Strategic Management and Competitive Future Sustainability for Air Asia Airlines - Case Study Example

Strategic Management and Competitive Future Sustainability for Air Asia Airlines Name: Course: Instructor: Institution: Location: Date: Table of Contents Introduction…………………..…………………………………………………………………...3 Strategic Analysis………………………………………………………………………………...4 Business Strategy…………………………..…………………………………………………………..4 External Environment…………………………….……………………………………………………4 Strategy formulation……………………………………….………………………………………..…5 Porter’s approach to industry analysis…………………………………………………………...…5 Socio cultural trends…………………………………………………….……………………………..5 Strategic purpose……………………………………………………………………………….…6 Strategy options for growth…………………………………………………………………….....7 Strategy implementation……………………………………………………………………….….9 Essential conditions………………………………………………………………………….…..10 Conclusion……………………………………………………………………………………….11 References………………………………………………………………………………………..13 Introduction Air Asia Airlines is a Malaysian airline that has its headquarters in Kuala Lumpur, Malaysia. It is the largest airline with a fleet size of 80, a figure that does not count its direct subsidiaries. It is also the airline that travels the highest number of destinations within and outside of the country. Some of the affiliates of the airline include Air Asia Berhad, Air Asia Indonesia, Thai AirAsia, Philippines AirAsia, AirAsia India, Air Asia Japan, Idonesia Air Asia, and Air Asia X, among others. Air Asia Group of Airlines is also the largest low cost airline in Asia, making it have an advantage within the highly competitive airline industry (Air Asia, 2017). The company was established in 1993, and has been in operation since 1996. One of the major core competencies of the airline are that it is a low cost airline as compared to its competitors for the same markets. This level of competency has allowed it to grow to a large airline with subsidiaries operating in more than 400 destinations within 25 countries. Other key competencies include safety measures, a lean system of distribution, point-to-point network, and high aircraft utilization (Grant, 2016). Some of the key resources of Air Asia Airlines include the high capital, large fleet of airplanes, strategic location, a consistently impressive reputation, and human resources capabilities. Although challenges are increasingly evident in the Asian airline industry, there are opportunities that present themselves as the airline’s capabilities, such as increased demand for flights at affordable prices. The company has the capability to exploit its resources because of the availability of capital, investors, a good reputation, and an increased market. However, there is need to recognize threats which are presented as competition and safety airline risks, among others (Truss, Mankin, & Kelliher, 2012). Another competency is the ability of the airline to develop airline technology that makes work easier for travel, operations, and economic savings. On a VRIO framework, the airline provides customer value and competitive advantage. This is because of the low cost air tickets, which is something that its competitors do not have. Providing the low cost carriers for consumers of other airlines is thus expensive to imitate. The organization has throughout its years of operation not only exploited this resource but also made efforts to improve on it. Some of the largest competitors for Air Asia include Silk Air, Jet Star, and Tiger Airways. One of the weaknesses of the airline is the flight delays and risk of System disruption especially within the online platform. Strategic Analysis Business Strategy: The business strategy of Air Asia occurs on a variety of spheres. There exists the internal, external, and social environment, structured chains of command, and resources and skills. At the business level strategy, the company has been able to incorporate cost leadership model. Within this model, the firm has been able to provide products and travel services that can be considered highly competitive with some of its biggest rivals, but with significantly reduced costs as compared to them. The lowest possible costs for the services cannot therefore be achieved easily by its competitors, making it a solid business strategy (Anderson & Anderson, 2010). Since many of its consumers prefer affordable prices, the airline does not fall short of a healthy market. Some of the main targeted customers include travelers going over short distances, who are sensitive to ticket prices. Another business strategy employed is the single class and no frills services. Here, the passengers do not have separated flight classes. This is a strategy aimed at enabling the prices to lower significantly as compared to its competitors. Additionally, there are no meals, no seat allocations, amenities, and entertainment. This allows the airline to minimize on costs of management such as wear and tear and cleaning. The business strategy also employs high utilization of aircrafts using efficient processes. This allows them to reduce on the overall overhead fixed costs of air travel, a strategy that is unique to them. External environment: The external environment of Air Asia consists of variables such as opportunities and threats. Some of the opportunities include partnerships with airlines from other regions such as Virgin Airlines in a bid to incorporate travel services for consumers. This will be geared towards enabling the company to add onto its list of destinations. As the costs of fuel rise, there is a possibility that the less profitable airlines will become unable to operate, which relieves the highly competitive market. There is an opportunity to explore new markets within the Asian regions. These include China and India. There is also an opportunity to diversify on customer services, as is the case with its competitors. This would be especially beneficial for longer flights as opposed to the local ones. Some of the threats include regulation policies, which limit the capacity of the airlines to operate on more profitable levels. It also limits the firm from entering into new markets. Safety issues may cost the airline its reputation through customer confidence loss. There is a threat to new entry of lower cost airlines, which provide competition to Air Asia. Strategy formulation: The formulation of strategies involves a deeper and more critical analysis of the current market and its opportunities while minimizing the threats. The main aim is to achieve a competitive advantage over the aforementioned competitors through making products and services more attractive while maintaining affordable costs (Saha, & Theingi, 2009). It also involves the ability to maintain and improve on safety policies and guidelines as a means of maintaining customer confidence. Porter’s approach to industry analysis: An industry analysis of the airline market can be evaluated from Porter’s five forces model. The buyer power of the airlines on the part of consumers is relatively low because the market is highly segmented. Compared to some of the Asian demographics, the consumers of Air Asia are significantly low in number. They utilize air travel because of its costs as compared to other forms of travel. However, when prices are reduced significantly as is the case with Air Asia, buyer power increases due to convenience and affordability. The supplier power of the airline is average. Supplies within the industry include industries within the manufacture of parts, fuel providers, and airports. There is a high level of threat of substitution in the airline industry. This is especially for consumers who use the airline for domestic as opposed to international flights. Foremost, other options of travel are relatively cheaper than air travel. These include rail, road, and water travel. However, the threat has been easily controlled because of the high level of convenience of air travel in terms of time consumption and safety. There is a high level of threat to entry of new airline markets. The cost of building an aircraft is high. However, it is easy for a new firm to enter into the market with just a few aircrafts, as has been the case for many modern founded airlines in Asia. There also exist few additional barriers to enter into the market, such as limited product differentiation, a large market, and the existence of future opportunities for technological advancements within the airline industry. The competition within the airline industry is high due to the large variety of airline companies operating within the Asian region. It is therefore relatively easy for consumers to switch from one passenger airline to another in the event of poor performance, increased prices, or the emergence of an airline with more attractive offers. Socio cultural trends: Some of the socio cultural trends and issues involved in airline travel is the growing level consciousness about airline safety for travelers. Another social issue, which has arisen recently, is the ability to make plane seats that fit individuals who are oversized. Oversize passengers create a high level of inconvenience for other travelers, an issue which must be addressed by the airline companies as a means of improving on customer service. Strategic Purpose The mission and vision of Air Asia provides a foundation in which core values and objectives are created and managed. The vision of the airline is to become the largest low cost airline in Asia, a means of serving more than 3 billion people currently underserved due to high costs of competitors (Air Asia, 2017). The mission is to create a recognized ASEAN brand. The firm also wishes to establish fare prices that allow everyone to afford travelling by air. Another mission is to provide the high quality service for consumers through embracing technological advancements, reducing costs even further, and enhance the level of service provided. Safety consciousness forms an essential part of the airline’s values. Team values emphasize on hard work, communication, and innovation. The company also works towards maintaining a high level of integrity, transparency, and corporate responsibility towards its consumers, investors, and the larger Asian community that it serves. An evaluation of the strategic and core vision and mission of the company is evident in their ability to provide affordable pricing as compared to its competitors. It has also been able to observe strict guidelines for safety and integrity within its operations. This has allowed the company to become one of the largest airlines in the world, operating in more than 400 destinations throughout the Asian region. From another perspective, the company has been able to increase its quality of service delivery through making it more convenient for customers to purchase tickets online. It has reduced the overall expenditure of ticket purchase as well as saved on time. Air Asia was one of the first airlines to adopt this service within the region. The company has indeed been able to demonstrate a high level of integrity and transparency, a core value stipulated within its policies for business operations. This has been achieved through a highly efficient public relations service that allows important messages to be disseminated while ensuring that a positive airline image is maintained throughout. On the field of logistics management, the airline has been able to maintain a healthy relationship between its internal and external partners. The firm has managed to select the most efficient and reliable contractors, suppliers, and business partners. Customer service has been a major consideration within the airline’s business model. Customer service spans from inquiries from online platforms to services provided during flights. However, one of the missions of the company have been to enable all people afford air travel. This has been highly inconsistent with the reality, where we see that less than 5 percent of the targeted demographic, although a large number, is able to afford air travel. The strategy within its mission should therefore seek to provide better pricing strategies, such as for economic packages for large groups. Another discrepancy experienced between its business strategy and its mission is the availability of additional services within their flights. Although this may mean that prices may be hiked, there is a need to provide services such as food especially for the longer international flights. Strategy Options for Growth Over the next 3 years, the company has a capability to grow in size and brand both internally and externally. These forms of growth can be founded on the existing opportunities presented through competitive advantage as well as an availability of resources. The specific framework for growth will be focused on sales, assets, and profits together. The main objective of the growth framework will be to provide a more enhanced customer service to consumers in order to attract a more diversified client base than the one existing (Paton & McCalman, 2008). This will also be aimed at providing the firm with an opportunity to grow and diversify in new markets beyond the ones existing currently. One of the most potentially beneficial markets to explore will include the Chinese market, which has not only a high population but also a demographic with a relatively high living standard capable of affording flights both locally and internationally. Here, it is possible to offer more enhanced services at increased prices for this market. However, one challenge likely to be experienced is the high level of competition from large airline firms such as Air China, Beijing Capital Airlines, China Eastern Airlines, China Southern Airlines, Tibet Airlines, Spring Airlines, Sichuan Airlines, and China Express Airlines, among many others. Growth in sales can also be achieved within the markets in which the firm is already operating. There is much room for improvement in terms of client relationship and communication. As mentioned, the threat of substitution as well as the competitive rivalry is relatively high, which makes the airline more vulnerable to changes in the market framework. As such, one of the growth strategies, which can be employed, is ways to increase customer loyalty. The airline can also evaluate its growth strategies through increase in assets, which allow it to gain more resources for future development. It can be able to do this through attracting investors and enhancing its public relations department in a bid to improve on brand and image value. Internal growth can be achieved through an improvement of internal processes and operations. This can be achieved through a thorough evaluation of the internal human resource processes to ensure that employees’ concerns are addressed through proper and timely channels. Concerns of employees may range from health and safety practices and environments, working hours, remuneration and benefits, and methods of maintaining a healthy organizational culture and working environment (Hayes, 2014). In as much as it is important to maintain a healthy relationship between the firm and its consumers, it is equally important to maintain such a relationship with employees. Therefore, part of the internal growth strategies will encompass ways in which the company can maintain a high rate of employee retention. It will not only be beneficial as a means of corporate governance, but also in some financial aspects. For instance, keeping a high rate of retention will ensure that the firm does not spend its resources in recruiting and training new employees within short periods. It will save on not only the financial and human resources but also on the time, which can then be utilized for results that are more productive. Another growth strategy that can be employed by the airline is through the creation or acquisition of facilities, which facilitate maintenance, and repair of aircrafts. At the moment, a lack of such facilities will mean that outsourcing such products and services is carries more economic expense. The availability of such a facility will therefore reduce on maintenance costs, which are high within the aviation industry. The ability to maintain high quality safety measures requires a large financial capital as well as work force to allow a thorough analysis of all processes. It would be therefore important to allow a purchase or partnership of such an organization, which allows repairs and facilities to become more feasible within the next three years of strategic management change. Another strategy for growth can focus on the customer service within the available chains. One weakness that is evident in the airline is the numerous complaints, which have been received over the years because of poor service, flight cancellations, flight delays, and poor service during flights. A strategic management approach would be to improve on these services through setting specific targets for improvement of customer relationships. This internal management approach will go a long way in ensuring that the brand image is maintained not only within the region in which it operates but also in areas where it plans to expand. A high quality brand image is essential in providing opportunities for investment as well as the ability to extend and diversify its operations to new and welcoming regions. Strategy Implementation Lewin’s change management model can be used to analyze some of the strategic elements of change implementation for Air Asia (Kaminski, 2011). In the unfreeze section, there is a need to identify some of the critical factors which present challenges within the organization. These include both internal and external factors that limit the ability of the firm to operate and achieve its full potential, thus achieving its objectives and missions. It would also involve providing a compelling message to its key stakeholders concerning the existing problems and allow them to adjust their attitudes, perceptions, and values in a bid to give room for change. In the case of Air Asia, the aforementioned problems include a low customer service quality, high maintenance and repair costs, and a need to expand its operational territories to China. These issues will allow stakeholders to not only recognize but also participate in the process of creating positive change. In the change section, people involved in the issues presented will be able to formulate and establish creative strategies aimed at addressing the challenges. Because the process of change is designed to take about three years, there is likelihood that the processes will be slow (Ireland et al, 2010). One of the potential challenges likely to be encountered is a lack of sufficient funds to implement change, lack of organizational culture, which embraces change easily, and a lack of a well-defined framework that defines relevant processes. Therefore, it is essential to ensure that the processes of change are implemented from the lowest to the highest levels of operation and management. In the section of refreezing, it is important to ensure that all the implemented actions are adopted throughout the organization. The aim of implementation is to ensure that operations such as improved customer service provide the required results, an action that can be established through measurements of key performance indices. Subsequently, the purpose of refreezing is to maintain the organizational framework that has been enacted through sustainability measures. The smooth incremental change process can be made through a change in the value system, attitudes, and culture of the organization. Through this process, decision makers within the airline can make a decision to reach certain feasible goals within a specific period, after which the goal is changed continuously. Within a period of three years, it is possible to experience significant organizational change in the entire firm as well as its subsidiaries. The discontinuous change can be achieved through more rigid milestones of the organizational growth, such as in expansion and acquisition processes, which require immediate change in strategies and operations. There is a need to establish personnel for every department in which the company wishes to employ strategic change. In the case of Air Asia, a part of the developing personnel can be in the public relations department, responsible for ensuring a positive brand image is maintained in order to facilitate expansion to new regions (Singh et al, 2010). In the case of internal management, some of the personnel can be used to enhance development of customer relations in a bid to control the rate of client complaints. There is also a need to develop a business team, which would be responsible for establishing a branch of the company dealing with repairs and maintenance of aircrafts. Alternatively, the company can acquire one of its supplier’s firms and integrate it into the business model. Training and development is crucial to enhance customer service relations for all relevant personnel. It is essential that all aspects of the business model give room for increase in client satisfaction. Uncertainties may occur in the form of market volatility as well as increased threat of competition by firms that offer the same services for affordable prices. Essential Conditions In order for the proposal to be feasible, there is need for certain environmental conditions to hold. One of the most challenging aspects of project implementation is the lack of foresight on certain unknown conditions, which limit the firm’s capacity to change positively. Foremost, an important external condition to consider is the fact that markets do not shift in such a way that uncertainty of operation and cost increase. Another essential condition to implement these strategies is the availability of a high amount of capital to expand territories as well as establish a firm dealing with maintenance and repair. Measures of evaluation will seek to establish whether these strategies are in fact beneficial to the company on both a short and long-term basis. It is important to provide for evaluation measures in order to check whether the changes are profitable. If they are, then the change process can be said to be completely successful. However, in the event that they are not successful in enacting change, there may be a need to go back to the drawing board and come up with more feasible strategic management plans. The output control is to enhance the behavior and objectives of the performance and business strategies. In particular, the output should ensure that while the management has achieved its objectives, the firm’s mission is upheld. Another output control will seek to enhance the image of the company. Through expansion to other territories, the firm will as a result increase its revenue as well as brand value on a global scale. Subsequently, the firm can look towards expansion to many other territories. Behavior controls involve the ability to uphold a cultural organization that is consistent with the company’s values and mission. It involves an ability to enforce a culture with some key characteristics such as integrity, high performance, innovation, and adaptability to necessary change. An ability to change with the implementations of strategic management will make the difference between success and failure of these operations. Some of the input controls involve a high level of knowledge and skills for all relevant personnel. Values and motives of the employees are essential in ensuring that their objectives are consistent with that of the organization. Other forms of expertise may involve marketing, research, development, customer service quality enhancement, and an effective human resource team. Conclusion The mission and vision of Air Asia provides a foundation in which core values and objectives are created and managed. The vision of the airline is to become the largest low cost airline in Asia. Strategic management ensures that while the mission and vision is maintained, more innovative and low cost processes are implemented to address existing issues. Air Asia Airlines is a Malaysian airline that has its headquarters in Kuala Lumpur, Malaysia. It is the largest airline with a fleet size of 80, a figure that does not count its direct subsidiaries. The business strategy of Air Asia occurs on a variety of spheres. There exists the internal, external, and social environment, structured chains of command, and resources and skills. Some of the opportunities include partnerships with airlines from other regions such as Virgin Airlines in a bid to incorporate travel services for consumers. Some of the socio cultural trends and issues involved in airline travel is the growing level consciousness about airline safety for travelers. Some of the models utilized in the evaluation of strategic management and future sustainability include an industry analysis using the porter’s five forces model. This provides a critical evaluation of the company’s positioning in relation to its competitors. In addition, the report has also employed a SWOT analysis to provide a view of some of the opportunities that the company can take advantage of in order to grow. The Lewin’s model has been used to evaluate how change can be created, implemented, and sustained within the model to ensure a stable organizational framework throughout the processes. These models have been used to provide a three-year framework of change, which allows a smooth transition from one state to another. The three major sections of change include an expansion of the market to the Chinese demographic, an improvement of the customer service system, and an acquisition of one of the firms responsible for the maintenance and repair of the airline’s equipment and aircraft in order to reduce on operational costs. References Air Asia, 2017, Air Asia Mission, Vision, and Values. Retrieved 07 February 2017 from http://www.airasia.com/my/en/about-us/airasia-mission-vision-values.page Anderson, D. and Anderson, L.A., 2010. Beyond change management: How to achieve breakthrough results through conscious change leadership. John Wiley & Sons. Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons. Hayes, J., 2014. The theory and practice of change management. Palgrave Macmillan. Ireland, R D, Hoskission, R E & Hitt, MA 2009, The management of strategy concepts, 8th edn, South-Western Cengage Learning, USA Kaminski, J., 2011. Theory applied to informatics-Lewin’s change theory. Canadian Journal of Nursing Informatics, 6(1). Paton, R.A. and McCalman, J., 2008. Change management: A guide to effective implementation. Sage. Saha, G.C. and Theingi, 2009. Service quality, satisfaction, and behavioural intentions: A study of low-cost airline carriers in Thailand. Managing Service Quality: An International Journal, 19(3), pp.350-372. Singh, K, Pangarkar, N & Heracleous, L 2010, Business strategy in Asia a case book, 3rd edn, Cengage Learning Asia, Singapore Truss, C., Mankin, D. and Kelliher, C., 2012. Strategic human resource management. Oxford University Press. Read More