Student Name: KANESS TANABALU

Student ID: J18028988

Degree Title: MBA Programme – International Marketing

Level: PG

Module: Sustainable Strategy – From Planning to

Implementation

Module code:

Seminar Tutor: Dr. Poh Phaik See

Assignment title: CW2- Environment Audit on AirAsia Berhad

Word count: 1475

I, KANESS TANABALU, confirm that this submission is my own work and I accept
all responsibility for any copyright infringement that may occur as a result of this
submission.

Date of submission: 15th of OCTOBER 2018

Table of Contents

1. INTRODUCTION .............................................................................................................. 4
2. MACRO-ENVIRONMENTAL ANALYSIS ..................................................................... 5
2.1. PESTEL....................................................................................................................... 5
a) Political Factors ......................................................................................................................... 5
b) Economical Factors ................................................................................................................ 5
c) Social-Cultural Factor ............................................................................................................ 6
d) Technological Factor .............................................................................................................. 6
e) Environmental/Ecological Factors................................................................................. 7
f) Legal Factors ............................................................................................................................... 7
2.2. Porter’s Five Forces Industry Analysis ................................................................... 8
a) Threat of New Entrants.......................................................................................................... 8
b) Bargaining Power of Buyers .............................................................................................. 8
c) Bargaining Power of Suppliers ........................................................................................ 9
d) Threat of Substitutes .............................................................................................................. 9
e) Rivalry among Competitors ............................................................................................... 9
3. INTERNAL ANALYSIS .................................................................................................. 10
3.1. VRIO .......................................................................................................................... 10
4. CRITICAL EVALUATION .............................................................................................. 12
4.1. SWOT ........................................................................................................................ 12
5. CONCLUSIONS ............................................................................................................. 17
6. References ...................................................................................................................... 18

2
Executive Summary

An airline that has been very successful grown from owning just 2

planes to a total of 220 planes and 20, 000 staff is none other than Air Asia

(Lin, 2018). Holding the slogan of ‘Now Everyone Can Fly’ with effective

branding parallel with lowest fares has attracted gigantic customers to fly with

Air Asia. Subsequently, the company has been top-rated in airline industry as

well as being a tough competitor among other airlines.

Zooming into the success, AirAsia management plays a vital role by

producing quality staffs that holds great responsibilities to achieve the values

of the company. Clear missions which are to be recognised as ASEAN brand

and attaining lowest cost fares that enables everyone can fly definitely have

been recognised as incredible missions although it is shares fair amount of

storms.

Having analysed on the internal and external analysis of AirAsia, this

company has attained a good score. To explain further, both internal and

external factors do not have any effects on AirAsia greatly. This highlights that

AirAsia could reflect their strengths and weaknesses resourcefully for

developing their future business.

This paper, thus, will present about SWOT analysis that could be

integrated by AirAsia which could elevate their current business. Besides that,

ANSOFF analysis has been used as a tool to examine the efficiency of Air

Asia’s product and market. As well, BCG matrix evaluations has contributed in

this paper on how to execute practical operations that could be infused into

their company’s management.

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1. INTRODUCTION

AirAsia’s success has been published in various resources so as to

celebrate its victory. On the 7th of September 2018, The New Straits Times

newspaper has published the airline’s achievement of setting a new record in

the Malaysia Book of Records (MBR) for its new operational strategy which is

known as the Fast Airport Clearance Experience System (FACES. After

receiving its first award in MBR as the first airline that provides ROKKI, an

internet facility for customers on board, the company strive to stand out for the

facial recognition technology system. The current approach allows customers

to travel without presenting any travel documents (Lim, 2018).

In addition to this, winning the award as the World’s Best Low-Cost

Airline for the tenth year in a row at the 2018 Skytrax World Airline Awards in

Langham, London, AirAsia has set an implausible benchmark as an

excellence airline (AirAsia, 2018). Based on the AirAsia Annual Report (2017),

65.5 million of passengers were carried with 4408 flights per week. The

annual also revealed that AirAsia has travelled across 293 routes and

amazingly discovered 90 unique routes. In terms of financial, AirAsia has

collected its revenue of RM 9.71 billion with the increment of 22.3% of

operating profit margin.

Having explored about AirAsia, this paper will present a macro-

environment analysis by utilising the PESTEL and Porter’s Five Forces.

Concentrating on the internal analysis, VRIO has been adopted. Whilst, in

order to measure the internal and external environment of business, SWOT

analysis has been used.

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2. MACRO-ENVIRONMENTAL ANALYSIS

2.1. PESTEL

a) Political Factors

The government has lessened control over the migration as well

as boosting national airlines without compromising its security control. This

has led to a healthy growth in aviation industry (Yashodha, 2012). In contrast,

Malaysian Aviation Commission (MAVCOM) demands on the excessive

number of documents and data for the operation of international routes which

supposed to be an unrestricted bilateral air agreement. The action of

MAVCOM contradicts with the Open Skies Policies introduced by the Ministry

of Transport Malaysia (AirAsia Newsroom, 2018). Into the bargain,

government's decision to increase almost 46% in Passenger Service Charge

(PSC) for every international destination from any airport in Malaysia is also

another political influence in aviation industries (Ming, 2017).

b) Economic Factors

Economic growth in ASEAN region drastically channels to development

of new urban centre in which contributes more travel destinations (Yashodha,

2012). Average and below income group of customers prefers to travel within

ASIA or ASEAN due to the direct result in drops in countries’ currencies

against US dollar (AirAsia Berhad, Annual Report 2016). Fluctuation of oil

price also plays an important role that disrupts the operational cost (Essays,

2013)

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 c) Social-Cultural Factor

More than half population of the people in this planet live within 5 to 6

hours flying distance from Kuala Lumpur and Bangkok. (Yashodha, 2012).

Most of the passengers do not prefer to have No-Frill services especially for

long haul flights (Essays, 2018) . Statistics shows that almost 50% of

business in aviation industries are from return customers(Welford,2010)

d) Technological Factor

E-Business and Web-based Customer Relationship Management

play a key role in aviation industry. (Yashodha, 2012). Current trend allows

passengers to book flights together with hotels for their travels (Essays,

2016). In addition, IT infrastructure plays a key role to manage aviation

industries. However, the technical problem might lead to increment of

operation cost. As a result, it may cause loss of customers (Best Essays,

2015).

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 e) Environmental/Ecological Factors

Malaysia, Indonesia and Thailand are hot and humid throughout the

year which favourably well enough to take off and landing of the

flights. Besides that, these countries are connected to seas and oceans thus

does not require to manage the permission to cross the airbase of another

country. Indonesian islands such as Bali and Lombok are prone to earthquake

and tsunamis. On the other hand, Philippines are exposed to typhoon every

year due to its geographical location (Essays, 2017) .

f) Legal Factors

Airlines promotions consisting of hidden charges such as processing

fee contributes to unethical and manipulative advertisements in which

challenges the Contract Act 1950 and Misrepresentation Act 1967. An

Australian Competition and Consumer Commission, Rod Sims, expressed

that consumers are sensitive to prices so airlines play crucial role in providing

accurate information on price information (taken from Julianah, Zurina and

Normalina, 2017). In terms of Sales and Services Tax (SST), domestic flights

for Sabah and Sarawak are exempted from SST (Bernama, 2018)

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 2.2. Porter’s Five Forces Industry Analysis

a) Threat of New Entrants

Starting a new aviation industry need large amount of funding. High

capital act as barrier to new in entrants.(Essays 2013). Government's

legislation also another barrier for new entrants. Consequently, it is difficult for

airline to get new routes. (Utami, Nugroho, Kang & Barbotin, October 1).

Meanwhile in the process to start up a new aviation company, it involves long

procedure in getting operational license. there is also involvements of

bureaucracy involved. On the other hand, on the recent years, deregulation in

most of the ASEAN countries results is low barrier for new entrant.

(Yashodha, 2012). Therefore, the threat for new entrants to airlines industries

is low.

b) Bargaining Power of Buyers

Consumers are price sensitive. High digitalisation online booking

results passages to easily compare flight with other airlines and select the

lowest fare. Brand loyalty is very low because of low switching cost.

Passenger often purchase advance flight tickets during promotion period and

travel few months later. (Yashodha, 2012). Power of buyer’s is on many

hands. Mostly passengers are individual travellers instead of group. Thus, the

bargaining power of buyers are very strong. (Essays November 2013).

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 c) Bargaining Power of Suppliers

Main aircraft supplier such as Airbus and Boeing are gaining most

bargaining power. (Yashodha, 2012). Currently AirAsia is using Airbus model

aircraft which using advanced technology. As a result, AirAsia rely on Airbus

experts to maintenance and repair. Meanwhile cost of switching is very high. if

in case AirAsia decided to switch to Boeing, the overall cost for training

employee is very high. (Essays. November 2013). Food supplier bargaining

power is low as their price normally depend on market situation. This is mainly

to maintain long term business relationship.

d) Threat of Substitutes

Alternative mode of transport such as bus and train are widely used in

most of the countries in ASEAN. (Yashodha, 2012). Advancement in

technology creates a atmosphere where business communication can take

place through Skype instead of travelling direct to the location.( Utami,

Nugroho, Kang & Barbotin, October 1). Therefore, the threat of substitutes for

airlines is moderate.

e) Rivalry among Competitors

Increasing demand due to globalization has triggered the increasing

Digitalisation increases rivalry among competitor. AirAsia is facing almost 59

low cost airlines. Mostly airlines products offering is the same. Similar product

will increase the competition as it would be difficult to attract customers.

AirAsia broadened its services to holiday packages that include flight and
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hotel and also own hotels. High Exit Cost. in the process of leaving the

business, company has to settle loan and also refund all cancelled flight will

be very expensive. this situation will force the company to continue its

operation even when they are losing money. (Essays. November 2013).

Therefore, the rivalry among competitors is high.

3. INTERNAL ANALYSIS

3.1. VRIO

Resources Organisation
and Value Rarity Inimitable Support
Capabilities

Competitive
Yes No No Yes
Airfares
Physical and
Organisation Yes Yes No Yes
Resources
Company
Branding and Yes Yes Yes Yes
Image
Table 1: VRIO Analysis for AirAsia

Table 1 shows the VRIO analysis for AirAsia by comparing three

resources and capabilities.

AirAsia continuously able to provide very low fares for its passengers.

Its mainly by hedging for low fuel price, No-Frill services, short turnaround

time and Fuel-Energy Management System. This

is not unique and can be implement in the other airline in near future.

Therefore, it serves as competitive parity.

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 Secondly, AirAsia’s physical and organisation resource can be

grouped into two group, tangible and intangible. Tangibles are like its group

fleet size and owns companies in other countries like Thailand, India,

Philippines, Indonesia and Japan. Intangible would be SMS, talent Program

and Fuel-Energy Management System that result in prestige award, World’s

Best Low-Cost Airline. This is very rare but can be imitate in near future by

other airlines

AirAsia continuously uphold its excellent branding record. The

company has created a slogan “Now Everyone Can Fly” and offer free flight

tickets to selected destination really attract a lot of new customer. This kind of

promotion really reflects its slogan and break the image that flying in aircraft is

expensive. Besides that, AirAsia also focuses on most social media platform

where many potential buyers are concentrated. This kind of competence is

very tough to be copied by opponents so that AirAsia can sustain competitive

advantage.

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4. CRITICAL EVALUATION

4.1. SWOT

Internal: 1. Visualising the vision of the company to be the largest

Strengths low-cost airline in Asia, AirAsia with its slogan ‘Now

Everyone can Fly’ providing low airfares by implementing

the Cost Out and Avoidance framework. The framework

collaborates with the Lean Six Sigma (LeSS) which aims

to achieve a greater efficiency through check-in counter

resource planning. As mentioned in the Introduction,

FACES, a new technology innovation, has attracted

customers to travel without carrying documents for

checking as facial recognition has been executed. Apart

from that, mobile check-in facilities enable customers to

manage their bookings. As a result, the digital bookings

has increased from 13% (3.9 million bookings) to 35% by

the end of 2017. The number of customers using the

eBoarding Pass through mobile check in has been

elevated from 20% to 40% by end of 2017 (Annual

Report, 2017)

2. AirAsia and low fare are inseparable. By excluding the

cost of in-flight services as well as reducing the labour,

facilities and overhead charges, AirAsia has attracted

many customers (Zhu, 2010). World’s Best Low-Cost

Airline Premium Cabin and World’s Low-Cost Airline

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 Premium Seat awards has been awarded for AirAsia X for

five consecutive years (AirAsia Newsroom, 2017). This is

a clear evidence that AirAsia is successfully fulfilling its

third mission which is to achieve the lowest cost as

everyone can fly with AirAsia.

3. AirAsia is also well-known for its Safety and Health

Policies. Aireen Omar, Cheif Executive Officer of AirAsia,

draws reader attention that the company operates hazard

indentification as well as risk management process so as

to maintain the safety risks which could be resulting from

the aviation operations which to an extend the cost is “as

low as reasonably practicable” (Annual Report, 2016)

4. Energy-efficiency has always been the priority of AirAsia.

As a low cost carrier, this aviation company has managed

fuel consumption efficiently. By adopting best practices in

line with Sustainability Policy, AirAsia flights have reduced

the emission of carbon dioxide per passenger. By

applying one engine taxi, flights using only one engine

during take off and switched off one engine during landing

allows the company to save nine litres of fuel per flight as

well as reducing 28 kg of carbon dioxide.

Internal: 1. The cheap fare prices used for promotions leads to

Weakness misrepresentation as there are additional charges such as

passengers service charge, KLIA2/ KLIA fees and

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 regulatory service charge. The additional charges are not

included with the promotional price. As a result,

customers are deceived with the promotional price (taken

from Julianah, Zurina and Normalina, 2017).

2. Lack of investments in human and physical resources for

AirAsia company has been pointed out in Daily Mail

(taken from Kharas, 2010). According to the Telegraph

news, flight QZ535 after travelling for 25 minutes from

Perth to Bali was forced to turn due to technical problem.

Passengers on board experienced terrified moment. The

newspaper also pointed out that the air stewardesses

were running in the plane and did not calm the

passengers (2017). This reflects that the air stewardesses

from AirAsia has poorly-trained staffs who do not know

how to handle hazardous situation which could promises

customer’s safety.

External: 1. Middle class family could afford to travel in flight due to

Opportunities the low fare. Based on the Annual Report (2017), at the

end of 2016, AirAsia has successfully attracted 3.2 billion

passengers who are from middle class family. The report

further highlighted that in the next 5 years, the figure of

middle-class family travelling by using AirAsia is expected

to be more than 160 million (2017).

2. Unique campaign has been introduced by the AirAsia to

elevate the number of customers. One of the effective

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 campaigns is “Wonderful Indonesia” which was promoted

by the government to attract travellers to visit Indonesia

so as to boost the tourism industry (Annual Report,

2016).

3. Designing a lightweight flight promises less fuel burn.

AirAsia has replaced flight documents worth of 23

kilograms with 2 kilogram of electronic flights bags that

consists of flight plans, reports of voyage and flight

manuals. Additionally, AirAsia’s flights are only carrying

water based on the flight length instead of 200 litre

portable water tanks. As a result, the flights save up 2

litres of fuel as well as reduce the emission of carbon

dioxide 6 kilogram per flight (Annual Report, 2017)

External: 1. Inconsistency of oil prices could affect the stabilisation

Threats of AirAsia business model because it can lead to the

increment of ticket pricing or the company could

implement additional charges (Crude, 2017)

2. Competitors such as Emirates and Jetstar who are

competitively providing low cost flight price able to

attract customers in which AirAsia may have low

carriers to boost their financial (Daily Mail, 2016)

3. Fluctuations of currency and interest rate influences

the performance of the company in terms of financial.

As a result, customers could avoid travelling by using

aviation industry and could switch to cheapest mode

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 of transport such as trains or buses due to the

financial status in the country. As a whole, it could

have tremendous effect for AirAsia and its

megaprojects (Annual Report, 2016).

4. Due to recent headlines which highlights on the poor

safety of the aircrafts as well as the competency of air

stewardesses in handling hazardous situation,

customers may have the tendency to think in a

negative way about its low price and safety

precautions of AirAsia.

Table 2: SWOT Analysis for AirAsia

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 5. CONCLUSIONS

In a nutshell, this report has successfully explored about PESTEL analysis

by pointing out about aviation industries business demands in terms of

politics, economics, social, technology, environment and legal. In addition,

Porter’s 5 forces approach has been adopted to investigate about airlines

competitiveness, threats, bargaining power of suppliers as well as the buyers.

Swot analysis, on the other hand, has been used in analysing AirAsia’s

strengths, weaknesses, opportunities and threats in aviation industries. Lastly,

VRIO analysis has been presented to highlight about AirAsia’s branding and

company’s competitive air fare, physical and organisation resources.

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 6. References

AirAsia Annual Report (2016). AirAsia. Retrieved October 9, 2018 from

http://www.airasia.com/cdn/docs/common-docs/investor-relations/airasia-
annual-report-2016.pdf.

AirAsia Annual Report (2017). AirAsia. Retrieved October 9, 2018 from

http://www.airasia.com/cdn/docs/common-docs/investor-relations/airasia-
annual-report-2017.pdf.

AirAsia (2017, June 21). Five stars for AirAsia X at Skytrax Awards, AirAsia
Newsroom. Retrieved October 12, 2018 from
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skytrax-awards?rq=low%20price%20

AirAsia (2018, July 17). AirAsia celebrates a decade of world's best, AirAsia
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analysis-on-airasia/

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Lim, B. (2018, September 7). Another milestone for AirAsia. New Straits Times
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maswings-domestic-flight-tickets-sarawak-sabah

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Utami, S., Nugroho, S., Kang, S.Y. & Barbotin, A. (October 1). Industry and
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