MAF661 - STRATEGIC MANAGEMENT

CASE STUDY : AIRASIA BERHAD

(GROUP 4)

GROUP MEMBER MAISARAH BINTI MANSOR (2015975409)

NOR CHAYA BINTI MUHAMAD NAZIM (2016790899)
SITI ZUBAIDAH OTHMAN (2016172277)
NURSAFRA SYUHADA BINTI RODHZI (2014816518)
FATIN AQILAH BINTI JAMALUDIN (2017783551)

CLASS GROUP NACAB 11B

PREPARED FOR DR. NORAZIDA BINTI MOHAMED

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Here’s how Tony Fernandes built a thriving airline

with less than a dollar

2001 was a tough time to be in the airline industry. Yet, Tony Fernandes, CEO of
AirAsia, risked everything to relaunch an aging, indebted airline he’d bought for less
than a dollar. Fernandes had no previous experience in the airline industry, but had
mortgaged his house and cobbled a group of investors together to buy the airline for
about a quarter. He slept in his office at Kuala Lumpur airport, dreaming of re-
launching AirAsia as a successful budget airline.

Consensus thinking at the time said this wasn’t aviation’s moment. Every other airline
in the world was scaling back and cutting overhead, while AirAsia was cutting fares.
Fernandes struggled to secure investor confidence and their financial backing: none
of the international banks were prepared to help him.

Except one. Credit Suisse’s involvement with AirAsia began in 2002. They privately
funded a $30 million placement that laid the groundwork to propel AirAsia upward.
Quickly, AirAsia not only became profitable, but also expanded, with more airplanes,
new routes, and a second hub at Senai International Airport.

That success has been driven by a productive collaboration between Credit Suisse
and AirAsia that is in its second decade. Beyond the initial funding round of $30 million,

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the bank has been involved in all of the airline’s deals, including exclusively running
its 2004 $227 million dollar IPO. Credit Suisse has worked to finance AirAsia’s rapid
growth through various capital market transactions as well as debt financing,
commodity derivatives, and other advisory roles.

In a little over a decade, Credit Suisse has helped AirAsia grow into Asia’s largest low
cost carrier, flying approximately 45 million passengers a year to more than 80
destinations. AirAsia has grown from a Malaysian domestic airline to the largest low-
cost carrier in Asia in terms of fleet size and passengers carried. The story of
redemption has been truly exceptional: the budget airline has been named the world’s
best low-cost airline for seven years in a row, according to the aviation ratings agency
Skytrax. And what began with an initial investment of less than a dollar is now an airline
group with a market cap of $2.1 billion.

It’s easy to see that AirAsia is now an ASEAN champion with global recognition, but
it’s looking to the future. Credit Suisse and the AirAsia leadership team are evolving
their relationship from financing budget carriers in ASEAN to the rest of Asia, and
through AirAsia X—which flies longer routes—to destinations further afield.

Similarly, the bank is stepping in to ensure that plans for business diversification—
from Caterham, QPR, F1, to Tune and other interests—go smoothly. Ultimately, they’ll
help to realize Fernandes’ biggest dreams.

This article was produced by Credit Suisse

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QUESTIONS
1. The success of AirAsia achieved over the years was a direct result of the
creative and forceful leadership of its CEO, Tan Sri Tony Fernandes.
Elaborate from a perspective of leadership and company’s vision and
mission towards the success story of AirAsia. (12 marks)

Answer :

The owner of AirAsia, Tony Fernandes, a highly successful music industry

executive switched careers and industries to a airline or aircraft industry. He came
from a humble beginning and always stayed true to his roots. With only one
Malaysian Ringgit, he buy AirAsia in 2001. In struggling, he purchased AirAsia. At
that time, AirAsia only have two planes, the airlines face problem in heavily debt
and was purchased by Tony Fernandes with took up USD 11 million debts. Tony
Fernandes was survive in this airlines industry with strong leadership and has well
strategy to overcome every high challenge in the industry. With slogan ‘Everybody
Can Fly’ drive AirAsia become one of the successful airline company.

Leadership in organization is a very important trend as the leader has a

large amount of responsibility to lead the direction and build good organization
culture that expressed behaviors, rules and values to the attainment of an
organization’s mission and vision company. As we can see, Tony Fernandes
sometimes become autocratic leader. He adopts a ‘walk around’ management
style instead of discussion with anyone. He also believes that employees become
number one before its customers. He said that if you have happy employee they
will look after your customers anyways.
Other than that, Tony Fernandes also situational leader. He makes decision
based on the urgent state of that current moment. It may not be something which
he likes but he makes the situation forces him to train his leadership behavior. He
is also work as charismatic CEO. His favorite phrase is ‘better value’ If tony
becomes possible to own the concept outright the he wants it. Tony as a leader
introduced the work culture in AirAsia has a made a big impact in the growth of the
organization as the employees were very happy to move forward in the same
direction. Being invested in his or her employees will show a leader as concern

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and considerate, more like family in a business rather than worker and boss
relationship. Employee have been treated like family, they will feel proud to be part
of the team. So, they will work efficiently and indirectly the name of AirAsia will
become famous.
Many observers believe, the successful of AirAsia is caused by the strong
leadership of Tony. He was able to create good organizational culture and stresses
the importance of working as a team. As a leader, Tony is easily approachable to
all his staff. His office does not have any walls and doors and then everyone can
see him, and he also can see everyone. All employee feels free to see him or enter
his office if there is anything important needed discussion and urgent solution. Tony
believes with the current business scenario, where business has become more
competitive so having too much bureaucracy could low down the growth of the
business.
Other side success story of AirAsia is come from their company mission and
vision itself. AirAsia’s vision is to be the largest low-cost airlines in Asia and serving
3 million people who are currently underserved with poor connectivity and high
fares. Nowadays it proven that many people rich or not may choose AirAsia as
their Airline flight to travel because the price is cheaper than other flight. AirAsia
success to prove that their tagline ‘’Now Everybody Can Fly’’ is true. The simple
and strong slogan is also well-known for Asia countries. Indeed, AirAsia’s
promotional strategy makes its slogan true and realistic.
AirAsia has four mission that need to be accomplished. The company’s
mission are to become the best company to work for whereby employee treated
as part of a big family, to create globally recognized ASEAN brand, to attain lowest
cost so that everyone can fly, and lastly to maintain high quality product, embracing
technology to reduce cost and enhance services levels. AirAsia has established a
friendly relationship with its customers, for instance, most of the Malaysian would
consider AirAsia as their first choice in planning their trips because they believe
they could enjoys the best and cheapest fare with the lowest cost airlines. AirAsia
nowadays is the brand that comes in the customer mind. When they looking for
cheaper flight? The answer is check AirAsia. Other than that, planning to travel
soon? Check AirAsia. A poor mission statement may lead company to the wrong
directions.

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Undeniably, Tony Fernandes, a good leadership success brought the name

of AirAsia to a broaden. With the achievements and accomplishments of AirAsia,
it has successful built a strong brand as the world’s best low-cost airlines.

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2. The strategic management process includes strategy analysis, strategy

formulation, and strategy implementation. Discuss each of these steps
according to the success story of AirAsia (13 marks)

Answer :

Strategic management process means defining the organization’s strategy.

It is also defined as the process by which managers make a choice of a set of
strategies for the organization that will enable it to achieve better performance. The
strategic management process includes strategy analysis, strategy formulation and
strategy implementation. AirAsia also apply strategic management process as part
of their organizations strategy.

Strategy Analysis

Analysis is a key stage because the information gained in this stage will
shapes the next two stage. In this stage, gather as much information and data
relevant to accomplishing company vision. The analysis should be on
understanding the needs of the business as a sustainable entity that will help
business grow. Strength and weaknesses of the organization identified as well as
any threats and opportunities that may arise along the path. SWOT Analysis will
be a tool to identify strength, weaknesses, opportunities and threats of the
organizational. The strengths of AirAsia is having low operating cost due to the
online reservation system, no frill, quick check in and etc. It is suitable with their
tagline ‘’Everyone can fly’’ mean to giving opportunity to all people to fight with the
lowest possible fare and making them can flight even they only have less money.
While for their weaknesses part, AirAsia a huge investments to acquire airplanes
and executing the latest technology there is a high amounts of the operating cost.
No frill become impossible to implement for passengers. While comparison with
MAS, MAS will be the full services airlines where AirAsia is a no frills airlines. For
the opportunity part, AirAsia should offer low fares which can encourage people
from all types of life style to fly. Offering the comfortable service for every
customers might be one of the opportunities also. AirAsia might introduce SMS

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booking, so the customers can book their seats anytime and anywhere. Lastly will
be the threats. Certain rate like airport departure, security charges and landing
charges beyond the control of airlines operator . This is threat to all airlines
especially low cost airlines but tries to keep their cost as lower as possible.

Strategic Formulation

The information of SWOT analysis should be used to set clear and realistic
goals and objectives based on the strengths and weaknesses of the company.
AirAsia formulated targeted plan to achieve the goals. Prioritize the tactics most
important to achieve the objectives. AirAsia provides the services at the price which
is lower than other competitors. This help to build and inherits the competitive
advantages. Besides, there are 2 main characteristics of low cost business which
including in AirAsia are outstanding efficiency and operation effectiveness. The
objectives of AirAsia is to achieve bigger cost advantages than adversary by
continuously looking for cost reduction along the value chain. Through the value
chain analysis, people can determine how AirAsia creates cost benefits. It all about
strategy formulation plan by AirAsia team from the setting objective to choice of
strategy.

Strategic implementation

Strategic implementation is the activity which performed according to the

plan in order to achieve an overall goal. In this case, AirAsia implement the
Information system to make AirAsia more effective and efficiency and possibly able
to reduce cost and eliminated inefficacy in their business. IT system that AirAsia
carry out is yield management system (YMS), enterprise resources planning (ERP)
and customer reservation system (CRS). IT system helps AirAsia reduce cost for
example the customer can check in online so the customer no need to waste time
to lining up. It helps improve efficiently and reduce congestion in the airport. Other
than that, it helps AirAsia to optimize its supply chain management as clusters and
classified customers order, forecasts future fulfillment requirements, set order

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priorities and checks resources availability. They should implement that strategy to
maintain the title of low cost fare airlines.

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3. Strategic management consists of the analyses, decisions, and actions an

organization undertakes in order to create and sustain competitive
advantages and strategic competitiveness. Discuss AirAsia’s strategic
competitiveness and competitive advantage in current landscape of airlines
industry (25 marks)

Answer:

Strategic Competitiveness

Strategic competitiveness is a type a strategy that certain firm can plan to

achieve their organizational goals even though there are a lot of competitors around
them. It can be achieved when a certain company or firm successfully come out with
a special ideas or strategy that can allows the firm to create wealth to its organization
when it is implemented or in other word, implementing value-creating strategy.
Usually, in implementing strategic competitiveness, other companies are unable to
duplicate or follow it. Some even feels that it is too costly to follow. With this, we can
say that the firm has a competitive advantage.
According to the case study, AirAsia has been such a big phenomenon in airline
industry especially in Asia since its established-on 2 December 2001. AirAsia with the ordinary
symbol but with strong brand, ‘Now Everyone Can Fly’ means to giving an opportunity to
all the people to flight with the lowest possible fare. The reason such as:
- AirAsia believes to compete in the airline industry, it must be cost-efficient and
profitable, and it must create value. Costs that do not add value must be
contained, reduced and even eliminated.
- Demand for low cost carrier (LCC) industry will keep growing rapidly.

The lowest possible fare that AirAsia was implementing is the best strategy that
they are used to compete with their rivals in the airplane industries. AirAsia believes
with the lowest fare that they are offering to the customer, they can attract customer
more than their rival in the airplane industries. In the values part, AirAsia implements
the following key strategies:
i) Safety First – Partnering with the world’s most renowned maintenance
providers and

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complying with the world airline operations.

ii) High Aircraft Utilization – Implementing a quick turnaround of 25 minutes which
is the fastest in the region, assuring lower costs, staff productivity and greater
airlines.
iii) Low Fare, No Frills – Providing guests with the choice of customizing services
without
compromising on quality and services.
iv) Streamline Operations – Making sure that processes are as simple as possible.
v) Lean Distribution System – Offering a wide and innovative range of distribution
channels to make booking and travelling easier.
vi) Point to Point Network – Applying the point-to-point network keeps operation
simple and lower costs.

Competitive Advantage

Competitive advantage is what allows a firm to gain an edge over its rivals and
it enables a firm to generate successful performance over an extended period of time.
In other word, we can say that competitive advantage comes from a firm's ability to
perform activities more distinctively or more effectively than rivals.

Figure 1: Porter’s generic strategies diagram

From the diagram above, aligned with the mission statement, the business
strategy of AirAsia is more focus on cost leadership. Nevertheless, AirAsia business
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strategies focus on specific market especially for customers who sensitive in pricing.
AirAsia provides the services at the price which is lower than other competitors. This
helps to builds and inherits the competitive advantage.
There are 2 main strategies of low-cost businesses which including in AirAsia
are outstanding efficiency and operation effectiveness. With this strategy, AirAsia can
achieve their goals and objective into the lowest carrier airplane in the world. Cost can
be the competitive preference and determines the market position in Lower Cost
Carrier (LCC) industry.
The first competitive advantage in AirAsia business is introduce ‘Snack Attack’
a range of delicious snack and drink available on board at an affordable price. In
addition, they also provide exclusively for AirAsia guests to choose from. There is no
such thing as ‘free food or drink’. This is because some passengers may choose not
to take food & beverages while boarding the plane because they prefer to rest during
the flight or those who prefer to eat before flying. Therefore, AirAsia does not force
their guests to buy something they do not want or need.
Secondly is ‘If you want to select your preferred seat, you must pay a fee ’. This
refers to their guests who receive an entry pass with a pre -determined seat and are
not allowed to request an unnecessary change of seat. If guests have a choice of
where or with whom they want to sit on the plane, they can do so by paying a small
amount during online check-in which is called ‘Pick-a-Seat’.
Thirdly is implementation of E-commerce. This is because it can reduce the
cost of travel agents, and less of ticketing paper cost such as introduce ‘ticketless
airlines’ which is less hassle for the customer, as guests need not worry about
collecting tickets before travelling and encourage their guest to do ‘internet booking’
such as online check-in, so they do not have to waste time lining up at the check-in
counters at the airport.
Currently, the COVID-19 virus has spread worldwide without acknowledging
borders. It has impacted all industries including AirAsia Airlines. On 27th May 2021,
AirAsia Group Berhad (“AirAsia” or the “Group”) reported its financial results for the
quarter ended 31st March 2021 (“First Quarter 2021”). Even though Airline revenue
decreased 91% year-on-year (“YoY”) and 12% quarter-on -quarter (“QoQ”) due to
limited travel caused by the lockdown imposed in Malaysia since January 2021,
AirAsia digital continued to gain traction as each entity expanded operationally. The
AirAsia super app posted strong revenue growth of 45% YoY to RM10 million.
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Therefore, Tony Fernandes used COVID-19 pandemic to relook businesses.

One of them is non-airline digital platform such as ‘BigPay’ is on track to become the
first virtual bank and ‘Teleport’ to provide both international (inbound and outbound)
as well as domestic courier services in Malaysia.
Other non-airline businesses including AirAsia food, AirAsia fresh, AirAsia
shop and Santan franchise restaurants are expanding into new markets to meet the
changing needs of consumers, delivering greater value and convenience. At the
same time, they have also launched AirAsia beauty in Malaysia and Indonesia,
acknowledging the surging demand for beauty and skincare products. AirAsia beauty
is centered around providing authentic beauty products with a personalised shopping
experience led by our in-house beauty ambassadors.
In conclusion, currently, AirAsia’s service offerings are likely to be minimal to
keep costs low, just like the no-frills model it employed in air travel years ago, but Tony
Fernandes's philosophy is very clear: before a business can grow, it needs to have its
costs under control. It must be cost-efficient & profitable, and it must create value such
as "How much lower can your cost reduce?".

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