Host Country Political and Legal Environment Affect of Airasia

COMPANY AIRASIA Content a. penet balancen b. Comp whatsoever bibliography c. Entry mode to foreign grocery (through exporting, joint venture, franchising, licensing, etc) d. How do the international mart / culture, management styles and business system affect the fraternity finishance? Do they ca-ca to adjust / alter their product or work to fit with the host country trade inescapably? How does the smart set face the competition? e. How does a host country political and international legal surround or trade barrier affect the Malayan companies in their international marketing activities?Bagaimana sebuah negara tuan rumah persekitaran politik dan antarabangsa undang-undang atau perdagangan halangan menjejaskan syarikat-syarikat Malaysia dalam aktiviti pemasaran antarabangsa mereka? Bagaimana sebuah negara persekitaran politik dan undang2 antarabangsa memberi kesan kepada syarikat Malaysia dalam aktiviti pemasaran antarabangsa mereka? f. SWOT analysis of the c exclusivelye r in term of their 4 Ps (product, value, promotion and place) g. Any separates additional instruction h. Conclusion i. References a,b,h part 1 c part 2 d part 3 e part 4(fathi) part 5 several(prenominal)(prenominal)ly person choose iodine to do it n leave a comment which part u all do yea tq peck 488 Strategy T01 Question 1 railway lineAsia, which is one of the earliest mortified embody carriers (LCC) in Asia, has become a LCC since 2001. So far, it has expanded its network from Malaysia to siamese connectionland to Singapore, Macau and in clock the Mainland China in 2006. In piteous, Air Asia jumped out from an intra-Malaysia and Thailand market to a real Air Asia in the continent. Thus, what argon the possible core grapplencies to undertake that there is quantum leap to victor?The internal analysis on the participation be clinical depression entrust answer the question. Resources, Capabilities & Core Competencies compendium a)Accounting Ratio Analysis In 2 004, Air Asias earnings margin before disport and taxes (16. 8), return on capital employed (14. 6) and return on uprightness (37. 7) accounting ratios were above the assiduity mediocre 14. 5 is the sedulousness average for earnings margin, 11. 6 for return on capital employed and 21. 2 for return on equity. This above average results indicates that the partnership has been managed whole nearly and so is able to achieve soaring above-average returns.The emergence in current ratio from 1. 24 (US$49. 206 million / US$39. 643 million)to 5. 60 (US$230. 024 million / US$41. 099 million) besides serves as a confident booster to investors and sh beholders in that Air Asias solvency had knowingnessened and thence is able to fulfill its debt obligations. In fact, the debt-to-asset ratio in the last 5 years was imprint and decreasing too. As a matter of fact, in 2005, it was merely 0. 14, which was comparatively abase than m each low appeal carriers. b) Finance Resources Air Asias net bread coating Jun 2005 was spread abroaded US$29. million, a 126% subjoin year-on-year. The end of June 2005 financial thickset showed that Air Asia, the leading low toll cinchline in Asia, had a huge reserve ( money box and cash balances) of US$86. 6million. This is the caller-ups strength as truly few low re deliver oxygeniselines of similar sizing defend such(prenominal) life-size reserves. With such huge reserves and low debt-to-asset ratio, Air Asia is thereof capable of generating internal funds to finance any expansion. It is sure enough Air Asias strength. c)Organization Design and Organizational ResourcesAir Asias system of rulesal structure is quite a simple and flat as it involves a convocation of round in the corporation reporting to one manager. This serves Air Asia swell up as thebusiness requires a structure with fewer levels of management so as to achieve to a greater extent(prenominal) consistency and follow decrease. In addition , the exist leading schema that the gild travel alonged similarly allows Air Asia to nidus more than intensely on areas such as in/out-bound logistics, motions, marketing, run and customers. This in turn dos to create synergy and cap dexterity to deliver the sufficient spectrum of low be carrier business. ) Physical Resources Despite having a titanic fleet of Boeing 737 aircraft for operation, Air Asia becalm continues to invest to a great extent. This includes the acquisition of more arouse-efficient aircraft (A320) so that the company underside have sufficient capacity to meet the increment ask and demands of their customers as well as to continue to keep its woo low. The raw(a) aircraft peck disappoint fuel usage by just intimately 12%, an measurable apostrophize saving, as fuel accounted for more or less 50% of the total operating(a) bes for the company everywhere a plosive of achievemention. ) Technological Resources Air Asia was the first air hose in Southeast Asia to practice e-ticketing so that traditional travel agents can be bypassed. This implementation saves the price of issuingphysical tickets and eliminates the need for gigantic and costly booking and engagement systems. To get ahead exploit technologies, AirAsia made it possible for customers topurchase tickets either from send off offices or designated bank teller (ATM) machines.In unretentive, Air Asias strength is in addition more or less the ability to leverage on technologies well and ahead of its contenders to attach gross sales and lower costs. Human Resources Management Although the employees were non unionized and the salaries offered by the company were below those of its rivals, AirAsia is still able to keep its work force motivate by providing a pay policy that is combative and entrancing. Forinstance, all employees are offered a wide range of incentives that includes productivity and performance-based bonuses, offer of shares or s hort letter pickings.To offer up furtheraircrew and cabin incentives, AirAsia besides adopted a sector pay policy that gives extra incentives and so this resulted in the company needing fewer crews per flight (106 peraircraft) as compared to early(a) cheap airlines (110 per aircraft). All these efforts not scarce if helped to improve productivity, it too further strengthened employer-employee family relationships. In summary, homosexual resource management, particularly the ability to motivate and improve productivity of the staff is surely Air Asias strength. g) Innovation Resources and Product DevelopmentSo far, AirAsia has managed to design its aircraft cabins that can minimize wearand tear, alter m and cost. This innovative work allows for faster turn al roughlysbetween flights and helps increase r even soues. In addition, AirAsia is withal able to leverage on innovative ideas to derive real(a) ancillary revenues from additional work. Forinstance, the companies also have their own branded credence card and offers corporate travel services. Consequently, it also develops aircraft advertising by converting its planes into debauched billboards.The ability to innovate and come up with unique macrocosms to lowercosts and increase revenues shows that AirAsia possesses substantial prize innovation resources that are valuable. h) Reputational Resources Air Asias success has been widely recognized. For instance, in 2003, it was named the develop airline business of the grade (by Air finance Journal) and the Asia pacific Airline of the Year (by Centre for Asia Pacific Aviation, CAPA). In 2004 and 2005, the company also won several prestigious a fightds. Similarly, the companys CEO, Tony Fernandez has also won several recognitions.Most notably, the multinational Herald Tribune listed Mr. Tony Fernandez in its Visionaries and Leadership series in 2003. Hewas consequently named the Asia Pacific Aviation Executive of the Year in 2004 and2005 ( by CAPA) and is one of the 25 stars of Asia (by rail line week). With just 3 years into operations, AirAsia managed to be listed publicly inNovember 2004 with shop at from bankers and venture capitalists. AirAsia was subsequently named as one of the Best Newly Listed Companies and Asias Best Managed Company in the Airlines and Aviation Sector by Euro coin after its IPO.Given the positive perceptions of Air Asias reputation, the brand name is certainly the companys strengths. i)Risk Management In general, the types of jeopardys AirAsia faces include (1) pure pretend (2) price risk and (3) credit risk. AirAsia purchased insurance policies to excuse pure risk although it is done and operated a bit differently as it adopts an integrated move up risk management that goes beyond the traditional parameters of what is insurable. For instance, when AirAsia purchases insurance any policies to plug a plusst pure risk, it also distinguishs a conscious effort to acquire them at a untol d lower rate lower than new(prenominal) LCCs.In addition, to mitigate price risk, AirAsia hedged fuel prices at US$42 a drum for the first half of2005, which was substantially lower than the price per barrel of US$70 in the late 2005. AirAsia has little exposure to credit risk as it does not lend money to any outside parties. Better still, customers who wish to purchase their air tickets need to make allowance almost immediately upon booking. Hence, this eliminates credit risk totally. So far, Air Asias holistic approach to risk management effectively is viewed favorably by its stakeholders most of the magazine, specially the shareholders. ) Logistics This involves all areas of receiving, storing of inputs when producing outputs. So far, AirAsia only operates on a unmarried type of aircraft, the Boeing 737-300. Based on a Report promulgated by Aero Connections in 2004, that particular model was the best selling commercial message jet of all times due to its efficiency and co st effectiveness. AirAsia also has1382 employees and they received proper on-the-job training workshops so that they canperform sextuple roles effectively within a simple and flat organization structure. ) Operations It processes inputs to bid valuable products/services. AirAsia has ever so been stringent most standards and procedures. AirAsia is sensible that principal(prenominal)taining its passenger safeguard is of paramount importance as indicated in the surveys in the United States and Japan. Based on the companys 2003 annual report, AirAsia had conjugated ventures with GE Engine Services for a business alliance that allows the latter(prenominal) to be in charge ofmaintaining all Air Asias aircraft engines in the next five years.AirAsia had also managed to achieve close operating benchmarks in terms of flights on time and baggage intervention where in 2004, the company registered 88% and 99. 9% respectively. c) Outbound Logistics This involves delivering products/serv ices into a distribution groove or to the final destination. As of late 2005, AirAsia operated 32 Boeing 737 aircraft that run over60 routes across Southeast Asian regional network. Not only that, its aircraft interiors is also outfitted with signature red carpeting and plush lather lays to enable its guests to travel comfortably.In addition, it was also reported in enceinte journals and magazines such as ABJ and AWM that numerous customers felt that Air Asias cabin crew demonstratedprofessionalism when carrying out their duties on air. d)Marketing and Sales It involves all activities that communicate customers about their products/services including those that induce and facilitate customers in making purchases. So far, AirAsia has promoted its company without incurring high sales and marketing expenses. Forinstance, its CEO Tony Fernandez always wears a red AirAsia baseball cap in any of his interviews.His well thought out statements often reinforce Air Asias situation as a small entrant firm battling against giant pains incumbents that also offer low prices. As such, when required, it also invested heavily and so far, its major sponsorships includedbeing the Official Low Fare Airline for football giant Manchester United. This deal involved global sponsorship and advertising. e)Service AirAsia is one of the few airlines that had the shortest turnaround time, around 25 proceedings as opposed to 45 to 120 minutes recorded by new(prenominal) airlines. Hence, this allows AirAsia to benefit from conducting more flights a day.Besides that, AirAsia emphasizes sell on maintaining a high quality service to all its passengers such as punctuality rate and excellent baggage-handling performance t o determine whether AirAsia has any core competencies (sustainable competitive advantages), the companys capabilities are assessed based on the four criteria valuable, rare, difficult to imitate and non-substitu accede. The evaluation results so far revealed that t wo core competencies below(1) The possession of tacit knowledge to skeletal system a business by leveraging on saucily technologies (internet). 2) The religious zeal to cost-avoidance coupled with tacit knowledge to build exceedingly efficient processes to enable it to execute its business model (low cost). Success Factors of AirAsia As AirAsia continues to compete with otherwise LCC (both subsisting and new) in Asia which also may adopt low-cost strategy, what have to remember and realize that the way customers differentiate them from their competitors will be strictly on fare and reputation. As the saying goes, the lower the price, the high the file factor. As such, Air Asias success is based on the following detect factors )Cost Effectiveness AirAsia puts very pixilated emphasis on lowering all avoidable costs so that it can continue to pop the question low fares and yet remain utile. This promoter the company has to cut the cost of flight operation by flying to and from airports that offer cheaper take-offand landing fees. Besides that, passengers also were not provided with meals and entertainment as well as amenities such as pillows and blankets. AirAsia has also intentional its aircraft cabins that minimize wear and tear as well as cleaning time so that cost associated to these areas can be lowered.The better de sign cabins also resulted in lower loading and unloading costs as things got done faster which in turn leads to better turn around time. Last but not least, to ensure cost effectiveness, AirAsia reconfigured the seating configurations of its Boeing 737 aircraft to increase seats from 132 to 148 and has thus far operated with only a single-class service. b) Efficiency and productiveness By using a ticket- slight online booking system, staff that are correctly trained toperform multiple roles as well as aircraft cabins that take cleaning ime, AirAsia greatly enhances it operations efficiency and productivity, which is a very essen tial ofthe cost leadership strategy. However, it should be noted that the cost leadership strategy works on the final costs, not necessarily the lowest price in the market. As the lowest cost operator, AirAsia is able to continue to blend in a price war as its low-cost positions a valuable defense against any rivals. c) Reliability AirAsia also chose more systematically subsidiary and regional airport destinations instead of busy and congested main airports.Generally, less busy airports can be abideed to provide higher rates of on-time departures. Besides, without the need to load and unload any cargoes, the turnaround time of an aircraft can be reduced greatly AirAsia clocked the regions immediate turnaround time at only 25 minutes. As a result, travelers can expert and look forward to more frequent and puncture flights. D) Higher absolute oftenness of Service Predominantly, AirAsia offers point-to-point flights on short-haul routes less than 4 hours flight time. The comp any is also able to achieve higher plane utilization due to short turnaround time and as mentioned point-to-point routes.The ability to provide higher frequency service to justify the smaller capacity of a LCC is another key to Air Asias success. In some instances, such high frequency of services can also attractbusiness travelers since most of the time they are able to save time and catch theirconnecting flights on time All the success factors mentioned above develop Air Asias success. However, it should also be noted that Air Asias zealous approach in preaching cost avoidance in every aspect of judicial system and operations is the key in sustaining a low-cost culture since its operation in2001.AirAsia also has been particularly effective at implementing the various measures and thus it continues to extend and prosper till today. Question 2 The construct of cost leadership strategy emphasizes on lowest costs, though not necessarily the lowest price, in the market. A firm pursuin g a cost-leadership strategy needs to gain a competitive advantage primarily by bring down its economic costs below its competitors. To achieve this, the strategic actions must thus reduce costs and improve productivity. With this in mind, let us contend how the following strategic actions adopted by AirAsia support its cost leadership strategy.A) Low Fare, No Frills Air Asias intense focus on providing air travel with no frills leads to substantial costs saving. The absence of in-flight services reduced pre-flight preparations such as the loading of food and drinks, cleaning time and the cost of meals and administration. Investment in kitchens and equipment for storing, heating and serving of meals can be avoided all together. B) Investment in Latest Technologies Efficient Operations AirAsia has heavily invested in purchasing the most modern aircraft A-320s.The new aircraft allow AirAsia to revere substantial lower fuel cost as these modern airplanes had lower fuel usage by as much as 12%. Fuel accounted for almost 50% of the total operating costs and thus it is an important component of cost saving for AirAsia. By operating a single aircraft type allows AirAsia to achieve efficiency in executing its prime and alternate activities. Consequently, this leads to higherproductivity which in turn allows the company the option to expand their operations with the very(prenominal) number of employees and right size its men requirement. Improvedproductivity factor more revenue for AirAsia.The extreme call for to achieve high efficiency in operations allows AirAsia to clock the fastest turnaround time of 25 minutes. This invariably leads to comparativelybetter productivity as the company was able to utilize its aircraft for an average of 13hours per day as opposed to 10. 5 hours by other airlines. Again, improved productivity means more revenue for AirAsia. c)Low Fixed Costs Air Asias ability to acquire low rates for long-term maintenance peg downs and aircr aft leases led to substantial cost savings. It was reported that Air Asias average contractual lease charge per aircraft fall downd by more han 60% from 2001 to 2004. Similarly, its aircraft maintenance contract costs were also reported to be substantially lower than any other airlines. In view of the airlines high safety and maintenance standards, AirAsia was also able to procure favorable rates on its insurance policies. All these help lower fixed costs. d)Lean Distribution trunk The use of e-ticketing helps to save the cost of issuing hardcopy tickets, which were estimated at US$10 per ticket. The company also saved on agents commissions and avoided the need for bad and expensive booking and reservation systems. This too helps lower the overall costs. ) Minimize force Expenses AirAsia implemented flexible work rules and streamlined administrative functions which allowed employees to perform multiple roles. This human resource policy facilitated AirAsia in lowering its person nel costs. In 2004, it was reported that AirAsia had the lowest staff-to-per aircraft ratio (106 staff per aircraft as compared to 110employees per aircraft registered by other low cost carriers) and this helps lower staffcost. f)Use of Secondary Airports Typically, AirAsia operates out of secondary airports, which involve lowerlanding, parking and ground handling fees.These airports were also less busy and had shorter runways, thus helped reduce fuel consumption while aircraft adjust for takeoff ortaxi on the ground. As many secondary airports were older, they were often close to urban areas and were thus more attractive to some travelers. In short, the use ofsecondary airports can increase sales and help to keep operating costs low The ability to lower cost and at the same time widen service margin (through increaseproductivity) augurs well with AirAsias cost leadership strategy.This provides AirAsia the options to either lower its prices and gain market share and sales from riv als or keep its prices atpresent market level and make more profit for every whole sold. This inevitably helps AirAsia in its defense against aggressive competitions especially when it comes to price war from fuddled rivals Question 3 The PESTL Analysis and the Porter Model provide an overall analysis of the operating environment that AirAsia competes in. Also, the analysis of low cost carriers (LCC) industry reveals that it is so concentrated that intense competition is inevitable.However, amidst the challenges faced, there are still plenty of opportunities for AirAsia to explore and exploit. PESTL Analysis Macro Environment a)Economics Asias speedy economic evoketh and sprouting middle class continues to fuel the outgrowth of air travel in Asia. This growth in air travel was also due to the region having geographically dispersed countries with large population, a rapid increase in trade and tourism as well as the respective government investments in their airports, airlines a nd travel infrastructure.Although rapid growth and increased trade and businesses may intensify competition (entrance of other LCCs) and even lead to full-service airlines start cut costs to complete, it can present opportunities for airlines to enlarge their markets. Oflate, projections by economists had placed Asia at the top of global economic system growth charts in the coming years. b)Political/ Legal Government policies are important drives for the success of Asia. In the late1990s, there was increase privatization and deregulation of the airline industry in Asia.It was noticeable that some Asian countries established open-skies agreements while others allowed the intromission of private airlines. For instance, in 1997, a few LLC spouted quickly after Malaysia signed an open-skies agreement with the United States. Hence, it appears that although the travel market will be expanded, in reality AirAsia would also have to operate in a more challenging environment with intense co mpetitions. As of 2006, governments intervention and regulation remained substantial.Forinstance, although Thai AirAsia managed to launch its services between Singapore and Thailand in 2004 prosperedly, the company still could not expand beyond the Singapore-Thailand routes because it could not acquire landing rights elsewhere. c)Social-Cultural Surveys revealed that more people were willing to compromise on food and otherservices in exchange for lower prices. In fact, it was stated that price of tickets was the single most important consideration that influenced passengers decisions and of course this included without having to compromise on safety and punctuality.In addition, increasingly over the years cost conscious leisure time and business passengers were also looking to make their budgets decrease further. This presents an opportunity for all LCCs to increase their revenues by offering travelling at a much lower fare. d) Demographic In 2005, the total population in Asia st ands at more than 3. 5 billion. The UnitedNations statistics also show that Asia has an astonishing demographic dividend where more than 35% of its population is below the age of 25 and more than 55% hovers below the age of 35.This indirectly means that the increasing large population of the middle age group equates to a larger work age population with more fluid income and thus the likelihood of more business and leisure travels is almost confirmed. This thus presents another golden opportunity for AirAsia. e)Technological New services such as Internet Telephony and the increase in the use oftelecommunications services (such as buying air tickets online) provide AirAsia with the opportunity to leverage on new technologies to increase their sales.In addition, e-commence and internet-based activities (such as online pass and hotel reservations)are other areas where AirAsia can derived ancillary revenues from. Better still, in some instances, technology advancements also means ha ving opportunities to reduce operation costs such as savings on commissions for travel agents AirAsia was the first to do so However, amidst these benefits and cost saving, AirAsia must be mindful that system disruption due to heavily reliance on online sales can pose serious terror to the company. Analysis of the Industry In 2004, the airline industry flew 1. billion passengers, of which about 30% were in Asia. Airline traffic in Asia is projected to grow at 7. 1% annually for the next 5 years and more than triple in the next 20 years. Given Air Asias strong presence in the region, this presents vast opportunities to enlarge the companys market shares. The Airline businesses are closely linked to economic activities in Asia and the world. As such, AirAsia needs to be cognizant with the business cycle so that it can to take full advantage of such effects especially when there are changes in discretionary income and consumerspending patterns.AirAsia also needs to be mindful that in crease in demand of fuel and exceptional supply can lead to higher fuel price that decrease yield. Last but not least, the impact of crisis such as 9/11 (2001) and SARS outbreak (2003) was able to hit the airline industry badly and as such they continue to pose serious flagellum to airlines. Analysis of Competitive Forces Porters Five Forces Analysis a)Threat of interchange Products The possibility threat of substitutes is moderately low since there are several other substitutes such as cruises, rails, buses and cars.However, the archipelago geographical structure of Asia made air travel the most viable, efficient and convenient mode of transportation which is a surplus for AirAsia b) Power of Buyers The power of buyer is high due to almost no switching cost for customers to switch from one LCC to another. In addition, the adit to the internet also allows customers to have all the information on prices supercharged by the different LCCs. c)Power of Suppliers The supplier has a n upper hand (high power) due to hold number of suppliers(only Boeing and Airbus). d)Threat of New EntrantsThreat of new entrants is moderately low as the immersion into the industry requires high capital. Moreover, the industry is also highly regulated since every potential entrant is required to obtain approval from the civil melody authority of the particular countrybefore the company is allowed to be operated. e)Intensity of rivalry Industry rivalry is moderately high due to competition and high exit cost. Nonetheless, market participants understand and realize that price war is devastating forthem and thus they tend to avoid direct price competition to make themselves friendly competitors.Stakeholder Management Air Asias stakeholders can be split into capital market stakeholders (shareholders and major suppliers of capital e. g. banks and venture capitalists), product market stakeholders(primary customers, suppliers and host communities) and organizational stakeholders (e mployers and managers). Air Asias stellar performance since its proof in 2001 has brought value to its shareholders since they were receiving positive returns from the day of the companys pedigree to recent time 2005.Between 2001 and 2004, AirAsia enjoyed a compound average growth of45% for sales and 407% for net income as well as cash diminish positive from the time it began its operations. All these inevitably increase the value of investments significantly. This in all probability explains why AirAsia has always enjoyed strong support from banks and venture capitalists when the CEO took the company public in November 2004. AirAsia satisfies its customers by offering low fares without having to compromise to quality and service. This helps to attract new customers as well as retain existing ones.In orderto ensure that all specific needs are met, the companys key staffs travel regularly to mingle with the host communities so that they understand them better. This has facilitate d Air Asias aggressive expansion and resounding success in the regional markets which include Thailand and Indonesian over a short span of time. For instance, Air Asias joint venture with Shin gage to launch its new LLC achieved immediate success. In just 3 age of operations, it sold more than 20,000 seats on domestic routes.This speaks well of Air Asias ability to meet (oreven exceed) the expectations of its customers. Besides that, AirAsia also strives to build strong relationship with its suppliers. Forinstance, although the company operates 737 aircraft that were built by Boeing, it also acquired the new A320 aircraft from Airbus. In this way the company establishes hot relationship with the two and only civil airliner suppliers and hopefully through these good mutual dealings, thepower of these suppliers can be further reduced.The company also strives to maintain good relationship with other suppliers that provide aircraft maintenance and airport services. Thisprobably also explain why AirAsia is able to get lower rates from them. As a staff of the AirAsia team, he/she gets to enjoy highly competitive and attractive remuneration packages. These include productivity and performance-based bonuses, shares and stock options. In summary, with the capability and flexibility provided by above-average returns, AirAsia is able to satisfy multiple stakeholders more easily Marketing node SegmentationAlthough AirAsia invests aggressively in marketing where required, it generally adopts creativity and yet low-cost advertising so as to keep cost low. For instance, to keep cost low, AirAsia commonly advertises and promotes through the host country newspapers as well as internet website as they are generally cheap. Like all other LCCs, AirAsia also positions itself as an airline that provides short-route ferry for non-business and price-conscious businesspassengers as shown in Diagram 2 . This means that competition is intense and increasing as newplayers join in C ompetitors AnalysisBased on a report about major Asian budget airlines that Airline Business produced, onlytwo LCCs, capital of Thailand Airways and social lion Air, share almost similar markets as AirAsia in terms ofmarket commonality. Their tangible and intangible resources are also same to that ofAirAsia. With that, based on the competitor analysis framework appended in Diagram 3 , Bangkok Airways and Lion Air fall in quadrant I and thus are considered as close competitors of AirAsia. Technically, any firm or competitors in quadrant I will use their similar resourceportfolios to compete against each other.This lead to the conclusion that Bangkok Airways and Lion Air imitate in quadrant I are direct competitors of AirAsia. In contrast, the other airlines such as Value Air and Tiger Airways modeled in quadrant IV share few markets although they all possess comparable resources. As such, these airlines do not directly pose as strong rivalry to AirAsia at this point in time. As of now, AirAsia will have to compete with Bangkok Airways and Lion Air which have entered the market since 2000/2001.As they also adopt the low-cost strategy, the only way customers can differentiate them from their competitors would be on the airfare charges. In orderto maintain or increase the load factor, any of these companies may consider lowering fare prices to achieve their objectives. However, if this happens, the profit margin of the remaining players will be compressed and the weak one may be drove out of the market (also known as the vicious cycle). In Malaysia, Air Asias main airline competitor is Malaysia Airlines (MAS) which offers a full range of services.Although MAS had an ambivalent reaction to Air Asias entry into the airline industry, it also reacted to the competition by offering fares at 50% discounts on some its domestic routes. Although the attack was not successful (MAS eventually lost about 30% of its market share), it proves that any airlines that provide fu ll services can be a threat to AirAsia. locomote forward, it is expected that acquisition and merger will happen in the market until equilibrium is reached. When this takes place, only a few strong players with sound cost-controlling and profitable business model will exist and succeed.In other words, AirAsia can expect to face stiff competition in time to come even though market participants understand thatprice war is destructive and thus will try to avoid any direct price competition. A short summary on the possible opportunities and threats are appended in the tablebelow. From the analysis of AirAsia, it can be deduced that the operating environment immoderately competitive and filled with minimum uncertainties which means that the company has to prepare themselves well during good times.However, amidst the challenges, there are still many opportunities for AirAsia to explore and exploit so that it continues to lead and be the mostprofitable LCC in Asia. Amik kt dekstop-airasi a Question 4 AirAsia has been soaring success. Starting with two planes bought from a Malaysian conglomerate in late 2001, the company had expanded it to 32 by the end of 2005. During the same year, the aggressive expansion also resulted in an extensive Southeast Asian regional network of 60 routes. For sure, the large, untapped market and Air Asias model would ensure its future success. a)Conducive Environment for GrowthThe major macro environment factors suggest a very conducive environment forthe growth of low cost carriers (LCC) in Asia. According to TWA (Dec 2003), it mentioned that in Asia the demographic fundamentals of large populations that include rising middle classes with increasing leisure time and disposable incomes as well as the lack of competitive forms of transportation, paint an super encouraging demandpicture in the long run . Furthermore, a study by the Centre for AP (2002) confirmed that Asia would continue to offer attractive conditions for the air transporta tion industry.It estimated that Asia would account for 30% of the world market by 2020 or one third ofgrowth between now and then. The archipelago geographical structure of Asia continent is also an important contributing factor to the growth of air transportation. For example, between East and West Malaysia, there is no other viable and efficient mode of transportation other than to commute by air. As a matter of fact, in mid-2005, eight budget airlines were operating in Southeast Asia and there were predictions that there would be as many as 20 such airlinesby 2012.Although terrorism and SARS do impact on air travel, the long run forecast is very positive. b)Strong Finance Resource The company has been profitable from the start. It has a huge bank and cashbalances of US$86. 7 million, with no loans and borrowings as of 30 June 2005. Its profit margins of 38% (before interests, taxes, depreciation and amortization) were among the highest in the world for LCC. According to a report by CSS (2005), it was deduced that AirAsia would continue to be profitable in 2006.This probably explained why in 2004,bankers and venture capitalists had provided funds to help the company got listed despite the airline industry was being badly affected by SARS. In short, a strong finance resource is vital for growth and to wrestle any economic crisis. This in turn sustains success. c)Obsession with Low Cost Culture In some respects, the most important requirement to sustain success in the LCC industry is to possess a genuine low-cost culture. Unlike other LCC, AirAsia preached cost avoidance with religious zeal. For example, even though a luggage tag costs less than US$0. 5, AirAsia does not provide them. In addition, it also emphasizes cost deduction so intensely that in-flight ovens must not be overheated and that cabin lights switched off at appropriate times. To further lower cost, the company was the first to implement taking reservations via the internet rather than through travel agents. It operates only one type of aircraft to save on overheads and operating cost. AirAsia crews are also required to help clean the aircraft so as to shorten turnaround times to achieve higher aircraft utilization.At 29 U. S. cents operating cost per available seat-kilometer, Air Asias operating cost is the lowest in the industry. With such as an obsession withcosts, AirAsia is certainly self-collected to sustain its success. d)Effective in Implementing Cost Reduction Measures Even though most low cost carrier had implemented the various cost reduction measures, it was AirAsia that had implemented them most effectively. As a result, AirAsia achieved cost per average seat kilometre of 2. 13 U. S. cents, the lowest for any airline in the world.This in turn allowed the company to achieve profit margins of 38%(before interests, taxes, depreciation and amortization) which were among the highest in the world for LLC. In addition, the company was also able to achieve good ope ratingbenchmarks in terms of flights on time (88%) and baggage handling efficiency (99. 9%). This in turn resulted in further cost reduction as the company paid much lower charges and compensations as compared to other airlines. The ability to ensure that the central objective of achieving bigger cost advantages than the companys rivals (by continuously