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AIM AND OBJECTIVES
The main goal of this paper is to analyse the marketing strategy of Air Asia as a Low cost-airline. In addition, this will also determine if Air Asia has a chance and market opportunity to expand their business in European market, specifically the UK market. In addition, this paper also aims to analyse the marketing strategy used by this airline industry in Asia and also the UK market. Marketing tools and instruments will be used to assess Air Asia. This paper will also compare Air Asia with its main rivals in the UK market, analyse the competitiveness of the airline industry and provide recommendations for entering in the European market.
Table of Contents
AIM AND OBJECTIVES 1
1. Introduction: Air Asia – an innovative concept is being challenged 3
2. Aim and Objectives 4
3. Literature Review 6
3.1. Air Asia – deregulation of aviation market provided new opportunities 6
3.2. General strategy of a low cost airline 6
3.3. The marketing strategy of Air Asia 6
3.3.1. Hub-concept 6
3.4. Air Asia – a differentiation strategy 6
4. Air Asia and the UK market – Comparison to competitors 6
5. Primary Research and Methodology – Air Asia in the UK 6
5.1. Name recognition of low cost airline and Air Asia in the UK 6
5.2. Booking behaviour and expectations when flying 6
5.3. Comparing fares 6
5.4. Obvious advertising strategies of low cost airline in the UK 6
6. SWOT analysis for Air Asia regarding the UK market and implications 6
6.1. Strengths 6
6.2. Weaknesses 7
6.3. Opportunities 7
6.4. Threats 7
7. Conclusion and Recommendations 7
1. Introduction: Air Asia – an innovative concept is being challenged
Different companies, specifically in airline industry are trying to enance their service s to attract new clients and to retain old clients, and this goal is part of their business and marketing strategy. To be able to adjust with the stiff competition in the airline market, airline industries tend to come up with different approaches and strategies for to be competitive. In addition, because of the increasing competition among other industries, Air Asia, like any other airlines adopt strategic approach to marketing and expand their market reach and give better and satisfying service delivery to their target market. To sustain the competitive position and advantage, strategic approach to management and marketing are being developed and used. Through these, the industry can establish a good relationship with their target market.
Air Asia is known to be the leading low-cost airline in Asia. The industry has been able to rapidly expand since 2001 to become and well-recognized low-cost carrier in this continent. The industry has 72 aircrafts which flies to over 61 local and international travel destinations with 108 routes, operating daily over 400 flights from hubs which are located in Malaysia, Indonesia and Thailand. Accordingly, this airline has already flown over 55 million clients across the region and the industry still continues to spread its wings to establish more extensive route network through along with their associate companies, Indonesia Air Asia and Thai Air Asia.
Air Asia believes in the hassle-free, no-frills, and low fare services for their target market and the management feels that keeping costs low needs high efficiency in every aspect of the business. Herein, efficiency creates savings which are then passed to the customers so that low-cost, affordable and high quality air travel will become a reality. With their philosophy ‘Now Everyone Can Fly’, this airline has been able to spark a revolution in air travel with more and mo guests across the region prefer Air Asia as their number one choice of transport As this industry strive continuously to promote air travel, the company also never stops to establish excitement amongst their guests with the range of innovative and personalized airline services offered.
2. Aim and Objectives
As mentioned above, the main goal of this report is to analyse Air Asia’s marketing strategy and its opportunity to expand in the UK market. Specifically, one of the objectives of this paper is analyse its being a low-cost airline. This will be discussed within the brief introduction into the airline development in the proceeding chapters. Aforementioned, Air Asia is known as one of the largest low-cost airline in Asia and it is important to analyse Air Asia as such. The internal and external analysis for Air Asia will be conducted through the use of SWOT analysis. Another objective is the evaluation on how Air Asia can use its strengths for a successful expansion in UK market. Hence, a detailed comparison with its main rivals will be considered.
3. Literature Review
For this report, secondary data and research will be considered. Herein, academic textbooks and specific airline management articles and written documents will be considered. In addition, among other academic journals, Journal of Air Transport Management provided very useful journals for this study. Air Asia’s websites and other low-cost airline will also be given emphasis, although it is important to keep objectivity when utilising such material.
3.1 Air Asia – deregulation of aviation market provided new opportunities
In 1993, Air Asia was established and started to operate on November 18, 1996. The airline industry was originally founded by DRB-Hicom which is a government-owned conglomerate. Fernandes proceeded to engineer a notable and significant turnaround, turning an Air Asia a profit in 2002 and establishing new routes from its hub in Kuala Lumpur International Airport rapidly.
On December 2, 2001, Air Asia was purchased by Tony Fernandes. The industry is operating scheduled domestic as well as international flight and known as the largest low-fare in Asia. Air Asia is a pioneer when it comes to low-cost travelling (Kurlantzick, 2007) and the first industry in the region to implement ticketless travel and unassigned seats. Nonetheless, as of February 5, 2009, Air Asia has implemented allocated seating for their guests across all their flights which include Thai Air Asia and Indonesia Air Asia. The main base of Air Asia is the Low Cost Carrier Terminal located at the Kuala Lumpur International Airport.
The company aims on enabling more people to travel by air by providing them hassle-free, no frills and low-cost airline services. Accordingly, the advent of aviation deregulation has been able to provide opportunities to different airline industries and started low-fares operations in 1990. Because of this, low cost carriers has been developed in Asia since 2000 and industries like Air Asia has been able to grab this opportunities. Accordingly, low-cost carrier model is very applicable in the global market, even though deregulated market are most appropriate for its faster spread. It can be said that with the deregulation of aviation market in European Union, airlines are also given the chance to make decisions with regards to market access, fares and capacity (Shaw, 2004: 53). It is said that before the deregulation, airline industries have always been restricted by governments which controlled the destinations of the airline industry and also the product planning and pricing strategy (Shaw, 2004: 51).
3.2 General strategy of a low cost airline
Airline industries are trying to pursue a strategy of a low-cost and no frills. Low cost airlines are the strategic approach by which the industries adhere on a simple corporate design. For instance, this kind of strategy used only one kind of aircraft, one market segments and more seats are crammed within the plane. It is said that some low cost airlines have no food to offer, no airport lounges, and no choice of seats for passengers and others.
Accordingly, the deregulation of the European airline marker preconditioned low cost carrier models (Graham, 2003). In a study by Klophaus (2005: 348), he described low cost carrier as an airline which offer passenger transportation in terms of a simple business model which integrates point-to-point traffic with low fares or price and eliminates all unwanted services. Some authors provide a more detailed definition.
According to Dobruszkes (2005) low cost carriers give emphasis on the flying time of aircrafts by operating mainly with point-to-point connections as well as minimising turnaround times which is limited to only 25 minutes. In this low cost carrier achieve high levels of economic densities along with their operation on short- and medium-haul flights.
Koekkoek and Zondag (2005) noted that low cost carrier is capable of having four rotations per aircraft in one day in average as compared to a full service network carriers (FSNC) airline which usually has just three. Hence, low cost carrier has significant cost advantages by increasing productivity and output. Low cosr carrier also gives emphasis on less congested and smaller airports (Doganis, 2001) which are more addordable. Such airports are often regarded as the ‘secondary’ airports in contrast to main and larger airports which is called, ‘primary’ airports.
In addition, a standardized fleet permit better flexibility of the assignment of the crews and generates savings in line with employee training and maintenance (Doganis, 2001). The consideration of cost-efficient aircrafts like Boeing 737 or Airbus A 319/320 can also contributes for having a low cost base. By just considering one class (Doganis, 2001) costs for this airline idnsutry can be further reduced. Low cost carrier also aims that the vast majority of bookings can be made online so as to bypass paying fees to travel agents. In addition, low cost carrier achieved optimisation by adding more seats on the aircrafts (Doganis, 2001).
This kind of airline industry tries to keep their logistics simple by concentrating on revenue-generating air-time and cutting turnaround times on the ground. These Low-cost carriers also consider short-haul routes policies. It is said that most clients who prefers to fly with these airlines are not defectors from the present condition. Rather, lower prices permits these passengers too fly when they wanted and to have fast and cheaper travel time. Low-cost carriers are found to complement both conventional and charter airlines; nonetheless, these airlines mostly encounter overlaps. Low-cost carriers vie with charter airlines which offer up to one third of their passenger sears without hotel package accommodation, for the sake of independent tourists and other passengers that travels frequently to holiday homes. Moreover, they also compete with the conventional airlines, which weekend costs attracts passengers who are moderately sensitive in budgets and do not need flexible tickets.
3.3 The marketing strategy of Air Asia
The vision of Air Asia is to be the largest low cost carrier in Asian and serve 3 billion populations who are presently underserved with high fares and poor connectivity. Their mission is to be the best airline industry work for whereby employees will be treated as part of a big family and establish a globally recognized ASEAN brand. In addition, their mission is to continue their being low cos airline to give everyone a chance to fly with Air Asia and to maintain the highest quality services which embraces technology to reduce cost and improve service levels.
Part of the marketing stratgey of Air Asia is the consideration of the convenience of their target market. The industry believes in providing convenient services on thier passenger to by making travelling easier and affordable. Passengers or travelers can make bookings in various ways. Innovation for giving the best service is one of the marketing strategies of Air Asia and part of this is the introduction of SMS booking where passengers can book their seats, check flight schedules and know the latest about AirAsia promotions through the use of their mobile phones which started in August 2003. In addition, Air Asia also has their GO Holiday, a promotional approach in which guests can book holiday packages throuhg their website in real time. Air Asia is also known for the frequency of their flights having high frequency service whcih enable the guest to have more travel conveniences. Air Asia also practices a quick turnaround of 25 minutes, which is noted as the fastest in the region and these results in high aircraft utilization, lower costs as well as greater airline and staff productivity and thereby results to cost advantage (See Appendix 1).
The industry also considers nationwide call centre to assist the passengers and also offer ticketless services which was launched 18 April 2002. This context complements AirAsia’s internet booking as well as call centre service by giving a low cost alternative for issuing printed tickets.
In terms of pricing, the makreting strategy of the company sticks to low cost, no frills policy. The fares of Air Asia are relatively lower than those of other competitors. Such strategy targets the passengers who are wiling to travel withouth frills of meals, airport lounges or frequent flyer miles in exchange for fares which is relativelty lower of 80% than those currently offered with the equivalent convenience. Air Asia do not offer complimentary drinks or meals but they introduce their 'Snack Attack', whch is a range of delicious snacks and drinks which are available on board at very affordable costs and prepared exclusively for AirAsia’s passengers.
3.3.1. Hub-concept
Accordingly, an airline hub is an airport in which an airline utilises as a transfer point to geth passengers to their intended destination. Since its launched as a low cost, no frills industry, Air Asia is not flying to over 40 destinations in ASEAN nations like Malaysia, Indonesia, Thailand, China, Philippines,Vietnam, Cambodia, Myanmar and even Macau and China. In addition, Air Asia considers joint venture with Thai Air Asia and Indonesia through AWAIS which enable them to expand their fleet from the original two to 28 and revolutionized air travel in these nations by providing them low-cost airline services its innovative sales channels. Air Asia’s main hub is the Kuala Lumpur International Airport.
In 2003, the second hum of Air Asia opened at Senai Airport in Johor Bahru and also launched their first international flight to Bangkok. Since it starteda as a Thai subsidiary, Air Asia added Singapore to its lists and commenced flights to Indonesia. In June 2004, the flights to Macau has been launched while Mainland China’s flights and the Philippines begun in April 2005. In the latter part of 2005, flights to Vietnam and Cambodia were initiated and to Brunei and Myanmar on the following year (Air Asia, 2009).
Being innovative, a new budget terminal which is very first in Asia was launched in Kuala Lumpur International Airport. Such Low Cost Carrier Terminal is the new home for Air Asia which aims on handling 10 million guests a year. In Decemer 2006, the CEO of the company broadcasts a 5-year plan to further improve their presence in Asia (Hung Yee, 2006). In this plan, the industry aims on strengthening and enhancing its route network by connecting all the existing ciuties in the region and by expanding further to countries like Indonesia, Southern China as well as India. Air Asia will focus on developing their hubs in Jakarta and Bangkok with their sister companies: Indonesia AirAsia and Thai AirAsia. Thus, with increase frequency as well as the additional new routes. Air Asia expects to fly more passengers. On Sepmber 2007, the industry’s Kuala Lumpur hub has begun operating with A320s while Thai AirAsia received its first Airbus A320 th following month and the Indonesia AirAsia received its first Airbus on January 2008.
In theoretical manner, the concept of a hub-airport is that everal points of departure are being fed into a single aiport, from whcih connecting flights transport guests to their intended destinations. (Wells and Wensveen, 2004: 425). One of the advantages of this approach is that it gives an enormous multplier implications about the city-pairs an airline can profide (Wells and Wensveen, 2004: 425). In addition, such multiplication of traffic greatly enhances the opportunities havingstrong load factors (Wells and Wensveen, 2005: 427). In this regard, since high load factors indicates lower costs per seat, the airline inustry is able to pass this cost advantage to their passengers by offering lower or affordable costs. In addition, the passenger can also reach various destinations from his ‘home airport’ with one stop. Accordingly, if low cost carrier will not consier hub airport, different city-pairs would not be profitable to be directly served airline. To understand better the context of hub-system and an illustration of the ‘multiplier’ effect about city-pairs see Appendix 2.
3.4 Air Asia – a differentiation strategy
Air Asia is a low-cost carrier operating in Asia. The company is operating scheduled domestic as well as internationalflights and regarded as Asia's leading low cost, no frills airline. In addition, it is also the first industry to implement fully ticketless travel and unassigned seats. Air Asia is adapting differentiation strategy. Accordingly, differentiation strategy is a combined set of actions and operations by an industry to produce products or services at an acceptable cost which clients perceived a being differnt in various ways which are essential to them (Porter 1980; Ireland, Hitt & Hoskisson 2003). It is said that successful differentiation strategy can be established on many factors, which include design, brand image, corporate reputation, technology, product/service features, networks, as well as differentiated customer service. Consequently, differentiation should be hard for competitors to imitate. Being an industry that considers differentiation stragey, Air Asia continue to focus on their low cost, no frills aprpoach, frequenty flights approach, guest convenience which adhere to nationwide call centre, ticketless services, easy payment channels, Internet booking, reservations and sales offices, Authorised travel agents and improving customer service. In addition, part of their differentiation approach is the cost optimisation operations. Herein, Air Asia maximizes profit and give low cost at quality service. Air Asia has optimised costs by operating on a faster turnaround time, enhancing aircraft utilisation, and considering crew efficiency.
4. Air Asia and the UK market – Comparison to competitors
In March 2009, Air Asia has been able to travel from its hub-airport and touched down at London Stansted 2.40 pm (UK time). It is said that such maiden flights have marked a significant history since it is the first low cost, long haul service that connects Europe and UK to Asia. This new service initially operates five direct flights per week, providing guests with access through AirAsia’s Kuala Lumpur international hub, to 64 destinations in South East Asia and also China, Australia, Bangladesh and India.
The Kuala Lumpur-London-Kuala Lumpur route marks have received an overwhelming response rate from passengers between Europe and Australia. A sample of scheduled flight for Kuala Lumpur to London (Stansted)-Kuala Lumpur can be seen in Appendix 3.
It is said that this expansion of Air Asia has marked a competitionon the existing low-cost carriers in UK market, which include Ryanair and easyJet. Ryanair is known as one of the competitive low-cost airline in UK (Barrett, 2004). Accpordingly, Ryanair’s competitive advantage is its labour prodouctivity in which they have the highest staff productivty of all European Airlines (Barrett, 2004). On the other hand, easyJet which is a low cost carrier also have competitive position in the UK market as they profide I no free in-flight service, andt the sole focus is on direct distribution as well as aircraft usage are being maximised (Rogers, 2000).
Both Ryanair and easyJet holds strong brands in the UK market, and in order for Air Asia to compete well in UK, the management should be able to surpass what has been done by the two leading LCCs in the UK or European market.
5. Primary Research and Methodology – Air Asia in the UK
Primary research was conducted and pertinent data was collected through carious ways. As low cost carriers majority attracts high number of younger individuals (O’Connel and Williams, 2005: 263), a survey-questionnaire (Appendix 4, p.34) about Low cost carriers was established among students. The main goal of this was to get pertinent data regarding the name recognition of low cost carriers and Air Asia in the UK market and the most critical factor when booking a flight. In addition, significant information about the expectations of this younger people when booking a flight was also considered. This survey-questonnaire permits drawing some conclusions on the market presence of Air Asia in the UK, but such is constrained as the survey is neither representative for the entire UK nor are students the primary target group Air Asia. The survey-questionnaire was distributed and sent 500 students via e-mail and only 100 answered, resulting in a response rate of 20%. All of the respondents were UK Dissertation is provide by Custom Thesiscitizens with an average age of 21.5 years. 43% indicated that they did normally not fly, while 38.7% stated that they made one or two trips and 11% between three and five trips by air per year. 7.3% stated they travelled by air more than 5 times per year. Results of the survey are presented in Chapter 5.1 and 5.2. To be able to evaluate the competitiveness of Air Asia in the UK, fares of flights from the UK on given dates to given destinations were compared at the same day. This test and its implications are presented in Chapter 5.3.
Moreover, the obvious advertising strategies of Low cost carrierin the UK were compared. Results of this primary research are presented in Chapter 5.4.
5.1 Name recognition of low cost airline and Air Asia in the UK
5.2 Booking behaviour and expectations when flying
5.3 Comparing fares
5.4 Obvious advertising strategies of low cost airline in the UK
SWOT analysis for Air Asia regarding the UK market and implications
6.1 Strengths
Strengths
AirAsia is a vibrant company that is involved in offering a simple “no frills” service at fares that are on
average significantly lower than those offered by traditional full-service airlines. Currently, AirAsia flies to
12 destinations in Malaysia, using a fleet of seven Boeing 737-300s,. More interestingly, it will have started
flying to secondary airports near Bangkok, Manila, Jakarta, and Hong Kong. Ultimately, the goal is to
increase the fleet to 18 by June 2004,
2
equivalent to the delivery of one aircraft a month beginning in
September. With these affiliates and subsidiaries in various countries, AirAsia can adequately operate in
foreign environments. This is a strength since key first major customer are acquired
Another observable strength of AirAsia would be Well-rounded and managed business and their turnover
rate; this gives them an added advantage over other Airlines. It not only managed to compete with major
carriers like Malaysian Airlines (MAS) and Singapore International Airlines (SIA), but it also became the
benchmark for several other low-cost airlines in that market. So great was AirAsia's impact that analysts
said the airline, with its minimal fares, was living up to its tag line, which said 'Now Everyone can fly'.
3
AirAsia also employs and trains staffs with superior interpersonal skills, and they manage the entire
creative process effectively. Due to proper management and creativity,
services; their Initial product can evolve into range of offerings and for the past five years have been
creating at least 5 new destination centers. Their offering of ticket-less service gives them an advantage to
offer their customers hassle free services.
2
(n.d) AirAsia Fat Sheet Http://www.airasia .com date accessed 12/05/06
3
(n.d) Free Seats on AirAsia http://www.icmr.icfai.org/casestudies/catalogue/business strategy /
airasia.html date accessed 15/05/06
They also have a team of very focus minded management staff, and a team of experienced professionals
with an established record in the Airline services. In addition to the team of professionals, AirAsia has
developed a credible record of accomplishment over five years of operation, which gives them theacceptance and trustworthiness.
AirAsia is one of the most successful airlines in the Southeast Asian region and the pioneer of low cost, no
frills travel in Malaysia, AirAsia was often in the news for its low fares and fast growing operations
However, within three years of operation, AirAsia changed the dynamics of the Asian airline industr
6.2 Weaknesses
AirAsia at a glance would appear to be a weakness-free enterprise, but there are underlying weaknesses
inherent at AirAsia. One of such includes minimal technical staff workers and Overdependence on few
key staff
AirAsia would need an enormous number of technical professionals, especially in the implementation of
their internet booking and distributors.
AirAsia also would need to have high technological equipments, and connections to sustain and serve such
a huge network of company subsidiaries and affiliates, as appropriate. Their delays of flight or calling their
customer line to confirm booking shows that their system is not yet robust to handle booking efficiently this
might cause a lot of customer change their mind.
Looking at the organization structure of AirAsia Inc, their Board of Directors is too narrow and that
could cause the shallow decision-making
AirAsia Sdn Bhd is having weakness also in their absence of strong sales/marketing
expertise, which causes lack of awareness amongst prospective customers
6.3 Opportunities
AirAsia stands at the gate of profitable opportunities, their recent developments and intended expansions
will give them a global exposition. As they venture into internet booking and ticketless services for their
marketing processes, they would be open to electronic commerce business solutions for their enterprise,
such as SCM, ERP, and EDI etc
Further more, the use of internet services for their services would open more opportunities for AirAsia in
the process of solving network, communication, and information related problems that could be inherent in
the organization and their market segment is poised for rapid growth.
AirAsia stands to encounter a lot more opportunities than outlined above, but as they progressively emerge
into their various facets of developmental processes, numerous opportunities would be foreseen like.
Export markets offering great potential
Distribution channels seeking new products
Scope to diversify into related market segments
6.4 Threats
7 Even though AirAsia is currently on the peaks of success, they would be careful and not nonchalant to the
8 threats they are bound to encounter.
9 One of such threats would be security of their networks. The internet is a public domain and as such is
10 vulnerable to attacks from hackers and viruses, AirAsia ought to be conscious of these threats and have
11 proper plans and control to counter any of these.
12 Another threat to AirAsia is from the local competitors in the various countries they are having affiliates or
13 subsidiaries. AirAsia needs to be in accurate pace with the market demands and policies for these local
14 territories, because economic slowdown could reduce demand. Local Airlines would have easy access to
15 certain information that could aid them; therefore, AirAsia needs to be on constant market audit, market
16 researches and control to keep up with such competition.
17 Owning to the facts that most organization are struggling for survival, major players may enter targeted
18 market segment. Alternatively, Market segment's growth could attract major competition.
6 Conclusion and Recommendations
7 Appendices
Appendix 1
Source: MERCER Management Consulting, 2002
Appendix 2 – Point-to-Point vs. Hub-concept
Point-to-Point Service
Assuming the airline has got 3 aircrafts, it could serve 3 markets at the same time (connecting City A with B, B with E and C with F). One market can be defined as one connection.
Service via Cross-Connection (Hub)
By establishing a cross-connection (Hub), the number of markets that can be served nearly at the same time compared to point-to-point connections (stopover takes some time) increases significantly. The passenger can now fly from City A to City D, E F and to the hub-airport itself as well as passenger from City B can fly to City D, E, F and to the hub airport. City C is now connected with City D, E and F and the hub-airport. An airline operating with 3 aircraft could now serve 15 markets in total. See table at the bottom of the page for detailed calculation
Number of aircrafts (=n), Point-to-point service Service via Cross-Connection (Hub)
Total markets served (=n) Connecting Markets (=n²) (A connected with D,E,F etc.) Markets that can be reached from hub-airport (=n) Markets that can reach the hub-airport (=n) Total markets served (=n²+2n)
2 2 4 2 2 8
3 3 9 3 3 15
6 6 36 6 6 48
Source: Charts and table made by the author, inspired by Shaw, (2005: 426)
Appendix 3
Source: Air Asia (2009). Available at http://www.tourism.gov.my/corporate/images/media/trade/London%20Arrival%20120309.pdf.
8 References
Leong Hung Yee (2006-12-27). "AirAsia embarks on 2nd chapter". The Star.
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