SM0374 STRATEGIC MANAGEMENT & LEADERSHIP
Name :
Grade Excellent
A sophisticated but clear
discussion of what is
meant by "successful" and
Successful?
how this applies to the
company, supported by a
range of data types.
7 - 10 marks
8
An excellent set of key
reasons with good, clear
explanations. Very good
research and
demonstration of
Business
Reasons
business knowledge.
Goal 1 Obj 1 exceeded
7 - 10 marks
8
Excellent discussion
supported by rigorous
interpretation of
and detailed analysis.
Analysis and
capabilities
Goal 1 Obj 3 exceeded
21 - 30 marks
26
Excellent evaluation
supported by rigorous
analysis based on relevant
Leadership
theory. The data has been
collected from a wide range
of sources.
11 - 15 marks
12
Student No.
TOTAL 78
Very Good Good Adequate Inadequate Bad
A discussion of how A statement of how A statement of how Very little relevant data, Almost not relevant data,
successful the company is successful the company is successful the company is no attempt at evaluation no evaluation of success.
consistent with at least consistent with two types consistent with one type of success
two types of appropriate of appropriate data but of relevant data.
data. Recognises that very little discussion.
"success" can be difficult
to evaluate.
6 marks 5 marks 4 marks 3 marks 0 - 2 marks
A very good set of reasons A good set of reasons, Acceptable set of reasons Either rather limited or No understanding of the
with good explanations. some less than key, but but either too few or too else a scattergun list with reasons underpinning
Good research and good explanations. many to be considered a weak explanations. success. Very poor
demonstration of Reasonable research and set of key reasons. Basic Research very limited - research.
business knowledge. demonstration of explanation, basic does not demonstrate Fails to demonstrate any
business knowledge. research, adequate adequate business significant business
business knowledge. knowledge. knowledge.
Goal 1 Obj 1 exceeded Goal 1 Obj 1 exceeded Goal 1 Obj 1 met Goal 1 Obj 1 not met Goal 1 Obj 1 not met
6 marks 5 marks 4 marks 3 marks 0 - 2 marks
Very good discussion Good discussion based on Basic discussion based on Poor quality, partial No evidence the student
based on accurate analysis analysis that is generally analysis that is competent analysis that does not understands the topic
covering most of the good but has gaps or small but no more. support any discussion. area. Analysis of very poor
relevant points errors. quality.
Goal 1 Obj 3 exceeded Goal 1 Obj 3 exceeded Goal 1 Obj 3 met Goal 1 Obj 3 not met Goal 1 Obj 3 not met
18 - 20 marks 15 - 17 marks 12 - 14 marks 9 - 11 marks 0 - 8 marks
Very good evaluation with Good evaluation based on Basic evaluation based on Inadequate evaluation No evidence the student
careful analysis based on relevant theory with good relevant theory. Analysis either the theory is not understands any relevant
relevant theory with well data. competent but no more. relevant or the analysis is of theory. No evaluation.
researched data. poor quality.
9 - 10 marks 7.5 - 8.5 marks 6 - 7 marks 4.5 - 5.5 marks 0 - 4 marks
 Grade Excellent Very Good Good Adequate Inadequate Bad
interpretation of Excellent discussion Very good discussion based Good discussion based on Basic discussion based on Either the topic area is not No evidence the student
supported by rigorous and on accurate analysis analysis that is generally analysis that is competent relevant or the analysis is of understands any relevant
Analysis and

other topics detailed analysis good but has gaps or small but no more. poor quality. topic areas. Analysis of very
errors. poor quality.

14 - 20 marks 12 - 13 marks 10 - 11 marks 8 - 9 marks 6 - 7 marks 0 - 5 marks

13
More than two good Two good suggestions One relevant suggestion with One relevant suggestion with Suggestions lack relevance No evidence the student
suggestions with excellent appropriate to the company good rationale based on a brief rationale based on and a convincing rationale understands much about the
rationales based on with very good rationales identified factors OR two identified factors. based on identified factors. company at all.
identified factors. based on identified factors relevant suggestions with
Suggestions

brief rationales.
Factors &

Goal 2 Obj 4 exceeded Goal 2 Obj 4 exceeded Goal 2 Obj 4 exceeded Goal 2 Obj 4 met Goal 2 Obj 4 not met Goal 2 Obj 4 not met

11 - 15 marks 9 - 10 marks 7.5 - 8.5 marks 6 - 7 marks 4.5 - 5.5 marks 0 - 4 marks
11

Other general comments :

You started the assignment very well. Providing a good definition of success, you have discussed the measurements of success very well. Professionally
presented, there were a lot of good data provided to support your observations. The discussion on reasons for success was equally good. Well done!

I am really impressed by the way you have presented the value chain. The activities were correctly discussed and the use of the VRIN framework to
further analyse the sustainability of each activity in creating competitive advantages was excellent.

The discussion on leadership was equally impressive. You have made very good use of the various leadership theories to make your discussion
relevant. Congratulations!

The section on strategies were good. You have identified the various strategies well. This section could be better by clearly identifying the competitive
advantages for each strategy discussed.

In your conclusion, the environmental factors are accurately identified and links to the sustainability of the company were clearly established.
 ELECTRONIC
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Module Code SM0374

Module Name Strategic Management & Leadership
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Date of Submission 07/11/2015
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Marker Mr. Frankie Yee

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 Table of contents
1) INTRODUCTION 4
1.1 Overview of AirAsia 4
1.2 Challenges faced by AirAsia 5
1.3 Defining success 6
1.4 Measurement of success 6
1.5 Staff expansion 6
1.6 Customer satisfaction and service standards 7
1.7 Net profit 7
1.8 Consumer growth 8

2) Reasons for success of AirAsia 9

2.1 Clear market segmentation 9
2.2 Strong marketing 9
2.3 Customer confidence and confidence recovery 10
2.4 Organisational culture 10
2.5 Operational style 10
2.6 Competitive pricing 11

3) Value chain + VRIN 13

3.1 Porters value chain 13
3.2 Inbound logistics 13
3.3 Operations 14
3.4 Outbound logistics 16
3.5 Sales and marketing 17
3.6 Service 18
3.7 Support activities Firm Infrastructure 19
3.8 Support activities Human Resource Management 19
3.9 Support activities Technology Development 20
3.10 Support activities Procurement 20
3.11 VRIN 21

4) Leadership contribution to AirAsias success 24

4.1 Definition of leadership 24
4.2 Full range leadership model 24
4.3 Leadership matrix 25
4.4 Charismatic leadership 26

5) Strategies that contributed to AirAsias success 28

5.1 Strategic management 28
5.2 Growth strategy 28
5.3 Strategic alliances 30
5.4 Branding strategy 31

6) External factors affecting the sustainability of the company 34

6.1 PEST analysis 34
6.2 Technological factors 35
6.3 Economic factors 36
6.4 Recommendation 1 36
6.5 Recommendation 2 37
2
7) References 38

3
1. Introduction

1.1. Overview of AirAsia

AirAsia is Asias most successful Low Cost Carrier (LCC). Its vision is to be the

largest LCC in Asia and is currently a multi award winning global brand with its

airline group serving over 100 destinations (Diagram 1).

Diagram 1

AirAsia was founded in 2001 by Tony Fernandez, the current CEO of AirAsia who

bought over the debt ridden company formerly known as Pacific Eagle which had 2
4
airplanes and 50 staff for RM1. With the support of the Prime Minister of Malaysia,

Dr Mahathir, AirAsia has flown over 100 million passengers. It currently boasts a

fleet of 171 planes and about 10000 staff (CAPA, 2015) with its AirAsia group

affiliates (Diagram 2).

Diagram 2

1.2. Challenges faced by AirAsia

AirAsia has enjoyed years of success stemming from its first mover advantage of

being the first LCC in Asia. However, it presently faces challenges from current

economic uncertainty, increased competitiveness (Diagram 3), fluctuating fuel prices

(Diagram 4), and passengers who seek added value in services.

5
A very good start. Professionally presented.

1.3. Defining success

Corporate success is the measure of an organisations competiveness, long-term

profitability, customer satisfaction and continuance of the organisation (Fritz, 1992).

This supported by Kanter (2011), who describes success as the organisations ability

to meet both shareholder and stakeholder goals. A good definition.

1.4. Measurement of success

Success should be considered at various levels of competition (Kotler, 1969).

However, this analysis focuses only on brand level. Not all financial indicators are

independent of non-financial indicators as financial results may be linked to cost-

centre- type actions (Maoboussin, 2012) such as customer service.

1.5. Staff expansion

AirAsia has an average staff rate growth of 7.7% ( Diagram 5). This could indicate

AirAsia to be an employer of choice. It also suggests that AirAsia is able create a

flourishing work environment thus considered successful in this aspect.

6
 1.6. Customer satisfaction and service standards

AirAsias has been awarded Worlds best low-cost airlines, for the 7th

consecutive year by SkyTrax, which ranks airlines based on factors such as

customer satisfaction and service standards. Diagram 6 shows that AirAsia

excels in the Asian and global arena.

1.7. Net Profit

The net profit describes the profitability of an organisation by using the

following equation:

Net Profit =Total Revenue Total Expenses (including taxes)

AirAsias net profit is still positive despite its slowed growth. This could be due

to AirAsias increase in asset procurement, which contributes to revenue

generation in the future. Although net profits may be declining (Diagram 7),

AirAsias profit margin are above the industry average of 1.1% ( IATA, 2013).

7
 1.8. Consumer growth

Despite customers having a higher bargaining power, AirAsia still sees

passenger growth (Diagram 8).

This suggests high customer loyalty and that new customers prefer AirAsia to

other carriers (Diagram 9), thus reflective of AirAsias brand image. This could

also be a result of positive feedback where existing customers aid in

acquiring newer customers (Sipotz, et. al, 2005)

8
 2. Reasons for success of AirAsia

2.1 Clear market segmentation

AirAsias targets budget travellers who are generally price sensitive. Diagram

10 shows that SEA has a large and growing middle income population

(Economist, 2012). AirAsias clear market segmentation allowed it to focus on

meeting customer expectations, learning purchasing patterns and

preferences of consumers (Schiffman et, al, 2008) in this segment and bring

value to them.

2.2 Strong marketing

AirAsia markets its cheap airfares and destination, using a variety of

traditional media channels as well as social media. Its marketing is frequent

unlike other airlines which promote seasonally. This keeps the advertisement

decay rate lower (Gold, 1992) as compared to its competitors, thus being

more entrenched in the minds of its target customers.

9
 2.3 Customer confidence and confidence recovery

AirAsia went through its first major disaster when one of its planes crashed.

Through confidence recovery measures (Berry, 2004) such as taking

responsibility as well as having the CEO on the ground to personally assist

the families of victims, customer confidence was recovered swiftly (Jake,

et.al, 2014). AirAsias efforts can be seen in its shares recovery in Diagram 11

when compared to that of Malaysia Airlines (MAS) when its planes crashed

(Diagram 12).

2.4 Organisational culture

Organisational culture strongly affects business performance (Nihan & Seda,

2013). AirAsias organisational culture places little emphasis on hierarchy

evident from an open office environment with little physical barriers between

desks (Harvey, 2012) allows transparency. Everyone works in full view, thus

maximising productivity.

2.5 Operational style

AirAsias fleet size allows them to handle large passenger volume. AirAsia

can therefore fly to more destinations frequently. Unlike competitors with

smaller fleets, passengers have a higher chance of being able to get a seat
10
 on AirAsia (Diagram 13), thus reducing the chances of them switching to

competitors. AirAsia also has a large fleet of aircrafts of the same model.

Spare parts for servicing are ordered in bulk, thus reducing costs.

2.6 Competitive pricing

AirAsias ticket prices are much cheaper than their competitors and below the

industry average (Diagram 14). Their pricing strategy matches the price

expectation of their target market and addresses their customers perceived

value of an affordable air ticket. Due to their operational size, they

occasionally offer free air tickets with customers only having to pay the airport

tax.

11
You have provided a very good discussion on the measurements and
reasons for success. Well done!

12
3. Value Chain + VRIN

3.1 Porters Value chain

In order to understand the value a customer receives, the value chain of

AirAsia needs to be analysed. This allows the clear identification of activities

which determine the competitive advantage over its competitors by

outperforming them in terms of performance and price (Tracey & Hinkin,

1994). It also allows operational misalignments to be exposed and

improvements to be made (Feame et. al, 2012) creating added value. The

general model of a value chain is categorised into its primary activities and

support services ( Porter, 2008). This report shall use Porters model (Diagram

15) for AirAsias value chain analysis.

3.2 Inbound logistics

The main processes in AirAsias inbound logistics are shown in Diagram 16.

However this report will focus on AirAsias fuel management.

13
 AirAsias fuel expense is about 47% of its total operations (Merkert, 2015).

AirAsia practices 2 methods to reduce its fuel expenses. It employs a fuel

management system with GE Aviation which meets its minimum target of 1%

fuel savings (GE, 2015). The fuel management system also advises AirAsia

on practices which saves fuel such as taxing with one running engine instead

of two. This reduction in fuel consumption while yielding the same operational

outcome allows AirAsia to pass down cost savings to its consumer.

AirAsia also fuel hedges which allows it buy fuel at low prices and utilises it in

the future when fuel prices increase. Currently 50% of AirAsias jet fuel is

hedged (Park, et. al, 2015). This reduces the vulnerability of AirAsia against

fluctuating fuel prices and value is passed onto the consumer through

cheaper air tickets. Good

3.3 Operations

Diagram 17 shows AirAsias main operation activities. However, this report

will focus on airline maintenance.

14
AirAsias reputation lies in how safe their airlines are and aircraft maintenance

is an important factor in their operations. AirAsia has sub-contracted their

maintenance to ST Aerospace, which is the world largest aviation

maintenance company. By sub-contracting their maintenance AirAsia can

focus on profit-centre activities such as marketing while enjoying reduced

operational cost and capital investment (McFarlan & Nolan, 1995). AirAsias

contract with ST Aerospace is a Maintenance By Hour (MBH) service where

maintenance fees are only paid when maintenance is needed. This reduces

the need to employ many full-time maintenance staff who may be

underutilised. Sub-contracting also reduces inventory holding costs and

reduces delays in obtaining spare parts since ST Aerospace has a better

stock and supply capacity than AirAsia.

Value is created for the customer through cost saving from reduced fixed

overheads and the reduced flight delays due to maintenance since ST

Aerospace has the expertise, technology and manpower to maintain AirAsias

fleet.

15
 3.4 Outbound logistics

Diagram 18 shows some of AirAsias outbound logistics activities. However,

this report will focus on its ticketing.

AirAsias has a high passenger volume. AirAsia practices a ticketless

system where there isnt a physical ticket/boarding pass issued by the airline.

A confirmation email is sent to the passenger upon ticket booking.

Passengers can then print their ticket confirmation, mention their ticket

reference number at the check-in counter or simply check-in online when at

the airport (AirAsia, 2015).

By going ticketless, it reduces the paper usage, printing, manpower and

distribution costs while increasing efficiency (Buhalis, 2004). Value through

cost saving is passed down to the consumer. Similarly, by checking-in online,

there isnt a need for passengers to queue at the check-in counter. Value is

created for the passenger in terms of reduced waiting time as well as

convenience.

16
 3.5 Sales and marketing

Diagram 19 shows AirAsias major sales and marketing activities. However

this report will focus only on sales channels.

AirAsias receives ticket bookings from a variety of channels including

counter, travel agent, phone and internet bookings. These are linked to

AirAsias Passenger Service System ( PSS), NewSkies. These channels

help achieve a competitive advantage in maximum sales performance since

industry competitors are effectively selling the same thing (Friedman &

Furey, 2012) and NewSkies collates all information.

Although there are a growing number of customers who book their tickets

online, consumer readiness in electronic payment such as credit cards as

well as mobile phone payments are still slow in many parts of SEA ( Huang,

2013) as seen in diagram 20 and 21 respectively. As such, AirAsia creates

value by giving customers ease of access and convenience in purchasing

and paying for their tickets through various sales channels.

17
 3.6 Service

Diagram 22 shows the service activities AirAsia practices. However, this

report shall focus on the value added service of hotel reservation.

AirAsia provides a hotel and flight package service called AirAsiaGo (AirAsia,

2015) and has partnerships with over 230 000 hotels. AirAsia also has as joint

venture with Expedia, a leading online travel agency, which gives AirAsia a

competitive advantage over its smaller competitors ( Daily Finance, 2011). It

provides an all in one fare to inform consumers the overall price of their flights

and accommodation, without being misled by hidden costs when booking

them separately. Value is created for consumers by saving them time from

comparing and sourcing their accommodation options from scratch. AirAsia

18
 usually offers discounts when flight and accommodation are booked together

which is favourable to AirAsias price sensitive consumers.

3.7 Support Activities Firm Infrastructure

AirAsia has an extensive yet lean infrastructure. It has travel and service

centres (ATSC), call centres and sales offices across Asia (AirAsia, 2015).

With their wide network, they are able to integrate their services throughout

their network of airline affiliates. With a large fleet of aircraft, AirAsia has the

infrastructure to handle large passenger volumes. A large fleet also allows

AirAsia to expand its market reach as it has enough planes to reach more

destinations and provide more frequent service (Doganis, 2005). This creates

value by providing convenience to its consumers.

Although AirAsia is an LCC, the structured organisation provides consumers a

level of confidence that the carrier properly manages. AirAsias main

departments are shown in the Diagram 23

3.8 Support Activities Human Resource Management (HRM)

AirAsia has more than 6000 employees but is prudent in its HRM. Many staff

take on more than one job role. This reduces staff redundancy and improves
19
 efficiency among workers. Employees are paid below the market rate but

receive incentives based on performance (AirAsia, 2015). This motivates staff

to perform well as the expectation of rewards usually improves performance

(Liljeholm, 2012). Pilots are usually transferred from airlines thus reducing

training costs. These factors reduces AirAsias operating cost which benefits

the consumer.

3.9 Support Activities Technology development

AirAsia leverages heavily on technology. The information technology AirAsia

deploys is real-time and its database is continually updated. These

information is reflected to relevant parties such as travel agents, booking

websites and call centres. Information is collected with a Yield Management

System (YMS) called NewSkies and is passed on to business and sales

managers in AirAsia reflecting revenue and pricing options which gives them

a competitive advantage ( Leslie & Bobb, 2008). Such technology helps

AirAsia make informed decisions which may create value for the consumer in

terms of cost and convenience.

3.10 Support Activities Procurement

AirAsias procurement is done at 2 levels. The first being the e-procurement

where the procurement of goods and services happen online. All elements of

e-procurement, including e-sourcing (DeBoer et al, 2001) aims to reduce

cost, increase transparency and duration of purchase cycle (Beall et al, 2003).

AirAsia has also formed a JV with another LCC JetStar ( Yeo, 2010) to

engage in procurement activities which will help reduce cost due to larger

buying volume. These costs savings are enjoyed by consumers through

lowered fares.

20
 3.11 VRIN

21
22
An excellent discussion. Congratulations.

23
4. Leadership contribution to AirAsia success

4.1 Definition of leadership

Leadership is a key component in AirAsias success. Carter (2009) defines

leadership as the usage of skills, experiences and providing direction to

people to improve performance. Hickman (1992) however believed that the

competitive advantage of an organisation begins from how people within the

organisation are led. This is in tangent to AirAsias CEOs principle of placing

employee satisfaction before customers (Fernandes, 2010) as he believes

that satisfied employees will be intrinsically motivated to satisfy AirAsias

customers.

4.2 Full Range Leadership model

Bass and Avolio (1998) categorises leadership into 4 dimensions in their Full

Range Leadership model as shown in Diagram 24.

Tony Fernandes has always been in the spotlight for his active involvement in

the company and for being an inspiration to people worldwide through his

business success story. His leadership style has proven to be successful and

effective, resulting in AirAsias success. From the conceptualising of an idea

of being the largest LCC in Asia to actually achieving that target, Fernandes

was active in the development and expansion of AirAsia. Therefore,

24
 Fernandes leadership style is that of a transformational leader. Other

indicators of transformational leaders is their ability to handle crises head-on

and celebrate the achievements of its followers. The ability to handle crisis

head-on is evident in Fernandes superb handling of the AirAsia crash, where

he claimed full responsibility immediately after being aware of the disaster

(Watts & Rachman, 2014). Fernandes never fails to celebrate success stories

of his staff such as AirAsias first female pilot who started off as a flight

attendant (Rivers, 2010).

4.3 Leadership Matrix

In Blake & Moutons (1985), leadership matrix model, (Diagram 25),

Fernandes is categorised as a team leader as he is as task oriented as he is

people oriented.

Fernandes also exercises a reactive and proactive leadership style. This is

evident in his involvement in helping load and unload baggage with his

baggage handlers and having discussions with his cargo crew (Rao, 2009).

His experience with the struggles the luggage handlers faced with the loading

25
 and unloading of luggage made him invest in machinery to improve their

working conditions and performance (Fernandes, 2010). This in turn helped in

AirAsias operational performance. During the AirAsia disaster, he provided

families of the victims with his mobile number which shows his concern for

people, while his full cooperation with the authorities showed his concern for

task.

4.4 Charismatic Leadership

Fernandes is considered a charismatic leader from his management style of

managing by walking around and leading by example (Kamisan & King,

2013). By walking the ground, he understands the processes his staff

undergoes in their daily work and strives to improve their work performance.

His charismatic and humble demeanour is also noticeable by his usually

casual dressing with the donning of his cap promoting AirAsia. This is

contrary to the formal dressing style of a CEO. By doing so, Fernandes is a

charismatic leader as he exudes respectable moral behaviour (Kirkbride,

2006). With such qualities and the high amount of media exposure he

receives, Fernandes indirectly markets AirAsia thus gaining a good market

position while contributing to AirAsias success.

He also uses trust as a basis of his leadership. This is evident by his

openness and availability to his employees who have access to his direct

mobile line. This shows his attempt in reducing bureaucracy within the

organisation. His employees feel empowered, valued and engaged with such

a strong and clear line for communication. Fernandes emphasis on trust and

integrity is also evident with a whistle blowing channel which is accessible to

everyone via the corporate website. By doing so, he has gained the trust and

respect of his employees (Tracey & Hinkin, 1994), making his leadership

26
effective. These measures are spearheaded by his leadership and gains

customer confidence which is another reason for AirAsias success.

A very good discussion here.

27
5. Strategies that contributed to AirAsias success

5.1 Strategic management

In order to become a market leader, strategic management is required to

achieve strategic competitiveness leading to profitability (Hitt. et.al, 2012).

This would enable the organisation to become the market leader. However,

before doing so, a strategic management process needs to be carried out

(Diagram 26). Selecting the right strategies will thus reduce the strategic drift

over other competitors.

5.2 Growth Strategy

AirAsia had to initiate strategies in a highly competitive environment in order

to succeed (Werner et. al, 2004). This is noticeable in their growth strategy

which can be related to Ansoff (1957) model (Diagram 27). Ansoff also

suggests that growth opportunities stem from the development of products

and markets executed in a certain sequence.

28
The development and diversification of current and new products in existing

and new markets can be seen in AirAsias growth strategy ( Diagram 28).

Their strategies include product penetration, maturity, geographic expansion

and product expansion. This has allowed AirAsia to maximise its resources

and receive a substantial ancillary income from many of its non-flight services

while increasing potential revenue from its core services.

It is noticeable that although AirAsias product diversification is wide, it is still

within the parameters of the travel industry which suggest a concentric

diversification approach. This diversification help increase the competitive

29
 advantage of AirAsia through value innovation. As much of the services

AirAsia provides is intangible, it should also connect to the lifestyle, emotions

and culture of its consumers (Martins, 2015). AirAsia has managed to provide

a diverse range of products and appeal to a variety of consumers while

maintaining their motto of Now everyone can fly without cheapening their

image of being a LCC.

5.3 Strategic Alliances

Gulati (1998) describes strategic alliance as collaborations which includes

product exchange, co-development and sharing in order to reach a set of

common goals. Through strategic alliances, AirAsia is able to access new

markets (Kogut, 1991) while improving public visibility and brand recognition

by riding on other brands (Baum & Oliver, 1991). Strategic alliances (Diagram

29) also enables AirAsia to tap onto the core competencies of other brands to

uphold their brand image.

30
 Diagram 29

5.4 Branding Strategy

The branding strategy of AirAsia is another crucial process which propelled its

success. Branding does not only promote a name or address a target group,

but it creates a preference and in the minds of consumers (Noble, 2006). The

purpose of brand strategy is to increase the brand value of the product by

31
convincing consumers that their product/ service has more value than that of

their competitors (Keller, 2002).

The branding strategy of AirAsia can be analysed using the Davis (2002),

Brand Asset Management model as shown in Diagram 30. The model

analyses 4 dimensions which leads to increased brand value.

AirAsia has managed to apply the 4 dimensions in its aim to increase its

brand value. This started from the conceptualising of AirAsia till presently

where it stands in the market. The details of the processes in the Brand Asset

Management model is show in Diagram 31.

32
 Diagram 31

AirAsia has a clear vision and it offers products and services to address the

needs of the consumers while maintaining a consistent brand position in the

market. AirAsia has the resources to execute certain strategies to help it

succeed over its competitors and live up to its brand promise (Lim. Et. al,

2009). These, along with other strategies not discussed in this report has

enabled it to succeed in the LCC aviation industry.

Again a good discussion. This section could be better by providing a clearer

discussion on competitive advantages.

33
6. External factors affecting the sustainability of the company

Although AirAsia is still enjoying success, there are several factors which

affect the sustainability of the company both externally and internally. This is

due to continual transformation in the macro environment of organisations,

markets, and people ( Dominici, 2015) In order to determine the external

factors affecting the sustainability of AirAsia, an analysis of the PEST/

PESTLE framework has to be carried out. Factors from the analysis become

the drivers of long term change (Isoherranen, 2012). These factors, coupled

with strategic changes based on a thorough SWOT analysis, AirAsia should

be sustainable and maintain/ increase its competitive advantage. AirAsias

PEST framework and some of its factors are shown in Diagram 32.

6. 1 PEST Analysis

For the purpose of this report, only technological and social factors will be

discussed.

34
 6.2 Technological factors

The first issue is technological infrastructure. Many ASEAN nations are below

the average internet speed with only Vietnam, Thailand and Singapore having

better than average speeds (Elsinga, 2014) as shown in Diagram 33.

However these three countries are not where the growing number of AirAsia

customers are from. Larger customer base such as Philippines and Indonesia

suffer from poor internet speeds which make customers from those markets

more pessimistic in booking tickets online, thus choosing other airlines with

traditional payment methods. Good

AirAsia may have been the first to introduce the ticketless system, but it is

seen as lagging behind its competitors especially with certain credit cards not

being accepted during the online ticket purchase process. The issue of credit

card payments not going through are rampant from most sources which

review airlines including AirAsia. Similar issues were faced with debit card

payments being declined. This has caused a significant number of customers

to hop over their competitors despite AirAsias lower fares.

35
 6.3 Economic factors

Currently, AirAsias main operations take place in Malaysia and it (AirAsia

Berhad) is the most profitable among the AirAsia group. However it faces

negative economic exposure which affects the companys profit and value

(Shotar & Mefleh, 2009). As AirAsias business is based on cost savings and

their profits result from cost managing the entire value chain, it is very

sensitive to the fluctuations in exchange rates. The Malaysian ringgit has

been dropping steadily since the last fiscal year (Diagram 34). Therefore, it

has to take steps to protect its finances against economic exposure.

6.4 Recommendation 1

AirAsia should invest in newer technology and ensure that the technology

employed is compatible with the mass population. This may include offering

consumers other payment gateways such as PayPal, 2Checkout among

others ( Diagram 35). As payment gateways are not core competencies of

AirAsia, it should outsource its payment gateway to companies which accept

a variety of credit/debit cards payment from various banks. This would reduce

consumers frustrations of their payment being declined despite them having

36
 funds for payment. By doing so, customer satisfaction will increase and so

would customer retention.

6.5 Recommendation 2

As AirAsias main selling point is its cheap airfares, its profit margins are

sensitive to external factors such as currency risks. AirAsias affiliates in

which AirAsia (Berhad) has shares in are exposed to translational,

transactional and economic risk, due to currency fluctuations. AirAsia should

therefore engage in hedging activities such as using currency options, swaps

and forward contracts (Schoenberger, 2011) although these in itself have

risks of their own. This would allow better cash flows, increased market value

of AirAsia, and maximising their profitability.

Good links between environmental factors and the impact on AirAsia.

Recommendations provided were sound.

37
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