External Analysis of AirAsia

Industry Analysis

An industry analysis was performed to assess the budget airline industry.

1. Bargaining Power of Supplier
Overall, power of supplier is high as there are limited (availability of) suppliers (only Boeing and Airbus), the switching cost is high (i.e. airplanes and their maintenance are costly), and there are few substitutes for airplanes (i.e. air travel covers longer distances in a shorter period of time).

2. Bargaining Power of Buyer
As there are almost no switching costs for customers switching from one budget airline to another, the bargaining power of buyer is moderate...Read more>>

Can AirAsia Sustain Its Success?

Based on the external analysis, demand for budget airlines is expected to grow rapidly, attracting more competition and increasing the degree of rivalry. The attractiveness and profitability will attract many full-service airlines to launch their own budget airlines.

Due the Southeast Asian region having the lowest rate of air travel per capita among the other regions indicates a strong potential for growth. As low prices alone cannot sustain AirAsia, it has to maximize its operational efficiency to maintain its competitive advantage (i.e. being the leader in budget airlines) in the advent of... Read more>>

Strategic Actions Adopted by AirAsia

With cost leadership, a set of actions are integrated to produce goods/services with features that are acceptable to customers at the lowest cost, relative to that of competitors. Although AirAsia’s business strategy is centered on cost leadership, it targets specific markets (i.e. price sensitive customers needing short-haul fights), selling its product/services below the average industry prices to gain market share. Hence, it can be categorized into focused cost leadership. AirAsia modified the low-cost airline model and adopted the following strategic actions to lower their costs rel...Read more>>>

Strengths and Weaknesses of AirAsia

The following are strengths and weaknesses of AirAsia:

1. Low Cost Model: Low cost operations and fixed costs
Strengths
Focusing on providing air travel without frills at substantially lower prices, AirAsia has managed to achieve lower prices to attain high passenger loads, market share, and profitability by eliminating provision of costly in-flight services, flying a standard fleet, selling tickets to passengers directly, and minimizing labor, facilities and overhead costs (i.e. passengers are not allocated seats, and do not receive meals, entertainment, amenities, or access to airport lounges).

Its successful negotiations for its low aircraft lease rates, low long-term maintenance contracts rates, and low airport fees, enabled AirAsia to provide the lowest fares. As a result, AirAsia was able to reduce its overheads and investments in equipments substantially in the absence of fringe services. Exhibit 4 shows that AirAsia has the lowest operating cost (29), compared with 29 other competitors (with Air France being the highest at 184).

Moreover, AirAsia’s aircraft maintenance contract costs were reported to be substantially lower than other airlines (i.e. contractual lease charge per aircraft decreased by more than 60% from 2001 to 2004), adding to AirAsia’s competitive advantage, which was further compounded by its young fleet...Read more>>