External Analysis

3.1 PEST Analysis

3.1.1 Political Factor
Malaysia Airlines is 69% owned by the government and has been protected on
the routes that are offered (BBC, 2006). Incheon, Singapore and Sydney routes
are protected for Malaysia Airlines. Malaysian Airlines will convert its low fare
airlines, Firefly to a full board airline to protect AirAsia. (BBC, 2011)
3.1.2 Economical Factor
Appendix 3 shows the jet fuel price per barrel over the last 5 years, the charts
most noticeable feature will be the price fluctuation. The charts shows a
dramatic price drop in November 2008 and an inclining price hike ever since.
Even though Appendix 4 shows a stable fuel price over the last six months, the
fuel price remains unpredictable but the new Airbus 320 Neo will be able to
save 15 % fuel with additional 950 Kilometres or to transport 2 tonnes of
additional weight (Airbus, 2011). High taxes, visa restrictions and baggage
handling charges are increasing for Europe and India Destinations (BBC, 2012).
Annual disposable income of Malaysia has seen great improvements in year
2010 and 2011as seen in Appendix 5
3.1.3 Social Factor
Malaysia GDP per capita in Appendix 6 shows a positive growth in 10 years
with a slight decline in year 2010. An Average Malaysian tourist spends about
USD 4,700 during their stay and is amongst the highest repeat visitor to
Australia. Malaysian tourists expenditure to New South Wales from Malaysia
grossed at USD 142 million, which is a 75% increase from 2010 (Travel Weekly
Asia, 2012).
3.1.4 Technological Factor
Airbus 320 Neo will incorporate new Leap-X engine from CFM International
and larger wing tips called sharklets. This new fleets will deliver fuel savings of
15% and range capability of 500 nautical miles. (Airbus, 2011)
3.2 Michael Porters Five Competitive Forces
3.2.1 Bargaining Power of Suppliers
The bargaining power of suppliers in the airlines is high as the aviation industry
faces a duopoly hence the price is determined by Airbus and Boeing.

3.2.2 Bargaining Power of Buyers

There is no cost of switching for the customers to use another services or
product. The access of internet connectivity has made it very easy for customers
to compare prices of flight before making changes. For a full board airline,
customers will be more demanding but willing to pay more in contrary to the
bigger market demands for low cost airlines, the customers are less demanding
but thrifty.
3.2.3 Threat of Substitute Product or Services
Substitute for the products offered by AirAsia will be trains, buses and cruise,
however due to the geographical factor trains buses and cruises are not viable.
For business travellers telecommunication and video conferencing is also seen
as a substitute here. Cisco Webex offers unlimited meeting as low as USD 19
per month (Cisco, 2012). The threat of substitute here is moderate.
3.2.4 Threat of New Entrants
When it comes to the Airlines industry in Malaysia, threat of new entrant is very
low. This is due to high operating cost, government regulation and legislation.
Moreover, AirAsias brand awareness and market leadership will put AirAsia
ahead of the competition. Even though there is freedom of entry and exit the
airlines industry has seen many flight operator went out of business, namely
AdamAir, Cosmic Air, Impulse Airlines and Oasis Hong Kong. (Asia Times,
2007)
3.2.5 Rivalry among Existing Competitors
AirAsias main rival was Malaysian Airlines and its low cost airlines Firefly.
But since August 2011 agreement between AirAsia and Malaysia Airlines,
firefly will no longer be a rival to AirAsia as Firefly will be a full board Airlines
and Malaysian Airlines will focus on its strength and will not directly compete
with AirAsia.

4.0 Internal Analysis

4.1 SWOT Analysis
AirAsia SWOT Analysis
Strengths

Weakness

1. Low cost operations

1. Secondary airports locations

2. Simple proven business model

2. No customer service toll free line

3. Single fleet of aircraft

3. Limited Aircrafts

4. Multi-currency online sales

4. Website downtime and error

5. Partnership with Expedia

5. Flight delays

6. Quick turnaround time

7. World's best low cost airlines 2009-2011by Skytrax

Opportunities

Threats

1. Adding more routes in North Asia

1. Increasing fuel prices

2. Partnership with travel agents for ground arrangements

2. Terrorist attacks

3. 200 new units of A320 neo aircraft in 2016

3. Aviation rules and Government policies

4. MAS cutting flights to certain destination

4. Firefly offering baggage

5. Firefly offering in flight drinks and

4.1.1 Strength
AirAsia serves a very basic need of its passenger, getting from point A to
point B, its business models derives from Southwest Airlines, Ryanair and
EasyJet. AirAsias No Frills module simply means cutting out the
unnecessary offering such as in-flight meals, baggage allowance, lesser leg
room and reduced seat pitch. The storage space for food has been used to add
more seats. And by no free snacks means lesser time spent on the ground and
AirAsia spend nothing more than 25 minutes on the ground each time it lands.
Averagely a full board airline is airborne for 8-9 hours a day while AirAsia
flight is airborne for 12 hours a day. By using the same fleet, AirAsia reduces
the cost of training cabin crews and pilots as it is easier to move them around
and the floor plan and layout remains the same. The official website of AirAsia,
allows you to pay using multiple currency options and with the partnership of
Expedia, AirAsia website serves as the only website a passenger need to book a
flight, accommodation and ground arrangements. AirAsia has won the
prestigious award Worlds Best Low Cost Airlines by Skytrax for the last 3
consecutive years (AirAsia, 2012c), Appendix 7 shows the award won by
AirAsia for the last 3 years and it certainly helps build trust in the brand.
4.1.2 Weakness

According to a research, 35% of passengers choose airlines based on

punctuality (Emirates247, 2008) by delaying flight AirAsia also loses its air
borne time. Another problem that AirAsia faces is the customer service support
and there is only 2 ways for one to get in touch with an AirAsia customer
service representative, either by writing to their customer service e-mail
mailbox with a reply response lead time of 4-5 days or a premium customer
service line with a charge of RM 1.95 per minute (AirAsia, 2012e). There also
have been incidents whereby AirAsia website is down, most of the time during
its promotions and most probably due to heavy traffic and non redundant data
infrastructure. As cost rises and consumers expects to pay lesser AirAsia routes
its flights to secondary airports as the handling fees and airport charges are
lower.
4.1.3 Opportunities
As the flight to Europe and India has been called off, AirAsia focuses to open
more routes in North Asia. With new fleets AirAsia should open more routes
such as Palawan, Boracay, Makati, Koh Sa Mui and Madurai. MAS has also
confirmed that it will reduce its flight frequency to Sydney and Fireflys routes
to Langkawi, Penang and Singapore post August 2011 agreement to benefit
AirAsia (The Star, 2012b)
4.1.4 Threats
Events such as Bali bombing, 9/11 and Bangkok Airport lockdown are
unpredictable potential treats. Aviation rules and government policies also act as
a threat and in this case, AirAsia faces fuel price hike, airport tax, handling
charges and government protection towards national carrier and predominant
route restrictions.

.2.1 SO Strategies
Malaysian Airport Holdings Berhad has announced that KLIA2, the new low-cost carrier
terminal will be ready by April 2013 (Sidhu, 2011) AirAsia asked for bigger KLIA (Yee,
2012). It is estimated that passenger traffic at KLIA2 alone would hit 28.7 million by 2015,
45.3 million by 2020 and 60.3 million by 2025 as seen in Appendix 8.
4.2.2 WO Strategies
By expending AirAsias fleet, AirAsia will be able to offer more routes to its customers, one
of the routes that will excites the passengers will be Koh Sa Mui, as for now Firefly
dominates the route there and dictates the price of air fare. Both AirAsias social media,
Twitter and Facebook has numerous complain about being unable to reach customer service
and delayed email response. Air Asia can choose to switch their premium call centre and
outsource their call centre to a 3rd party company and instead of charging RM1.95 per minute,
AirAsia may charge normal Telco tariff charges. Outsourcing these services means
overheads, but there is also a way around it, instead of a customer service hotline, the same
toll free number may be used as a online booking and reservation line.
4.2.3 ST Strategies
With the average fuel price increased by 36% over the year, the fuel cost makes 50% percent
of AirAsias operating cost, (The Star, 2012a) and by switching to the A320 Neo Airbus with
LEAP engine; Air Asia will have additional 500 nautical miles and 15% fuel savings.
(Airbus, 2011). AirAsia charges its customers when they opt for seat allocation. Air Asia can
still continue the charges for seat allocation but, an incentive should be given to customer
who does a group booking with minimum of 10 pax at a time or for customers who book in
advance from 10 months ahead. This will help in customer retention and to bring customer

from Firefly, as satisfied customer are more likely to buy additional products, loyal, less
influenced by competitor and less price sensitive. (Zineldin, 2000)
4.2.4 WT Strategies
There has been instance where AirAsias website is down due to busy traffic or for scheduled
maintenance. As 77% of AirAsias sales derive from online booking (AirAsia, 2010a),
AirAsia cannot afford to have a downtime. The best value solution is to have its direct sales
engine service provider, Navitaire to set up disaster recovery plant, or a high availability
solution for its web servers. AirAsia also could offer its passenger who flies above 4 hours to
have a free 15kg baggage allowance. Even though this will be contradicting with AirAsias
No Frills policy, on a bigger scale it ensures loyalty and most importantly customer
retention

VALUE CHAIN

Legend
CRS

: Computer Reservation System

FSS

: Flight Scheduling System

YMS

: Yield Management System

DBM

: Database Marketing

IS

: Internet Sales

CC

: Call Center