Pest analysis Introduction Purpose The purpose of this analysis is to conduct an environmental analysis in the context of AirAsia's international

business operations, describing the major variables involved and the impact of the specific threats and opportunities confronted by AirAsia besides that, this analysis also helps to identify AirAsia's competitive strategy and analyse how the strategy is implemented to gain competitive advantage. Background on AirAsia AirAsia was set up by Dato' Tony Fernandes in 2001. In December 2001, Fernandes and his partners set up Tune Air Sdn Bhd (Tune Air), an airline holding company then bought over AirAsia. Now, AirAsia has become one of the most successful airlines in the Southeast Asian region and the pioneer of low cost and no frills travel in Malaysia . The airline now flies to over 40 destinations in Malaysia, Thailand, Indonesia, Macau, China, Philippines, Cambodia, Vietnam and Myanmar. AirAsia has formed 2 successful joint ventures in Thailand through Thai AirAsia, and Indonesia through AWAIR. Starti ng from 2 aircraft till now AirAsia owns 28 and has carried more than 223 millions guest through its low fares travel. 2.0 External Environment Analysis 2.1 Political Flying outside Malaysia is difficult. Bilateral agreement is one of the obstacles in t he way of truly pan-Asia budget carriers. Landing charges at so-called "gateway airports" and navigation charges are often prohibitively expensive, and in key destinations like Bangkok, Beijing, Hong Kong and Singapore there are no cheaper, secondary airpo rts. The budget airline industry in south-east Asia has been underdeveloped because the aviation market is tightly regulated by bilateral air rights agreements. Threat of terrorism, people is afraid to fly after the September 11 terrorist attacks incident. 2.2 Economic In spite of stiff competition from Malaysian Airline (MAS), AirAsia's low -cost carriers offering cheap tickets and few in -flight services are gaining attraction in the region. In theory, Asia has most of the ingredients for making a budget airline work which has a huge and dense population base, the emergence of underused regional airports, a growing propensity among some upwardly mobile people to travel, and relatively high Internet usage. Rising incomes and economic growth are empowering more Asians to board aircraft. AirAsia, Malaysia's budget airline, has sold a 26 per cent stake to three foreign investors for US$26m as it prepares to meet increased competition in south -east Asia. . With the economy slowing down, more people will want to enjoy its cheap tickets. 2.3 Social Passengers are reluctant to board a no-frills airline for a long -haul flight. The longer the route, the less price -sensitive the passenger becomes. They don't want to be crammed into a plane for six or eight hours. Espe cially, when there are limited or no in-flight services. AirAsia wanted to become a company that worked on the basis of the average man in the street being able to afford our air fares, and people who would not have considered flying, or would not fly as o ften as they as do now. Outbreak of the Severe Acute Respiratory Syndrome (SARS) has scare people to fly. AirAsia commit to "Safety First"; comply with all regulatory agencies, set and maintain consistently high standards; ensure the security of staff and guests. 2.4 Technology AirAsia provides online service that combines air ticketing with hotel bookings, car hire and travel insurance. To help keep costs in check, Air Asia has pushed internet booking services. Particularly in parts of the region that ar e poorly served by road and rail infrastructure, people will prefer to travel by airplane. In August 2003, AirAsia became the first airline in t he world to introduce SMS booking where guests can now book their seats, check flight schedules and obtain lates t updates on AirAsia promotions from the convenience of their mobile phones. AirAsia also recently introduced GO Holiday, the airline's online programme where guests can book holiday packages online in real time AirAsia has bought in A320 to replace Boeing 737. The Airbus A320's improved fuel efficiency and extra capacity which leads to better performance and reliability.

2.5 Summary of Opportunity and Threats Opportunity Low fares offer by AirAsia has encourage people from all walks of life style to fly . Especially, during economy down turn. Airbus A320 would encourage greater passenger capacity and offer comfortable service to customers. Introduction of SMS booking allows customer to book their seat at anytime and anywhere. With the commitment in ensur ing the security of staff and customers, they will have more confident to fly via AirAsia. Threats There are more no-frills airlines may take off in Asia to meet increasing consumer demand following the success story of Malaysia's budget carrier AirAsia.

Singapore Airlines plans to launch a budget carrier, they see the success of AirAsia. They know how big the market is and how good the opportunity is in Asia. Travelers may not choose AirAsia if they are to travel long distance flight. They will prefer ai rlines such as MAS or SIA which provide better services. Demand to fly decreased via terrorism and outbreak of the SARS. 3.0 Competitive Strategy Employed by AirAsia According to Chee and Harris (1998, p.237) much of the work on competitive strategy is pioneered by Michael Porter of Harvard University. Competitive strategies indicate the approaches that a company adopts in order to compete more effectively to strengthen its market position. Competitive strategy that is being employed by AirAsia is cost l eadership strategy. Cost leadership is a low cost competitive strategy that is targeted at the broad mass market. Under this strategy, AirAsia has lower overall costs than its competitors such as Malaysia airline (MAS) and Singapore airline (SIA). AirAsia, Asia's leading low fair airline has under -price its competitors and has gain a big market share in Malaysia and in Asia region as well. In the event of a price war, AirAsia who offers fares as low as RM0.99 (excluded airport tax) is in a positio n to withstand the competition better. Although AirAsia offers such a low fares, it is still likely to earn above average returns. To achieve a cost advantage, AirAsia

Porter Analysia

Threat of Entry There is a high barrier entering airlines industry since it r equires high capital to set up everything such as purchase or lease air craft, set up office, hire staffs, and etc. Thus, this has reduced the treat to Air Asia. Moreover, brand awareness is qu ite important in this industry. Hence, to enter this industry n ot only required high capital but also have to take some time to create brand awareness. Consumers always choose the product or service they really trust. Thus, instead of creating brand awareness, new entry has to create so called brand loyalty. Hence, th is is reducing treat to Air Asia too.( Roy L. Simerly) However, the government legislation is one of the barriers for entering airlines industry. For example, MAS has been protected by Malaysia government on the route to Sydney and Seoul Incheon.(Appendix) Therefore Air Asia find itself very difficult getting a new route from government. This not only affects the timeline set by Air Asia but also influence their profit. Nevertheless, this has limited the new entrance due to the government policy. In overall , the treat of entry is low to Air Asia. Power of suppliers Every industry has someone to play the role as suppliers. Power of the suppliers is important as it will affect the industry. In airline industry, the power of suppliers is quite high since ther e are only two major suppliers which are Airbus and Boeing hence there are not many choices to airline industry. Nevertheless, the global economic crisis has limited the new entrant an d also reducing the upgrade of planes in the immediate future. However, both suppliers provide almost same standard aircrafts and hence the switching to Air Asia is low. Moreover, Air Asia placed a large amount of order from Airbus in order to expand its routes to international routes. As a result, the power of suppliers may b e reduced as Airbus's profit may be influenced by Air Asia.( Roy L. Simerly) Generally, the power of supply is moderate low to Air Asia. Power of buyers Buyers are one of the factors which will give influence the industry whether making profit or loss. Nowadays, those buyers are much more knowledgeable and high educated. Thus, they are very sensitive to the price no matter in what product or service. In this case, even Air Asia always provide lowest price to customers, but they still will make comparison between airlines. Secondly, to switch to other service is very simple because Air Asia is not the only one who provides airline servi ce. I.e. customers still can choose MAS, Tiger Airway, Firefly and etc.( Roy L. Simerly) Moreover, Air Asia always leaves customers an image as they always delay the flight. Hence, as an investor or business man, they will choose more reliable airlines instead of Air Asia. In this case, the power of buyers is quite high to Air Asia. Threat of substitutes Substitutes are products or services which can replace the original products or services and give almost same satisfaction to the consumers. In airline industry, there are two types of substitutes, indirect and direct substitutes. Indirect substitutes include train, bus, cruise and etc. On the other hand, direct substitutes indicate the other airline. Consumers usually prefer low cost. For example, from Kuala Lumpur to Singapore, there are few transports that consumers can choose such as bus, train and air travel. If the cust omer is going to a budgeted trip, definitely he will choose bus which is the lowest price among the three. Moreover, the technology is now make information much more easily to assess. Customers can easily compare the price among few airlines just by assess ing internet as internet make information more transparency. Nevertheless, the archipelago geographical structure in Malaysia make air travel is the most viable, efficient and convenient mode of transportation. For example, travel from Kuala Lumpur to Bang kok, the customer may choose to take bus or air flight. However, air plane are much more convenient and also lesser time consuming compare with taking bus to Bangkok. Thus, the threat of substitutes is moderate to Air Asia.

Rivalry among existing competitors In every industry, there is positive or negative trend to industry growth rate. If there is positive trend, then the firms ha ve not to steal the market share among them. However, in airline industry, the growth rate is really low due to limited custo mers. Thus, in order to expand, Air Asia has to steal the market share from its competitors.( Roy L. Simerly) Secondly, Air Asia leads the main battlefield in price among competitors due to its low operating costs. However, there are more competitors enter to airline industry who have major carriers as their backers or owners which may lead to unreasonable' price war in the future. Moreover, Air Asia is not the only one who provides airline service. There are few low cost carriers such as Firefly, Tiger Airway and etc which makes their services provided weak differentiation. Thus, it becomes a threat to Air Asia. In this case, the rivalry among existing competitors is quite high to Air Asia.