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FACULTY OF BUSINESS AND MANAGEMENT

UITM SEGAMAT, JOHOR

BACHELOR OF BUSINESS ADMINISTRATION (HONS.) FINANCE

MGT657 : STRATEGIC MANAGEMENT


TITLE : CASE STUDY 1
(IMPACTS OF COVID-19 TO THE INDUSTRY AND FIRM)

STUDENT ID STUDENT NAME GROUP


2017549397 SITI ALIAH BINTI ALI JBA2425A

SUBMISSION DATE : 27 APRIL 2020


AIR ASIA AIRLINES COMPANY
COMPANY BACKGROUND
AirAsia Group Bhd is an established in 1993 with commenced operations in 1996. In
2001, Tune Air Sdn. Bhd., Tony Fernandes’s company purchased this airline from DRB-
Hicom. AirAsia’s first and main base is the Low Cost Carrier Terminal (LCCT) at Kuala
Lumpur International Airport, while its secondary hubs are at Kota Kinabalu International
Airport, Senai International Airport and Penang International Airport. AirAsia is well known as
Malaysian low cost airlines and even Asia’s largest low fare, no frill airline. AirAsia operates
scheduled domestic and international flights to more than 165 destinations spanning 25
countries. Being the home of Air Asia, the LCCT is the budget terminal in KLIA, opened on
23 March 2006. LCCT is said to be carried about 10 million passengers a year.
The vision of AirAsia is 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. The
mission of AirAsia is 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 Air Asia, and maintain the highest quality product, embracing
technology to reduce cost and enhance service levels.

IMPACTS OF COVID-19 TO THE INDUSTRY AND FIRM.


1. AirAsia Group Expected to Post a Loss of RM1.1 billion amid Covid-19 outbreak.
- AirAsia Group Bhd is expected to post a core net loss RM1.1 billion amid the
current Covid-19 outbreak, following lower demand and yields in Malaysia,
Thailand and the Philippines. In a February 17 note, CGS-CIMB Research was
slashing its previous forecasted financial year ended December 31,2020 (FY20)
core net profit (CNP) estimate of RM147 million to RM1.1 billion core net loss
(CNL) as the Covid-19 virus continues to impact Malaysia AirAsia (MAA), Thai
AirAsia (TAA), and Philippines AirAsia (PAA). All three airlines in the AirAsia
Group Bhd have significant exposure to flights to China, Hong Kong and Macau,
the epicentre of the virus outbreak.
- CGS-CIMB did note the revenue impact from Covid-19 would be somewhat offset
by lower spot jet fuel prices, which have declined due to lower demand from
China and global crude oil production reaching a state of oversupply. Specifically,
the research house now forecasts a 9.5% year-on-year decline in revenue
passenger kilometres (RPK) for Malaysia AirAsia, as well as a nine percentage
point (ppt) drop in passenger load factor (PLF) to 76% and 3.8% drop in yields.
2. Pay Cut and Free Munch Suspension as AirAsia Initiates Cost-cutting Measures.
- AirAsia Group Bhd will implement various cost containment measures to cope
with the Covid-19 outbreak, following initiatives undertaken by its peers to keep
their operations airborne. They include pay cut free munch and external training
suspensions, duty travel restriction and big social events cancellations for the
year. According to Bo Lingam, Chief Executive Officer and Airlines President, the
measures would be taken temporarily to reduce cost, conserve cash and protect
the low-cost carrier’s (LCC) future business. AirAsia’s highest earners had
decided to lead by example and agreed to take a pay cut but there was no
specific quantum given. The airline memo also detailed out that the carrier’s free
munch suspension would be for all non-operations managers and above. AirAsia
had been impacted by the sharp slowdown in the past few months due to travel
restrictions and flight cancellations not only for China routes but other
destinations.

3. AirAsia 2020 Targets look Vulnerable to Coronavirus.


- Malaysia’s flagship budget carrier AirAsia Group Bhd may not achieve its internal
projections for the year, as the industry takes a severe hit from the coronavirus
outbreak. The airline industry has been severely affected by the rapid spread of
the virus and that it was managing capacity and costs. The airline stock’s
exchange filing, noting that the airline business remains the major contributor to
the group’s financial performance.

- The airline logged a second consecutive quarterly loss, largely impacted by


losses in its Indian subsidiary. Its financial performance for the October-
December period was dragged down by results of associates and joint ventures,
which included recognising AirAsia India losses. Then, AirAsia X ticket sales to
Japan, Korea and Australia were impacted but the Chinese market was hit the
hardest by the virus outbreak. The company have to bear the cost of ticket
refunds for passengers who have cancelled flights to China. Forward ticket
bookings are also trending lower and fares are expected to be under pressure for
the next couple of months.

4. Temporary Hibernation of AirAsia Group Fleet.


- The Covid-19 pandemic that has led to extensive and increasing border
restrictions imposed by various countries, AirAsia Group would announce that it
is temporarily hibernating most of its fleet across the network. This temporary
fleet hibernation to ensure the well-being of the guests and employees, which is
remain as the top priority of the business during this challenging time.
Furthermore, for future manage and contain costs, both the management and
senior employees of AirAsia Group have volunteered a salary sacrifice which is
ranging from 100% at the very top to 15%. It will help to ensure that company ride
out this prolonged period of extremely low travel demand and minimise the
impact on their employees.

5. Covid-19 Could be Impetus for MAS and AirAsia Merger.


- Malaysia-based airlines have not been spared from the impact of the pandemic
when its 13,000 employees that many airlines are now at risk of going bankrupt,
and the national flag carrier is no different. According to MAS group CEO Captain
Izham Ismail, the loss-making airline has been thrown a curveball as Covid-19
hampered their momentum. MAS is not contemplating jobs cuts for now but it
recently offered employees unpaid leave.

- According to AmInvestment Bank, the cancellation of the Visit Malaysia 2020


campaign last week will add pressure to airlines, including AirAsia Group Bhd,
which are already suffering from the weak air travel demand, owing to the Covid-
19 outbreak. Some analysts believe that as the situation worsens for airlines, with
more travel bans being put in place by governments, it would necessitate a
merger between MAS and AirAsia and its long-haul sister airline, AirAsia X Bhd
(AAX). All three airlines reported losses in the ended FY2019. It declines whether
a proposed merger between MAS and AirAsia Group was still in the works,
although it was previously reported that Khazanah’s management was working
with AirAsia Group to rework the original proposal to make it more palatable.

6. AirAsia launches S.O.S Campaign to Help Businesses


- AirAsia Group has launched a Save Our Shops (S.O.S) campaign to help local
businesses to market their products during the movement control order (MCO)
period. Its e-commerce platform, OURSHOP would be hosted on its website,
airasia.com, which receives significant traffic to enable products of local
businesses sold through it to be delivered via its logistics arm Teleport. The
campaign would enable merchants whose businesses have been hit hard by
measures to contain Covid-19 to sign up at zero commission and zero listing fee
to market their products on OURSHOP for the whole of April.

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