1.0 Executive summary
The current situation of Air market is not steady and could satisfy needs of customers, more and more negative news appear to show depression of AirAsia. AirAsia is a Malaysian-based company which owns airlines in Asia with low cost and provide 400 flight lines over 25 countries, the AirAsia was first founded in 1993 and operated in 1998 (Sen & Ng, 2008). With almost 20-year history, AirAsia could be regarded as the most successful company in Asia.
Brief analysis of AirAsia will be given in the report and further information will be provided to further support assistance for readers to know about AirAsia.
2.0 Introduction
The air market is struggling at present, more competitors are involved in the battle and the competence seems intense than ever before, higher price of energy and lower price of flights drive most of airplane companies loss profit and reduce revenue (Kernchen, 2007). Airline market in Europe, America especially in Asia is developing in opposite direction, with effects of financial crisis, less customers go out to travel by plane; economy is also influenced by crisis which drives less businessmen go aboard to invest by plane (Shaw, 2011). The airline companies around world are all affected by crisis, decrease the revenue. At the same time, the speed of development of technology is beyond imagination of people, most airline companies purchase new planes from countries expert in measuring planes such as America, China and Russia, which increase cost and make more difficult to balance finance. The objective of the report is to supply information of AirAsia for readers and assist them to better understand the factors affecting AirAsia in the future, potential threats AirAsia will face with. The report will state an analysis of AirAsia with PESTEL method, from various aspects to show the key external factors affect the development of AirAsia. Then the second part will discuss how the Market Liberalization in the Asia-Pacific assisted AirAsia’ growth in the region. The third part of report will implement data to show a SWOT analysis of AirAsia and Porter’s five forces to further supply information of AirAsia. With SWOT analysis and Porter’s five forces, potential challenges will be given which AirAsia will face in the future. Finally a conclusion will be referred to.
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3.0 External factors affect AirAsia
Many factors will affect the development of an industry, which could easily divided into external and internal factors. To drive organizations progress better in the changeable world, to analyze and know what potential factors will affect organizations is essential. Eternal factors are easy to handle and organizations could prepare in advance before problems appear, especially for countries in Asia, most countries are at developing groups, external factors such as politics, economy or climates will affect organizations’ development in long-term (Kohama, 2003). Airline industry is easy affected by those external factors, so the following content will give a PESTEL analysis to help readers know what will affect AirAsia.
3.1 PESTEL analysis
PESTEL analysis is used by managers as one of the most essential frameworks to study the external factors that affect development of organizations, PESTEL stands for ‘Political, economic, social, technological, environmental and legal’ ( William & Green, 1997). The following content will focus on situation in Asia in the view of PESTEL analysis.
Political factors: Asia is a mixed region compared with other areas, there are various countries with different government systems, besides, Asia has a long history, however, most Asian seem to have the similar cultural backgrounds, the policies each country hold are totally different, and the independence movements are continues recently ( Zhang, 2003). AirAsia owns many subsidiaries in many Asian countries, since cold war, with intense relationship between China and Japan, Taiwan, continues conflict between South Korea and North Korea, the flights of AirAsia are affected by these political factors, the relationships among Asian countries are difficult to fortell and the politics in each country seem unsteady ( Yahuda,2005).
Economic factors: The economic growth in Asia increased faster since 1945, especially China and Japan, with independent and away from wars, these two countries develop beyond imagination. However, influenced by financial crisis, most Asian countries are struggling economic depression, the inflation rate raise, exchange rates change daily (Adams, 2006). All these unsteady factors drive less export and less people spend money on tourism which directly affects the revenue of AirAsia. The profit decline with less customers and less export for AirAsia.
Social factors: In Asia, tourism is not thought about as usual as Europeans, which means, under the effects of cultural background, Asians spend less money on tourism. However, Asians are sensitive to change of price, especially when they desire to go out by plane, lower price will attract them, AirAsia holds the advantages of lower price. With more branches set up in Asian countries, AirAsia will appeal more Asian customers. The population in Asia increase fast, changeable population in Asia drive more young people change locations to live, China and India, these two biggest countries in Asia means change of demand for AirAsia (Sanderson & Tan, 1995)
Technological factors: Technology plays important role in the airline industry especially for AirAsia which implement the low cost carriers. With more and more experts appearance in Asia, competitors in the field of airline are able to invent new things to reduce cost to win in the battle, if AirAsia wants win finally, the key is to invite more professional experts to join them. Innovation of competitors affects revenue of AirAsia, too. New airplanes with high technology would appeal to customers to change purchasing habits.
Environmental factors: Climate is a key factor which influences the revenue of AirAsia, however, natural factors are not planned or changed by human beings. Most of Asia countries realize the importance of protection for environment, with globalization and development of technology, the pollution raise and the living surroundings are damaged. Now, the slogan of ‘energy saving and emission reduction’ is popular in China, governments request most organizations use clear energy to produce, especially for airline companies, lower cost but less pollutions to environment, fuel or gas must conform to law of countries.
Legal factors: Taxation requested for customers will be increase by most countries, which will affect the revenue of AirAsia. Facing more taxation for tickets, customers will feel uncomfortable and ask to reduce the price of tickets. Tariff will change according to current economic situation of the world, especially for Asian countries who export goods with lower cost to compete with domestic industry. Environmental protection regulations will change to request AirAsia to use clear fuel or gas which increase cost and reduce revenue. Laws of export and import will also affect AirAsia, all these depend on policies of Asian countries and economy of the world.
3.2 SWOT analysis
After stating key external factors which will affect the revenue of AirAsia, the company also needs tools to analyze under these factors, what the development in the future, the SWOT analysis pursues an integrated strategic position by providing internal information to conclude the strengths, weakness and external information of opportunities and threats ( Bohm, 2009). The SWOT analysis of AirAsia can be seen below:
Figure 1:
Strengths:
Low cost compared with other competitors, the core value of AirAsia is low cost in Asia.
Effective management, correct strategic positions, target customers.
Simple models implemented in AirAsia, exploring for long time to find out suitable developing models.
Secure time and high quality of service attract more customers.
Expansion with more than five countries in Asia, multi-skilled employees in company means efficient workforce.
Continues innovation, experts teams to invent new type of airplanes.
Various airlines for customers, proving more choices for customers.
Weakness:
Lower cost means lower salary for employees, could not appeal skilled employees.
Government regulation and policies often change towards airports, higher taxation for customers and tariff for export and import.
More needs of customers, higher compensation asked by passengers increase cost of the company.
New entrants in this field, more intense competition in Asia.
Increasing price of gas and fuel, less profit for AirAsia.
Brand is vital for market, airplanes only with service worse than competitors who ask for higher price.
Opportunities:
Airlines from Asia to other countries should be provided.
Different model but still keep the principle of lower cost carriers.
Increase quality of customer service and try to set up a full-service with low fare.
Aggressive competition will drive air market prospers for new routes.
Higher price of fuel will push competitors out of air industry.
Threats:
Full service increase cost of AirAsia.
Entrants of air industry with lower cost.
Accident, change of climate and disaster will influence confidence of consumers.
Close relationship among each system in AirAis will limit development of company.
Higher salary asked by skilled employees, increasing cost of labor.
Government regulations and intense relationship among specific countries, unsteady politics in Asia.
(Lim, 2012)
3.3 Porter’s Five Forces
Porter’s five forces are used by managers to predict potential threats from competitors which will provide a model for managers to better understand the industry (Roy, 2011). After stating PESTEL and SWOT analysis of AirAsia, further information related with competitors will be provided in the following part. The diagram of Porter’s five forces could better help readers to know more about potential threats for AirAsia.
Figure 2¼š
Rivalry
Strong competitors from China and Singapore with the similar motto ‘everyone can afford the air ticket’ as AirAsia.
Examples such as Spring Airlines in China and Value Air, Tiger Airways in Singapore are strong competitors for AirAsia.
Substitutes
In the field of air industry, the substitutes are not essential threats for AirAsia. Cars and trains are main substitutes, however, trains are chosen by passages only in China and India, with lower price and safe condition, not affected by change of climate, trains are influence air industry. Cars can be regarded as threats for AirAsia in limited conditions, only for customers who like driving and do not care time.
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Threats of new entrants
Asian air market is a huge market with potential for most companies, not only for Asian air companies, new entrants from Europe and America also involve in intense competition with AirAsia. New entrants will change the supply and demand, affecting AirAsia’ market share. New airplanes and special service will attract loyal customers from AirAsia to new entrants.
Bargaining power of buyers.
Consumers have more choices facing large numbers of air companies; they will request higher quality of service and be strict with the take off time and arrival time. They will compare prices of competitors with AirAsia, complaining lower price of other airlines to reduce revenue of AirAsia.
Bargaining power of suppliers
Suppliers concentrated, fuel or gas suppliers are mainly in East Asia, and the price of fuel and gas are changing without any bargaining of air companies. Fewer suppliers for fuel and aircrafts mean higher price they could ask for.
The growth of AirAsia depends on many factors; the report has stated key external factors which will influence revenue of AirAsia, internal factors of strengths and weakness of AirAsia.
4.0 Conclusion
In conclusion, the report has stated three analysis of AirAsia in order to supply enough information for readers to understand the strategic positions and models the company implement. With PESTEL analysis, key external factors influencing AirAsia are mentioning and SWOT analysis to provide AirAsia’ strengths and weakness, AirAsia should keep the core value and supply better service with low cost carriers in long term. Porter’s five forces analysis also shows potential threats for AirAsia should notice in the future, with new entrants and existing competitors, AirAsia should change management strategy and appeal to more skilled staff.
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