Strategic analysis of AirAsia: the journey so far

Author: Iloka Benneth Chiemelie
Published: 1-August-2019

Introduction

When it comes to product and brand management, building a strong brand is one of the pivotal goals and the impact of such on corporate success is that it brings about realization of higher long-term and short-term returns to the company (Davis, 2002a, b; Keller, 2002). Just like any other product, branding is now considered pivotal in the airline industry. In accordance with the work of Deyes (2008), the growing emphasis being placed on the importance of branding in the industry is because the flying experience are similar, all encompassing the elements of boring and stressful as flights become a commodity and the flying process losing its magic. On the same note, the past decades has seen numerous budget airlines launched and the impact is that it has made it even more difficult for airlines to differentiate themselves within their respective markets and segments. A research was conducted in this setting and it was discovered that 35% of the respondents go for an airline based on their level of punctuality, with pricing coming in as the second major factor at 30% of the total response (Deyes, 2008). Here, the implication is that the outstanding 35% decisions are being influenced by other factors, which most certainly include how the airline is branded (Deyes, 2008). Branding does play a crucial role in the airline industry because it helps the companies operating in it to differentiate themselves from other. Through branding, the airlines are put in a position where they will showcase their strengths beyond the expected basic requirement of just taking a passenger from one point (departure) to another (destination). On a more crucial note, differentiation has now become a necessity since the emergence of the low cost carrier, demanding that the airlines be able to enhance their experience as the decisions of consumers are now being solely based on price, meaning that the low cost carriers having the least cost per travel will be chosen (Deyes, 2008).

Therefore, for AirAsia, it is important that the management continuously review their strategy in order to ensure that it is always in line with the direction the company is moving towards. In view of the above discussions, this research is designed to review the strategies that AirAsia has adopted in the course of its journey towards becoming a globally renowned airline. In order to achieve this, this paper is divided into three main parts. The first part is the introduction, which offers insight on the general purpose of this paper. This is followed by discussions, presenting comprehensive review of the elements the paper is working on, and finally by a conclusive summary of the findings from the study.

AirAsia: a background review

Before the takeover by Tune Air Sdn Bhd in 2001, the AirAsia group was owned by DRB-Hicom, a company that was linked to the government (AirAsia, 2019). The airline was facing a huge challenge and it had not been able to take off, leading to its eventual sale to Tune Air, likely for free as it was sold for a token sum of RM1.0, although the buyer will also have to take-over the company’s RM40 million debt (AirAsia, 2019).

Together with four other entrepreneurs, Tony Fernandez formed the Tune Air, and some of them had worked for the music industry which was perhaps their inspiration for the name of the company. In line with the viewed of Fernandez, it wasn’t easy for them to sell the idea of operating airline especially to the government. To be precise, their request for a license to operate the airline was actually rejected twice by the government in their previous attempts. Finally, they worked together with Pahamin A Rejab, a former Secretary-General of the Ministry of Transportation in Malaysia, and they were able to present their case to Dr. Mahathir Mohamad, the then Prime Minister, who gave the green light, not for a new company but for them to take over the ailing AirAsia from DRB-Hicom. Throughout the industry, there were high level scepticism that Fernandez will be able to succeed in the transformation of the ailing company, because it was heavily capital intensive especially in the period of the travel slump that followed the terrorist attack on the World Trade Center in New York in 2001.

However, Fernandez was able to prove the critics wrong in a matter of two years by transforming the company into a profit-making brand, with their business strategies modelled after the Southwest Airlines, a successful airline company based in the United States, Dublin-based Ryanair and United Kingdom-based Virgin Air. Eventually, AirAsia was listed into Kuala Lumpur stock exchange just three years into operation on the 22^nd of November 2004, offering one of the biggest IPO for a new company in the amount of RM717.4 million (AirAsia, 2019). Added to this, the company won numerous accolades for its operations and success, which include the certification by Superbrands International. As a result of this resounding achievement, the CEO, Tony Fernandez was awarded the Best Entrepreneur of the Year by Ernst & Young Entrepreneur Award in 2006 (AirAsia, 2019).

In the next two years, 2006, the passenger load of the airline would expand so high that it became necessary to build a new low-cost terminal (LCCT) for the company. The new LCCT was made to be able to accommodate at least 10 million passengers per annum, which has 30 parking bays for the aircrafts (AirAsia, 2019). Since then, the company has been able to deliver world class services at low fare to over 500 million guests across the Asia Pacific region, demonstrating that offering low cost doesn’t imply that the company will have to reduce quality and air travel is something that shouldn’t be costly (AirAsia, 2019).

Initially, the airline began its operations with just two aging jets that operated six flights to domestic locations in Malaysia. Through the formation of a successful joint venture with Shin Corporation, the airline adopted its Thai AirAsia to enter the Thailand market. Later on the February of 15, 2006, it the takeover of this joint venture was announced with the Asia Aviation now holding 50% of the shared, AirAsia has 49 % with the outstanding 1% being held by the Thai AirAsia CEO Tasapon Bijleveld. The same entry strategy was also used to penetrate the Indonesian market by forming the Indonesian AirAsia through a joint venture.

In June 2004, the airline started operating flights in Macau, and by April 2005, it already has flights to mainland China (Xiamen) and the Philippines. Later in the same year, the company opened its operations to Vietnam and Cambodia. In 2007, the AirAsia X was established as a separate associate company, and it was focused on the business of low-cost long-haul. Branded separately from AirAsia, AirAsia X maintains its own separate management and marketing teams (BBC, 2010). In 2009, the airline initiated flights to London and as of today, the airline offers its services to offer 78 destinations in 20 countries across three continents, namely Asia, Europe and Australia. The latest subsidiary is the AirAsia Philippines and it came into operations in March 2012 (Suarez, 2012). Since 2009, the airline has been voted as the World’s Best Low Cost Airline for three consecutive years (Skytrax, 2011).

Strategic review: How did AirAsia attain its heights?

Operating with the tagline ‘‘Now everybody can fly’’, the AirAsia brand has been able to effect revolutionary change in air travel across the Asian region in particular and the world at large, by offering fare that are incredibly low and innovative different marketing techniques towards attaining their defined goals. In the world, the airline is considered to be one of the most innovative companies and it has measured success in the areas of deployment and expansion on the recent and latest promotion/marketing activities. Their ‘Real People, Real Stories’ campaign was ran from August to December of 2010, which involved customers having to share their experience on social media in order to stand the chance of winning free tickets. The result of this program was a ridiculously high level of entry, featuring stories as well as videos from satisfied customers across the globe on different social media platforms. In this section, discussions are presented on how the airline transformed into a global brand by adopting some of the resounding strategies in the areas of technologies and innovation, all geared toward making sure that their customers are actively engaged and efficiency is improved, leading to the ultimate satisfaction of the customers.

Growth through technology innovations

In the airline industry, AirAsia is renowned for its use of pioneering technology and innovation. In 2010, it implemented the tickles less travel, and it was the first airline in the Asian region to do so (AirAsia, 2010). This strategy allowed the passenger to purchase tickets through their phone and make use of their booking number to check themselves in. another unique distinction held by the company is being the first airline in Asia to start online ticketing through its website, a strategy that was brought into action on 10^th May 2002, just a year after taking over the brand. To better visualize why this is a revolutionary event, one should consider that Ryanair, which is the biggest budget airline in the European market had only launched its own booking website in the January of 2000 (Ryanair, 2012). Being factual, AirAsia was actually far advanced that many other low cost carriers that were operating in the European market, which include Flybe, which had its online booking and check-in facility in 2006 (Flybe, 2012). In the 11^th Malaysian Internet User Survey that was conducted by AC Nielsen in April 2005, the AirAsia’s website was voted as the most popular website for online shopping (Sulaiman et al., 2008). When the passengers are registered with the company’s website, they will receive information about offers and promotion through their e-mail. As of March 2005, records have it that online sales exceeded offline sales, which saw a growth from the paltry 5% in January of 2002 to almost 55% in 2005 (Patrick, 2005). In order to be able to achieve this, the company conducted in-depth understanding of the contextual and specific needs/expectations of the customers and this helped them to gain competitive edge.

Booking were introduced through short messaging services (SMS) on mobile devices by the airline in August 2003, and at that time, it was the first airline in the world to offer this services. It was estimated that at that time, at least 42.2% of the Malaysian population were making use of mobile phones and the SMS services would allow the company to expand its reach to the 10 million people using mobile phones in the country (Easen, 2003). Maxis Communications Berhad and Dutch technology firm Getronics aided the development of this service.

The AirAsia also invested in the areas of latest technology, which include new reservation system known as “New Skies”, a technology that is also adopted by numerous other airlines which include Jetstar and Ryanair. The new system as officially launched in July 2010 (Wan, 2010), and the process took just 9 months as against 18-24 months that it took other major airlines to adopt it (Air Transport News, 2010). The company also adopts a state-of-the-art customer relationship management (CRM) system which makes it possible for the customers to manage their online bookings better. This system is tailored towards full satisfaction of the customers’ needs. The new features in this system include support for multiple languages, and the “Low Fare Finder”, which shows the lowest possible fare based on the chosen dates and destination of travel.  Another add on was the ability to book numerous seats from one single transaction. In the past, the passengers needed to make different bookings when they are flying across different cities in different countries, for instance, from Kuala Lumpur to Bangkok, and then to manila. Through these improvements, the customers felt at ease and were able to schedule their travel plan well.

Growth through social media marketing

The company’s first entrance into the social media world came to effect in 2008, when the company created its corporate blog, called “Just Plane Thoughts” (AirAsia Blog, 2013). When compared to other corporate blogs, this blog employs a tone that is informal and also features stories from their employees, customers and other announcement contexts. Since then, the company has embraced social media actively. For different locations across the globe, the company has different social media platforms and it was the first airline out the USA that had over a million fans on Facebook (Pal, 2011). As a result of the restriction that was imposed on Facebook, they make use of the local network RenRen in China. AirAsia also maintain presence on Flickr, YouTube and Twitter, and it was voted the “Best Airline in Social Media in 2011”, a poll that was hosted by the consulting firm Simplyflying (Nigam, 2011). The CEO, tony Fernandez is also a key tweeter and blogger, with hundreds of thousands of followers.

Aside from making use of the social media to inform and announce to the consumers about their latest promotions and deals, the company also make use of the social media to engage in active branding campaigns (AirAsia, 2010). One of the most successful of such campaigns is the ‘Real People, Real Stories’.  This campaign is considered one of the first social media marketing campaign that was initiated by an airline company in the world. The first phase of the People, Real Stories’ video contest involved contents generated by the users where the customers were invited to share their personal story via a 30-90 seconds video or any other form of animation. This was followed by “Real People, Real Stories’: comment and win contest. The participants in this contest were invited to visit AirAsia’s official YouTube page and pen down their comments on any of the videos listed in any of the five categories. Their comments could be how they can relate to any of their video based on their experience with the airline or any other opinion. The second phase came to light in their run up to celebrate their 100 million guests, with the customers asked: ‘‘How has AirAsia changed your life for the better?”, and they were invited to share their story via YouTube, Twitter, Facebook and the company’s corporate blog. Entries began to flood across the different social media platforms as people shared their experience with the airline through different social media platforms with blog posts, creative videos, animations and pictures. To be precise, over 100 videos were submitted in the AirAsia Video/Animation Contest and 37 winners were selected from the videos submitted. The winners were rewarded by the airline with a pair of return tickets (eYeka, 2010). Based on their 2010 annual report, this campaign saw the company gain different rewards by the stories that passengers shared, and this is an affirmation that the company is just in the airline industry to make money, as it is in the business of changing lives (AirAsia, 2010). By focusing on the customers, AirAisa was able to reap the benefit of increased profit for a fourth straight quarter in 2013 (Koon, 2013).

Overall, the company focused on creating low cost structure as the very cornerstone of its business strategy. AirAisa was able to attain a cot per available-seat-kilometre of (ASK) of 2.5 cents, which is considered the same value from its closest rival, Malaysian Airlines and Ryanair, and a value that is one third the same value for Easyjet (Yashodha, 2012).  In 2007, a research conducted by USB did show that AirAisa was the lost cost airline in the globe, and the company continuously pushed down their cost per year, helping them to retain this position. On the same note, it was acknowledged by the CEO, Tony Fernandez, that the timing of the start-up for AirAisa, which followed the aftermath of the events of September 11, 2001, is one that help the company make sure that it could operate with the least possible cost structure, as both the cost of leasing and operating aircrafts witnessed a sharp decline over the year. However, it wasn’t just the conditions that paved the way for the company to attain its global height as these conditions were eliminated as time passed by. Instead, it was the strong will of the management and the numerous strategies that the company employed that make it possible for it to reach this new height (26).

Conclusion

In a 2007 interview with INSEAD, the CEO of AirAisa, tony Fernandez was asked to share his thought about the phenomenal growth that the airline had experienced in the past 5-6 years, and the plan to sustainably growth in the Asian market. Fernandez responded by saying that the brand is operating in a huge market and referenced the case of Southwest Airlines that has 400 aircrafts in a market of 350 million people. Being in a market that is double this size, Fernandez pointed out that there are lots of potential for growth, but the strategy would be to grow sensibly and grow at the right pace (INSEAD, 2019).

The above statement shows the airline’s commitment towards growth since its inception and this has helped to transform the company into what it is today. Taking advantage of the aviation environment following the 2001 terrorist attack in the USA, the airline was able to offer the least possible fare to passenger, drawing in hugely significant volume of customers to its corner. As time passed, the airline made use of numerous technological innovation and social media marketing strategies to power itself ahead of its competitors. Overall, it should be pointed out that the success of the airline has been based on better understanding the customers’ needs/expectations, and keeping them engaged, helping build a high level of emotional attachment to the brand. However, it will be concluded that while success has been recorded over the years through different strategies, such strategies can easily be copied by competitors and it doesn’t put the sustainability of the company into broader view. In any case, the management is made up of people that have sound understanding of how to propel an airline company into greater new heights and it is thus expected that, AirAisa will move in line with new technological advancements and marketing measures; geared towards retaining their existing customers and attracting new ones, all leading to enhanced level of competitive edge.

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