X targeted the less disposable income travelers who overlooked by traditional airlines even by some low cost carriers. The low price of ticket and abundant of destination network provided travelers more opportunities to fly. Moreover, X explored the new technology to reduce transaction cost for travelers – the cell phone sales of ticket. As Asia’s economic grew, people from Asia have higher spending power and they will select air transportation to travel more frequent than before. X should cater to a broader passengers segment across different needs categories. Back to a short time after the inception of X, the Malaysia Transport Ministry even refused to release the air route from Kuala Lumpur to Sydney for X in order to protect Malaysia Airlines which is the national airline. Afterward, X prepared for IPO but did not want to be list on the KLSE. Due to worry about the Malaysia government could slow down some of X’s expansion and continue to refuse some routes application. X put off the IPO till the end of 2011 and early of 2012.
AirAsia X’s industry environment
Although the entry barrier of airline industry is high such as huge capital requirement and governmental legal barriers, low cost long haul carriers are suffering strong competition. On one hand, most of low cost long haul carriers are launched by their parent company. For example, X is a sister company of AirAsia, Scoot Airline is a subsidiary of Singapore Airline. They can enter the industry because of the background of their parent company. On the other hand, the cost of aircraft, fuel and airport is the majority expense in airline company, the high bargain power of suppliers gave much pressure to them.
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Train and ship are the substitutes of airline, but they are hardly to take place of low cost long haul airline. Even though the price is more expensive than bus and ship, low cost long haul carriers provide variable, efficient and convenient transport service. Sometimes, low threat of substitutes indicates high competition in the industry. In Southeast Asia market, Jetstar from Australia and Scoot from Singapore are the main competitors of X. Jetstar is the earliest company to operated low cost model of them, it has much experience about low cost control. It has huge fleet and good quality service. Its fatal weakness is the highest ticket price provided among the three companies. Scoot is a new low cost long haul carrier in 2012. It has narrow route network and higher price than X. However, it has absolute cost advantages in route from Singapore to Australia currently. Compared to them, X has the lowest average ticket price and the largest passenger load.
AirAsia X’s Strategy
X successfully integrated low cost model in every organizational activities. It sharply griped the true needs of lower disposable income customers to attract new customer segments and created value to customers around low cost.
Primary activities
Activities
Description
Inbound logistics
Although X formally separated from AirAsia, they still jointly purchase important resources such as aircraft and fuel. It will strengthen their bargaining power towards suppliers. X reduced costly investment in terminal or non-airplane related infrastructure help to decrease the cost of flight for passengers. Meanwhile, X pays much attention to flight safety. It has a high standard aircraft maintenance team.
Operations
Different from full service airlines, X should maximize its load in each flight to reach the break-even point because of the low enough price. Moreover, X arranges high efficient flight scheduling to increase the profit.
Outbound logistics
X is an airline company and responsible to long haul transportation. There is no more outbound logistics except the low cost long haul transportation.
Marketing and sales
In order to attract new customer segments, X was differentiated around low cost and building he global brand. To reduce cost, X utilized 100 per cent online sales before. To make further efforts, X was exploring the cell phone sales of ticket. In spite of the extra cost, X set sales point in at each airport and operated call centers throughout the world. X also had agreements with travel agencies.
Service
X made effort to keep the booking process and pricing model simple. The ticket price listed online including ticket fees and related tax charge. It is transparent to customers. X never charged any online, telephone or personal booking fees. In late of 2010, X launched ‘BIG’ program to review more benefit to loyal customers.
Support activities
Activities
Description
Infrastructure
X used ‘flat organization structure’ in the company. The structure helped X to reduce the cost of administration and develop the efficiency among the employees.
One of the most important activities is preparing for global IPO. This move is the foundation for X’s global expansion.
Human resource management
Low cost human resource of X absolutely has benefits from the low labor cost of Malaysia. Furthermore, X and AirAsia established their own training academy for new pilots, engineer and cabin crews. It saved a lot of money for X again.
Technology development
X explored cell phone sales of ticket to make up 100 per cent online sales. It provided more convenient to customers in booking system.
Procurement
X searched the lowest price with acceptable quality of merchandise or procured with AirAsia to obtain more price advantage.
In the value chain of AirAsia X, every activity is around low cost to create value to customers. Some moves in value chain decide the AirAsia X’s cost per seat mile (US$0.02 per seat mile) less than one quarter of the cost of the average budget US ‘s low budget airlines (US$0.09 per seat mile).
From the inception of X, it operated as a simple organization structure. X used minimum staffs to complete flight tasks in safety and efficiency. Additionally, the cost of human resource saved a large sum of money for AirAsia X. Labor costs in Malaysia and the absence of unionization helped keep costs low. As wright said, passengers prefer to get off airplane directly onto the airport tarmac instead of added cost to the ticket price. To reduce costly investment in terminal or non-airplane related infrastructure help to decrease the cost of flight for passengers. It satisfied the real needs of X’s target market.
Appraisal the strategies of AirAsia X
Sustaining development cannot be created by operating business in external environment with high opportunity and low threat. It must depend on resource and capabilities and utilizes them to implement strategies in industry competition. In order to figure out these resource and capability, management must find out resource of value, rareness, imitability and non-substitute from internal environment.
In the beginning of AirAsia X, it almost shared all resources from AirAsia to ensure the successful launch. As formally separated AirAsia X from AirAsia in 2010, AirAsia X already had its own value resources such as some suppliers. It provided infrastructure to administrate strategy and develop. Low cost control system but high safety aircraft and standard maintenance is the most valuable resource in AirAsia X.
The flight time in AirAsia X changed from day to day is a very different schedule in airline industry. The purpose is to satisfy to break even through arrange aircrafts in the air as long as possible because the ticket price was too low.
Low cost human resource in Malaysia is a kind of imperfectly imitable resources. Scoot Airline from Singapore and Jetstar Airline from Australia have no this resource. Low cost philosophy also is important imperfectly imitable resource. AirAsia X can achieve very low cost per seat mile as US$0.02 when the average budget airlines cost per seat mile is US$0.09. This is mission impossible to AirAsia X’s competitors.
As an airline company, aircraft manufacturer is one of the core suppliers. Aircraft selection is very important to airline company; it must consider the size of aircraft depended on fly distance and maintenance cost. AirAsia X utilizes single type of aircraft to simplify maintenance, reduce staff training needs and gain better purchasing term in negotiation.
Conclusion
Integrated above Porter’s five forces analysis, value chain analysis and VRIN analysis, the current competitive advantage in AirAsia X is cost leadership. Because of low enough price, AirAsia X can grip opportunity to succeed when other low cost carriers failed. Meanwhile, the competitive advantage offsets some weaknesses such as less diversification of service and differentiation from competitors. With the development of AirAsia X, some current strengths maybe transfer to weaknesses. These will influence sustaining development of AirAsia X. Therefore, AirAsia X should build sustaining competitive advantages in the future.
Sustaining competitive advantages
Description
Cost leadership
Low cost philosophy must practices as the core competency throughout AirAsia X.
Low distribution cost
Currently, low distribution cost is still strength in AirAsia X, but it is heavily relied on online sales. Once information system interruption, AirAsia X will suffer heavy loss, besides, online sales are an easy kind of resource imitated by competitors. Thus, AirAsia X should explore new low cost distribution.
High aircraft utilization and operation
AirAsia X is good at safe and efficient flight schedule. It balances low ticket price and company revenue. This capability is sustainable and imperfectly imitable.
Flat organization structure
This capability helped AirAsia X to save a lot of money. However, it is short-term competitive advantage. As AirAsia X expands, flat organization structure will influence the quality of decision making. AirAsia X should maintain this capability to as sustainable competitive advantage.
Strong branding and marketing
Strong branding and marketing is one of important capability to against competitors’ expansion. AirAsia X must build its strong branding and marketing.
As the completion of budget long haul airlines become sharp day by day. AirAsia X should maintain the capabilities which are easy imitated such as distribution channel or short-term competitive advantages such as flat organization structure.
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