Strategic Management of Air Transport Industry

This assignment examines the application of strategic management concepts within the dynamic air transport industry. Students are tasked with analyzing the unique challenges and opportunities faced by airlines, leveraging relevant theories and frameworks to develop effective strategies for success. Case studies will be utilized to illustrate real-world applications and demonstrate how strategic decision-making impacts airline performance.

STRATEGIC
MANAGEMENT
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Porter five forces analysis................................................................................................................3
SWOT..............................................................................................................................................5
Recommendations............................................................................................................................7
Conclusion.......................................................................................................................................9
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INTRODUCTION
Strategic management is regarded as the process of setting objectives for the business
analyzing internal and external environment of the business so as to operate efficiently in the
market. Further, it is a well-known fact that in the modern era the market where companies
operate is full of challenges and this has the adverse impact on the businesses (Wang, et al.,
2014). Therefore, effective strategies are must through which companies can easily manage their
overall performance, and in turn, it acts as the development tool for the entire firm. The tools
such as SWOT, Porter, pestle, etc. are mainly undertaken for analyzing internal and external
environment of the businesses.
They support in knowing the range of challenges present in external or internal that
businesses will face and on the basis of the same it is possible to develop strategies. The present
study carried out is based on AirAsia X which is Malaysian low-cost airline headquartered in
Kuala Lumpur, Malaysia. It is considered to be one of the largest airlines regarding destination
and fleet size. Various tasks have been covered in the report which involves SWOT, Porter of the
company along with recommendations to enhance present performance
PORTER FIVE FORCES ANALYSIS
In the present scenario, analysis of industry competitiveness is essential for long-term
sustainability of a company. Furthermore, the use of Porter five force models can assist
organizations to analyze the overall extent to which external forces can impact the operations and
activities (Takazawa, Takasuga, Doi, Saito, & Shibata, 2016). Implementation of Porter Five
force model supports businesses to understand and analyze the vital force which shapes the
overall degree of competition within a particular industry. The application of porter framework
on Air Asia is mentioned below as:
I. Threat of new entrant - The threat of new entrants in the airline industry can be
considered as weak, and the rationale behind this is the entry barriers present with the
industry (Wang, et al., 2014). It can be asserted that massive investment, capital, and
resources are required to enter the airline industry. Industries or sectors with low entry
barrier make it very easy for new businesses to get into the industry (Vogel & Güttel,
2013). However, it can be critically argued that the growing need and demand of travel
among people in the world can encourage new businesses to enter the airline industry and
compete with existing brands such as Air Asia. In such situations, the threat of new entry
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for the company like Air Asia can become very high. To deal with these types of
situation, the brand will be required to carry out changes in its strategy and products at
frequent interval. The approach will support Air Asia to maintain its existing market
share in the airline industry (Stead & Stead, 2013). Considering the present situation of
the market, it can be expressed that the industry has become saturated and this has
resulted in creating obstacles for new companies regarding entering the industry.
II. Rivalry of existing firm – Intense competition among businesses or companies in the
industry results in creating obstacles regarding achieving higher growth, profitability, and
market share. Furthermore, customers are available with wide range of options to choose
from and this result in affecting the overall sales and profits of companies (Hubbard,
Rice, & Galvin, 2014). At present, Air Asia is facing intense competition from the brand
such as Tiger Airways, Jetstar Airways, and SilkAir. Any changes in the price and
strategy of competitors force Air Asia to carry out modifications in its existing strategy
and prices (Roy, 2014). At the same time, the brand is required to emphasize on areas
such attaining the high degree of customer satisfaction and loyalty. The unique selling
proposition of Air Asia is that it has adopted a low price strategy and this is helping the
brand to attract more and more customers. However, the threat of competition within
airline industry is very high, and this is a major challenge for the organization.
III. Threat of substitute product – The threat of substitute product within the airline industry
is very high, and this has emerged as a major issue for all brands including Air Asia. The
rationale behind this high threat of substitute product is that there are different modes of
transportation available to the customers (Pereira & Caetano, 2015). Customers can opt
for services such as private transportation (road) and fast trains (rails) to go from one
place to another. In addition to this, the substitute services are much cheaper than the
services provided airlines industry. It sometimes acts as a motivational force and
encourages people to buy substitute products instead of opting for the services offered by
Air Asia (Rothaermel, 2015). The result of this is that the selected business enterprise is
not able to attract the desired number of customers in the long run.
IV. Bargaining power of customer - In the airline industry, the bargaining power of
customers is very high, and this is another threat for Air Asia. It can be expressed that at
present, people or customers are available with wide range of options and alternatives to
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choose from. At the same time, the customers are not required to pay any additional cost
of switching, and this makes it very easy for them to switch from one company to another
(Peppard & Ward, 2016) Air Asia is expected to offer attractive discounts and schemes
to retain existing customers and attract new ones. In addition to this, the brand is also
needed to ensure that the clients are provided with satisfactory services against the money
which they have paid. In case satisfactory services are not offered then the customer may
switch to other brands operating in the marketplace (Kumar, et al., 2017). Such situation
will adversely affect the overall volume of sales and profitability.
V. Bargaining power of supplier – The suppliers within Airline industry includes fuel
companies, manufacture of aircraft, food and catering providers, labour union, etc.
Furthermore, it is almost impossible for businesses to carry out the smooth flow of all
their activities and operations with getting adequate cooperation from the industry
suppliers (Nerur, Rasheed, & Pandey, 2016). Thus, it can be stated that the bargaining
powers of the suppliers in the airline industry are very high. The result of this is that the
suppliers can dominate Air Asia and other players over prices. Presently, the number of
vendors present in the industry is less, and this is another reason behind high bargaining
power of the supplier within the airline industry (Wong, Chung, & Hsu, 2016).
SWOT
In order to analyze the internal environment of business SWOT analysis as one of the
tools is most effective as it highlights the key strength along with the weakness of the business
that is present internally. Apart from this opportunities and threats are identified that are present
in the external environment of the business. Considering the case of AirAsiaX where the
company started its operations in the year 2001 with two old aircraft. No doubt the market where
AirAsia X operates is highly competitive and regulated by different laws which organization is
required to comply with (Morden, 2016). The government has introduced a large number of laws
that company needs to be followed for sustaining the market for the longer period.
The company has adopted strategy of offering services at low cost where organization
has promised “Now Everyone can Fly” The organization has adopted low-cost carrier model and
along with this cost-saving innovations are carried out on continuous basis where AirAsia X is
considered to be the first airline to use the new Airbus A320 aircraft that was installed with
sharklet wing tips.
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In order to understand the key strengths and weaknesses of the firm SWOT analysis of
company has been carried that has been shown below:
I. Strength - The main strength of AirAsia X is that it holds lowest unit cost in the industry
and due to this reason organization is famous worldwide. AirAsia X is the only airline in
the global market with CASK below USD4 cents (AirAsia, 2017). The shortest route on
which company operates is of three and half hour. The company offers its wide range of
services at a lower cost, and this allows in attracting the large number of customers
towards its services in the market. The main competitor of the company is Asian full-
service carriers which hold unit cost higher than the firm (CAPA, 2014). Another key
strength of the organization is flexibility associated with its fleet. This supports in
understanding the strong relationship between AirAsia X and the sister group named
AirAsia. On a yearly basis, the fleet size of the company grows by seven, and it is
expected to reach 98 by the end of the year 2024 (Hunt, Petitt, & Truong, 2016). AirAsia
is regarded to be the leader in the long haul low-cost segment, and this is indicating that
AirAsia X holds the capability to dominate the entire market. So, in this way, these are
some of the main strengths of the company.
II. Weaknesses - The main weakness of AirAsia X is that company is not able to earn
adequate amount of profits in order to recover the major costs. No doubt, the organization
operates on the wider basis, and all its operations are costly. From the last, three to four
years company is not able to earn high profits (Jenkins & Williamson, 2015). Different
unprofitable markets of the company involve Paris, London, Delhi, Mumbai, etc. Further,
main losses are suffered due to high oil prices along with the fluctuations in the market
conditions. The stock price of the company has not performed as expected since IPO and
it is another weakness of the company that has adversely affected its performance in the
market (Homsombat, Lei, & Fu, 2014). Lastly, the relationship between Air Asia and Air
Asia is limited as some overlapping ownership exists, and this acts as hurdle at the time
of operating.
III. Opportunities - In the external environment where AirAsia X operates provides the wide
range of opportunities to the business and it depends on the business how to take
advantage of the same. One of the main opportunity is the restructuring of Malaysian
airlines that can benefit an organization (Hill, Jones, & Schilling, 2014). Flag carrier
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along with Malaysian airline is planning to cut jobs, and this plan will be implemented in
the next nine months. There is a direct opportunity present for AirAsia X where the
company can hire MAS employees and can operate on the different routes. MAS will not
operate in the Europe market, and this will act as the main opportunity for the company.
Another key opportunity is expansion in the Chinese market. At present country like
China is one of the main markets for Malaysian based carrier’s market (Van De Vijver,
Derudder, & Witlox, 2014). The secondary cities of China are also expanding at the
faster pace, and due to this, it is a feasible opportunity for AirAsia X to take expansion
decision where Chinese market can be targeted. Lower fuel price is another opportunity
where it can significantly allow to develop new routes and can assist in enhancing the
profitability level (Harrison & John, 2013). Considering the present situation, fuel cost
accounts for 50% of the company’s operation. So, the decline in the level of fuel expense
can surely allow the company in enhancing its profits, and this can be utilized for
expansion purpose. So, these are some of the main opportunities present with AirAsia X
that can surely provide the competitive edge to the business in every possible manner.
IV. Threats- Intense competition in the industry is the main threat faced by AirAsia X at the
time of operating in the market. The low-cost model of the company along with heavy
reliance on transit traffic has allowed operating in the market. But in the near future, this
model can act like the threat as other companies are also operating with better services at
an affordable price (Hahn, 2013). This can lead to the decline in market share of the
business. Fluctuation in the fuel price will also be the main threat for the company as it
may increase in the near future. This will adversely affect profitability level of the
business and company has to manage this issue in any possible manner. So, these are
some of the main threats that can influence business operations
RECOMMENDATIONS
I. Expansion in china - One feasible option is present with AirAsia X to expand in the
market of China, but it is recommended to the business to carry out external analysis as
through this it is possible to know the range of opportunities present along with the
threats that can adversely affect company’s performance. No doubt the market of China is
expanding at the faster pace where income level of people living in the society is up to
the mark and on the basis of this they can easily afford services of AirAsia X. The present
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model of the company associated with low-cost can surely be beneficial in the China
market where people will access the services of the company at a low cost. On a
continuous basis, the external analysis needs to be carried out, and along with this, the
company needs to modify its internal structure. Some special schemes can be introduced
by the business at the time of expansion. The company has to ensure that its pricing
strategies are appropriate and targeting the right locations will be profitable for the
enterprise.
II. US and Europe market - Considering the market of Europe and US where services of
AirAsia X are not present. So, in this case, it is required for the company to carry out
market analysis of both the nations so as to identify the range of opportunities present.
Further, it is necessary to develop effective strategies as these markets are highly
developed, and well-established players are present in the marke (Gamble & Thompson
Jr, 2014)t. So, it is recommended to introduce some unique services that can deliver more
convenience to the customers. The company can analyze the strategies of the firms that
are already operating in the market of the US and Europe. Through this, it will be
possible for AirAsia X to successfully expand in these markets and in turn, the
investment amount can be recovered in short period of time. Furthermore, it is
recommended to carry out competitor analysis on the continuous basis so that actions of
other companies may not adversely affect operations of AirAsia X in the new market
where it will operate.
III. Business class/services/safety – It can be recommended that Air Asia can emphasize on
introducing new services for the segment, i.e., business class. It can be expressed that at
present, the brand has adopted low price strategy and it is mainly targeting people who
fall under the middle and lower middle class of the society (Frynas & Mellahi, 2015).
Furthermore, intense competition in this particular segment has resulted in creating
several obstacles for Air Asia regarding achieving higher sales and profitability. To deal
with the challenge of increasing competition within the industry, the selected business
enterprise can seek for introducing new services for a new market segment (Eden &
Ackermann, 2013). However, it is suggested that effective forecasting and market
research should be carried out by Air Asia before introducing any new service. The
rationale behind this is that it will help in reducing the risk associated with failure of new
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product/service in the market. It is suggested that the demand for airline services within
businesses class has increased due to globalization and international expansion of
companies. This type of situation is going to act as an opportunity for Air Asia regarding
introducing new services in the marketplace. In addition to this, it will also assist the
company in enhancing its existing market share along with increasing the volume of sales
and profitability. It is suggested that Air Asia should also focus on improving overall
safety and security measures in its airline services and flights. The result of this is that
better safety and security will support in developing a strong sense of satisfaction among
customers and will also encourage them to opt for the services offered by Air Asia. The
company will be able to obtain a competitive advantage over the other brands operating
in the airline industry.
IV. Digitalization expansion – In the present scenario, digitalization has resulted in
providing businesses with a potential platform to carry out marketing and promotion of
products and services. Furthermore, the use of platforms such as social media and the
internet can help companies to reach the target audience most conveniently. It can be
recommended that Air Asia should emphasize on carrying out the expansion of its
products and service over the various digital platform. The use of this strategy will
support the company to reach international customers and cost-effectively attract them
(Bettis, Ethiraj, Gambardella, Helfat, & Mitchell, 2016). Social media tools will provide
the company with an opportunity to interact with all people in the market and understand
their changing need and demand. In addition to this, it will assist Air Asia to identify the
issue issues or problems which are faced by the existing customers. Based on the
information collected, the selected brand can carry out changes in existing services and
strategies to acquire the higher degree of customer satisfaction in the long run (Andersen
& Andersson, 2017). Training and development programs can be offered to employees so
that they can make efficient use of the digital platform and can contribute to the overall
growth and development of Air Asia.
CONCLUSION
Based on the above study, it can be concluded that Air Asia’s low-cost strategy is the
major strength of the company. Furthermore, the strategy has supported Air Asia in getting a
competitive advantage over other airlines operating in the industry. It can be stated that quality
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services at a low price have resulted in developing a high degree of satisfaction among
customers. The brand posse’s remarkable flexibility with its fleet and this is considered as
another major strength of the brand.
However, it can be argued that poor performance of the stock and lack of profitability has
emerged as the biggest weaknesses of Air Asia. It can be inferred that the bargaining power of
suppliers and customers is very high in the industry and this is a significant threat to Air Asia.
On the other side of this, the threat to new entry is low because an enormous amount of capital
and resources are required to enter and operate in the airline industry. It is recommended that Air
Asia should focus more on international expansion and digitalization.
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