2 Obj 4 exceeded Goal 2 Obj 4 exceeded

11 - 15 marks 9 - 10 marks 7.5 - 8.5 marks 6 - 7 marks 4.5 - 5.5 marks

Goal 2 Obj 4 not met Goal 2 Obj 4 not metGoal 2 Obj 4 met

Adequate Inadequate Bad A

n al

ys is

a n

d

in te

rp re

ta ti

o n

o f

o th

e r

to p

ic s

14 - 20 marks 12 - 13 marks 10 - 11 marks 8 - 9 marks 6 - 7 marks 0 - 5 marks

Grade Excellent Very Good Good

You started the assignment very well. Providing a good definition of success, you have discussed the measurements of success very well. Professionally

presented, there were a lot of good data provided to support your observations. The discussion on reasons for success was equally good. Well done!

I am really impressed by the way you have presented the value chain. The activities were correctly discussed and the use of the VRIN framework to

further analyse the sustainability of each activity in creating competitive advantages was excellent.

The discussion on leadership was equally impressive. You have made very good use of the various leadership theories to make your discussion

relevant. Congratulations!

The section on strategies were good. You have identified the various strategies well. This section could be better by clearly identifying the competitive

advantages for each strategy discussed.

In your conclusion, the environmental factors are accurately identified and links to the sustainability of the company were clearly established.

University ID Number Family name

Given name

Email

Module Code SM0374

Module Name Strategic Management & Leadership

Programme BAIM 4

Word Count 3930

Date of Submission 07/11/2015

Full-time / Part-time Full-time

Marker Mr. Frankie Yee

Student’s Declaration:

 I declare that this assignment is my own work and that I have correctly acknowledged the work of others. I am aware of the University’s policies and regulations on honesty in academic work, and of the disciplinary guidelines and procedures applicable to breaches of such policies and regulations.

 I acknowledge that the piece of work, or a part of the piece of work has not been submitted for more than one purpose (e.g. to satisfy the requirements in two different modules / courses) without declaration.

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 I acknowledge that the University reserves the right to submit a copy of this assignment for plagiarism check.

 I have retained a copy of this assignment. While the assessor will attempt to ensure that submitted assignments are not misplaced or deleted, in the most unlikely and unforeseeable circumstance where electronically submitted assignments cannot be retrieved or are deleted, it is my responsibility to produce the original copy of the assignment that was initially submitted to the University.

I am aware that this is an electronic submission and by providing my University ID number, it is equivalent to have executed this declaration with my written signature.

Start your assignment on the next page.

ELECTRONIC ASSIGNMENT COVER PAGE

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1) INTRODUCTION 4

 1.1 Overview of AirAsia 4

 1.2 Challenges faced by AirAsia 5

 1.3 Defining success 6

 1.4 Measurement of success 6

 1.5 Staff expansion 6

 1.6 Customer satisfaction and service standards 7

 1.7 Net profit 7

 1.8 Consumer growth 8

2) Reasons for success of AirAsia 9

 2.1 Clear market segmentation 9

 2.2 Strong marketing 9

 2.3 Customer confidence and confidence recovery 10

 2.4 Organisational culture 10

 2.5 Operational style 10

 2.6 Competitive pricing 11

3) Value chain + VRIN 13

 3.1 Porters value chain 13

 3.2 Inbound logistics 13

 3.3 Operations 14

 3.4 Outbound logistics 16

 3.5 Sales and marketing 17

 3.6 Service 18

 3.7 Support activities – Firm Infrastructure 19

 3.8 Support activities – Human Resource Management 19

 3.9 Support activities – Technology Development 20

 3.10 Support activities – Procurement 20

 3.11 VRIN 21

4) Leadership contribution to AirAsia’s success 24

 4.1 Definition of leadership 24

 4.2 Full range leadership model 24

 4.3 Leadership matrix 25

 4.4 Charismatic leadership 26

5) Strategies that contributed to AirAsia’s success 28

 5.1 Strategic management 28

 5.2 Growth strategy 28

 5.3 Strategic alliances 30

 5.4 Branding strategy 31

6) External factors affecting the sustainability of the company 34

 6.1 PEST analysis 34

 6.2 Technological factors 35

 6.3 Economic factors 36

 6.4 Recommendation 1 36

 6.5 Recommendation 2 37

Table of contents

3

7) References 38

4

1. Introduction

 1.1. Overview of AirAsia

AirAsia is Asia’s most successful Low Cost Carrier (LCC). Its vision is to be the

largest LCC in Asia and is currently a multi award winning global brand with its

airline group serving over 100 destinations (Diagram 1).

(

AirAsia was founded in 2001 by Tony Fernandez, the current CEO of AirAsia who

bought over the debt ridden company formerly known as Pacific Eagle which had 2

Diagram 1

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airplanes and 50 staff for RM1. With the support of the Prime Minister of Malaysia,

Dr Mahathir, AirAsia has flown over 100 million passengers. It currently boasts a

fleet of 171 planes and about 10000 staff (CAPA, 2015) with its AirAsia group

affiliates (Diagram 2).

 1.2. Challenges faced by AirAsia

AirAsia has enjoyed years of success stemming from its first mover advantage of

being the first LCC in Asia. However, it presently faces challenges from current

economic uncertainty, increased competitiveness (Diagram 3), fluctuating fuel prices

(Diagram 4), and passengers who seek added value in services.

Diagram 2

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A very good start. Professionally presented.

 1.3. Defining success

Corporate success is the measure of an organisation’s competiveness, long-term

profitability, customer satisfaction and continuance of the organisation (Fritz, 1992).

This supported by Kanter (2011), who describes success as the organisation’s ability

to meet both shareholder and stakeholder goals. A good definition.

 1.4. Measurement of success

Success should be considered at various levels of competition (Kotler, 1969).

However, this analysis focuses only on brand level. Not all financial indicators are

independent of non-financial indicators as financial results may be linked to “cost-

centre- type” actions (Maoboussin, 2012) such as customer service.

 1.5. Staff expansion

AirAsia has an average staff rate growth of 7.7% ( Diagram 5). This could indicate

AirAsia to be an employer of choice. It also suggests that AirAsia is able create a

flourishing work environment thus considered successful in this aspect.

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 1.6. Customer satisfaction and service standards

AirAsia’s has been awarded “World’s best low-cost airlines”, for the 7th

consecutive year by SkyTrax, which ranks airlines based on factors such as

customer satisfaction and service standards. Diagram 6 shows that AirAsia

excels in the Asian and global arena.

 1.7. Net Profit

The net profit describes the profitability of an organisation by using the

following equation:

Net Profit =Total Revenue – Total Expenses (including taxes)

AirAsia’s net profit is still positive despite its slowed growth. This could be due

to AirAsia’s increase in asset procurement, which contributes to revenue

generation in the future. Although net profits may be declining (Diagram 7),

AirAsia’s profit margin are above the industry average of 1.1% ( IATA, 2013).

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 1.8. Consumer growth

Despite customers having a higher bargaining power, AirAsia still see’s

passenger growth (Diagram 8).

This suggests high customer loyalty and that new customers prefer AirAsia to

other carriers (Diagram 9), thus reflective of AirAsia’s brand image. This could

also be a result of “positive feedback” where existing customers aid in

acquiring newer customers (Sipotz, et. al, 2005)

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2. Reasons for success of AirAsia

 2.1 Clear market segmentation

AirAsia’s targets budget travellers who are generally price sensitive. Diagram

10 shows that SEA has a large and growing middle income population

(Economist, 2012). AirAsia’s clear market segmentation allowed it to focus on

meeting customer expectations, learning purchasing patterns and

preferences of consumers (Schiffman et, al, 2008) in this segment and bring

value to them.

 2.2 Strong marketing

AirAsia markets its cheap airfares and destination, using a variety of

traditional media channels as well as social media. Its marketing is frequent

unlike other airlines which promote seasonally. This keeps the advertisement

decay rate lower (Gold, 1992) as compared to its competitors, thus being

more entrenched in the minds of its target customers.

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 2.3 Customer confidence and confidence recovery

AirAsia went through its first major disaster when one of its planes crashed.

Through confidence recovery measures (Berry, 2004) such as taking

responsibility as well as having the CEO on the ground to personally assist

the families of victims, customer confidence was recovered swiftly (Jake,

et.al, 2014). AirAsia’s efforts can be seen in its shares recovery in Diagram 11

when compared to that of Malaysia Airlines (MAS) when its planes crashed

(Diagram 12).

 2.4 Organisational culture

Organisational culture strongly affects business performance (Nihan & Seda,

2013). AirAsia’s organisational culture places little emphasis on hierarchy

evident from an open office environment with little physical barriers between

desks (Harvey, 2012) allows transparency. Everyone works in full view, thus

maximising productivity.

 2.5 Operational style

AirAsia’s fleet size allows them to handle large passenger volume. AirAsia

can therefore fly to more destinations frequently. Unlike competitors with

smaller fleets, passengers have a higher chance of being able to get a seat

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on AirAsia (Diagram 13), thus reducing the chances of them switching to

competitors. AirAsia also has a large fleet of aircrafts of the same model.

Spare parts for servicing are ordered in bulk, thus reducing costs.

 2.6 Competitive pricing

AirAsia’s ticket prices are much cheaper than their competitors and below the

industry average (Diagram 14). Their pricing strategy matches the price

expectation of their target market and addresses their customer’s perceived

value of an affordable air ticket. Due to their operational size, they

occasionally offer free air tickets with customers only having to pay the airport

tax.

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You have provided a very good discussion on the measurements and reasons for success. Well done!

13

3. Value Chain + VRIN

 3.1 Porters Value chain

In order to understand the value a customer receives, the value chain of

AirAsia needs to be analysed. This allows the clear identification of activities

which determine the competitive advantage over its competitors by

outperforming them in terms of performance and price (Tracey & Hinkin,

1994). It also allows operational misalignments to be exposed and

improvements to be made (Feame et. al, 2012) creating added value. The

general model of a value chain is categorised into its primary activities and

support services ( Porter, 2008). This report shall use Porters model (Diagram

15) for AirAsia’s value chain analysis.

 3.2 Inbound logistics

The main processes in AirAsia’s inbound logistics are shown in Diagram 16.

However this report will focus on AirAsia’s fuel management.

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AirAsia’s fuel expense is about 47% of its total operations (Merkert, 2015).

AirAsia practices 2 methods to reduce its fuel expenses. It employs a fuel

management system with GE Aviation which meets its minimum target of 1%

fuel savings (GE, 2015). The fuel management system also advises AirAsia

on practices which saves fuel such as taxing with one running engine instead

of two. This reduction in fuel consumption while yielding the same operational

outcome allows AirAsia to pass down cost savings to its consumer.

AirAsia also fuel hedges which allows it buy fuel at low prices and utilises it in

the future when fuel prices increase. Currently 50% of AirAsia’s jet fuel is

hedged (Park, et. al, 2015). This reduces the vulnerability of AirAsia against

fluctuating fuel prices and value is passed onto the consumer through

cheaper air tickets. Good

 3.3 Operations

Diagram 17 shows AirAsia’s main operation activities. However, this report

will focus on airline maintenance.

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AirAsia’s reputation lies in how safe their airlines are and aircraft maintenance

is an important factor in their operations. AirAsia has sub-contracted their

maintenance to ST Aerospace, which is the world largest aviation

maintenance company. By sub-contracting their maintenance AirAsia can

focus on “profit-centre” activities such as marketing while enjoying reduced

operational cost and capital investment (McFarlan & Nolan, 1995). AirAsia’s

contract with ST Aerospace is a “Maintenance By Hour (MBH)” service where

maintenance fees are only paid when maintenance is needed. This reduces

the need to employ many full-time maintenance staff who may be

underutilised. Sub-contracting also reduces inventory holding costs and

reduces delays in obtaining spare parts since ST Aerospace has a better

stock and supply capacity than AirAsia.

Value is created for the customer through cost saving from reduced fixed

overheads and the reduced flight delays due to maintenance since ST

Aerospace has the expertise, technology and manpower to maintain AirAsia’s

fleet.

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 3.4 Outbound logistics

Diagram 18 shows some of AirAsia’s outbound logistics activities. However,

this report will focus on its ticketing.

AirAsia’s has a high passenger volume. AirAsia practices a “ticketless”

system where there isn’t a physical ticket/boarding pass issued by the airline.

A confirmation email is sent to the passenger upon ticket booking.

Passengers can then print their ticket confirmation, mention their ticket

reference number at the check-in counter or simply check-in online when at

the airport (AirAsia, 2015).

By going ticketless, it reduces the paper usage, printing, manpower and

distribution costs while increasing efficiency (Buhalis, 2004). Value through

cost saving is passed down to the consumer. Similarly, by checking-in online,

there isn’t a need for passengers to queue at the check-in counter. Value is

created for the passenger in terms of reduced waiting time as well as

convenience.

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 3.5 Sales and marketing

Diagram 19 shows AirAsia’s major sales and marketing activities. However

this report will focus only on sales channels.

AirAsia’s receives ticket bookings from a variety of channels including

counter, travel agent, phone and internet bookings. These are linked to

AirAsia’s Passenger Service System ( PSS), NewSkies. These channels

help achieve a competitive advantage in maximum sales performance since

industry competitors are effectively selling the same thing (Friedman &

Furey, 2012) and NewSkies collates all information.

Although there are a growing number of customers who book their tickets

online, consumer readiness in electronic payment such as credit cards as

well as mobile phone payments are still slow in many parts of SEA ( Huang,

2013) as seen in diagram 20 and 21 respectively. As such, AirAsia creates

value by giving customers ease of access and convenience in purchasing

and paying for their tickets through various sales channels.

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 3.6 Service

Diagram 22 shows the service activities AirAsia practices. However, this

report shall focus on the value added service of hotel reservation.

AirAsia provides a hotel and flight package service called AirAsiaGo (AirAsia,

2015) and has partnerships with over 230 000 hotels. AirAsia also has as joint

venture with Expedia, a leading online travel agency, which gives AirAsia a

competitive advantage over its smaller competitors ( Daily Finance, 2011). It

provides an all in one fare to inform consumers the overall price of their flights

and accommodation, without being misled by hidden costs when booking

them separately. Value is created for consumers by saving them time from

comparing and sourcing their accommodation options from scratch. AirAsia

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usually offers discounts when flight and accommodation are booked together

which is favourable to AirAsia’s price sensitive consumers.

 3.7 Support Activities – Firm Infrastructure

AirAsia has an extensive yet lean infrastructure. It has travel and service

centres (ATSC), call centres and sales offices across Asia (AirAsia, 2015).

With their wide network, they are able to integrate their services throughout

their network of airline affiliates. With a large fleet of aircraft, AirAsia has the

infrastructure to handle large passenger volumes. A large fleet also allows

AirAsia to expand its market reach as it has enough planes to reach more

destinations and provide more frequent service (Doganis, 2005). This creates

value by providing convenience to its consumers.