External Analysis 3.1 PEST Analysis 3.1.1 Political FactorMalaysia 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 FactorAppendix 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 FactorMalaysia 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 FactorAirbus 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 Porter’s 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 BuyersThere 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 customer’s are less demanding but thrifty. 3.2.3 Threat of Substitute Product or ServicesSubstitute 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 EntrantsWhen 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, AirAsia’s 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 CompetitorsAirAsia’s 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 AnalysisStrengths Weakness

1. Low cost operations 1. Secondary airports locations2. Simple proven business model 2. No customer service toll free line3. Single fleet of aircraft 3. Limited Aircrafts4. Multi-currency online sales 4. Website downtime and error5. Partnership with Expedia 5. Flight delays6. Quick turnaround time  7. World's best low cost airlines 2009-2011by Skytrax  

Opportunities Threats1. Adding more routes in North Asia 1. Increasing fuel prices2. Partnership with travel agents for ground arrangements 2. Terrorist attacks3. 200 new units of A320 neo aircraft in 2016 3. Aviation rules and Government policies4. 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. AirAsia’s “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 World’s 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 OpportunitiesAs 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 Firefly’s routes to Langkawi, Penang and Singapore post August 2011 agreement to benefit AirAsia (The Star, 2012b) 4.1.4 ThreatsEvents 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 AirAsia’s 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 AirAsia’s 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 AirAsia’s 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 AirAsia’s website is down due to busy traffic or for scheduled maintenance. As 77% of AirAsia’s 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 AirAsia’s ‘’No Frills’’ policy, on a bigger scale it ensures loyalty and most importantly customer retention

VALUE CHAIN

LegendCRS        : Computer Reservation SystemFSS        : Flight Scheduling SystemYMS      : Yield Management SystemDBM      : Database MarketingIS            : Internet SalesCC          : Call Center