tiểu luận essay topic analyzing the case of airasia

BUSINESS IN THE ASIA PACIFIC REGION ESSAY Topic ANALYZING THE CASE OF AIRASIA Professor : Nguyen Anh Tuan Members : Truong Gia Linh Ho Hoang NhiNguyen Thi Ngoc OanhNguyen Thi

BUSINESS IN THE ASIA PACIFIC REGION 

ESSAY Topic

ANALYZING THE CASE OF AIRASIA Professor : Nguyen Anh Tuan

Members : Truong Gia Linh Ho Hoang NhiNguyen Thi Ngoc OanhNguyen Thi Ngoc Phuong

Phuong Thao Nguyen Thi

Nguyen Hoang ThuNguyen Bao Trinh

Da Nang, May 8th , 2024

i TABLE OF CONTENTS

INTRODUCTION

AirAsia - one of Asia's leading low-cost airlines and a shining example of innovation and breakthrough in the aviation industry In the context of an increasingly dynamic aviation industry, AirAsia needs to clearly understand the factors that have been and are being impacted to build strategies and maintain competitiveness This essay will approach AirAsia through two main analytical methods: PESTEL analysis and Generic Strategy First, we will discuss the main factors affecting AirAsia's business environment through PESTEL analysis - a comprehensive tool that analyzes political, economic, social, technological, and environmental factors, juridical Next are the core strategies through the Generic Strategies method - choosing strategies to maintain and develop competitive advantage From facing government intervention, and the impact of economic and social factors, to technological innovation and addressing environmental issues, the essay will delve into how AirAsia overcame challenges and opportunities in this ever-evolving aviation industry

Kinh doanh t i khu vạực Châu Á Thái Bình Dương – Nhóm 5

2 I PESTEL ANALYSIS

The PESTEL analysis provides a comprehensive framework for evaluating the external factors that impact an organization In the case of AirAsia, a leading low-cost airline in Asia, understanding these factors is crucial for strategic planning and maintaining a competitive edge This analysis explores the Political, Economic, Social, Technological, Environmental, and Legal influences that shape AirAsia's business environment, offering insights into the challenges and opportunities the company faces in the ever-evolving airline industry

1 Political factors

Many governments in Asia historically viewed their national carriers as sources of national prestige and economic growth These national carriers often received subsidies, priority on lucrative international routes, and protection from competition AirAsia's entry into markets traditionally dominated by national carriers disrupted this status quo, leading to some challenges for the airline

AirAsia must conduct thorough research on the regulations of each country it operates in, as rules vary between nations Political factors significantly influence operations, as governments control business regulations The resistance of authorities, such as Singapore, against special low-cost arrangements for AirAsia suggests elements of protectionism that could hinder the airline's growth and expansion plans

Despite some privatization and deregulation in the late 1990s, government intervention and regulation remained substantial in the Asian airline industry by 2006 This indicates that AirAsia's operations and expansion were influenced by government policies, regulations, and decisions For example, the inability of AirAsia to launch flights between Singapore and Malaysia due to lengthy delays and costly conditions imposed by Singapore authorities highlights the impact of government regulations on the airline's route network and expansion plans

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AirAsia's ability to expand its route network beyond specific routes was constrained by its inability to acquire landing rights in other countries Bilateral agreements between countries, such as Singapore - Thailand, and regulatory hurdles influenced AirAsia's access to new markets and routes, impacting the airline's growth trajectory Another example is India, where such agreements have limited how often AirAsia can fly between certain destinations

Political instability also has a significant impact on AirAsia in expanding its market In 2008, demonstrators in Thailand staged an "anti-government rally," successfully halting all flights for a span of seven days at the country's international airport in Bangkok Since Air Asia had just established a franchise in "Thailand AirAsia X" in 2007, this had a significant effect on the airline Another thing that had an impact on it was the terrorist attack that happened in Indonesia, which not only damaged AirAsia but also all of South East Asia's flight aviation Because of this occurrence, AirAsia has tightened flight security and implemented security measures

Political factors significantly influence AirAsia's operations and expansion Governments historically favor national carriers, creating hurdles for newcomers like AirAsia Bilateral agreements and regulatory hurdles limit route expansion, while political instability disrupts operations AirAsia should engage with governments, invest in contingency plans, and maintain flexibility in route planning

2 Economic factors

AirAsia's success can be attributed to its low-cost business model, which focused on offering affordable fares to passengers By introducing aggressive promotional fares, AirAsia disrupted the traditional airline pricing structure and attracted a significant amount of publicity and interest from travelers This low-cost approach allowed AirAsia to tap into a previously underserved market segment and achieve rapid growth in passenger numbers

Moreover, the increasing regional urbanization would result in the creation of new urban centers and new travel destinations The aviation sector would soar to new heights

4 thanks to the ASEAN region's rising economic growth rates As of March 15, 2010, the combined GDP of the ASEAN countries was a staggering USD 1.5 trillion (AirAsia, Annual Report 2009) This implies that the growth of the regional tourist sector would contribute to economic expansion As a result, there would be a rise in the number of regional passengers, who would look for low-cost airlines, such as Air Asia

AirAsia has had a rapid expansion in passenger volumes, almost doubling between 2003 and 2004 and again doubling to more than 7 million passengers by 2005 In April 2024, AirAsia's passenger numbers increased 17% year-on-year to 15.4 million, outpacing capacity growth of 15% year-on-year, demonstrating continued strong travel demand throughout the region These demonstrate the airline's ability to capture market share and stimulate demand through its low fares and strong branding This increased passenger volume contributed to AirAsia's revenue growth and reinforced its position as a major player in the Southeast Asian air travel market

On the other hand, "Oil price" is another economic factor that could impact Air Asia An airline must manage its operating costs when the price of oil is high, and this is not a simple task Despite the low-cost carrier's best efforts to resist it for as long as it could, AirAsia Malaysia Chi ef Executive Officer Riad Asmat stated in 2022 that airlines worldwide are affected by rising oil prices and the continuous upward spiral caused by the situation in Eastern Europe and other external factors have made it imperative for the airlines to reintroduce the fuel surcharge

Furthermore, the outbreak of COVID-19 was the worst recession in the history of advanced economies This has grown to be a major obstacle for all industries Due to this, for the first quarter, AirAsia Group Bhd reported a net loss of RM 803.85 million AirAsia made the decision to reduce the number of planes in its fleet and fire 10% of its employees in order to control costs Fortunately, AirAsia was able to secure a loan of RM1 billion from the Danjamin Prihatin Programme, which was initiated by Prime Minister Dan Sri Muhyiddin Yassin, to cover the repayment of short-term loans, despite the economic strain

Economic factors strongly impact AirAsia's operations While its low-cost model thrives on affordability, external factors like oil price hikes pose challenges, necessitating measures like fuel surcharges Events such as the COVID-19 pandemic lead to significant losses, prompting fleet reductions and cost-cutting measures Moreover, to secure financial aid, proactive responses of the government should be highlighted Overall, to navigate economic fluctuations, AirAsia must maintain agili ty, invest in fuel efficiency, and capitalize on regional growth opportunities while adapting to evolving consumer preferences

3 Social factors

Social factors play an important role in the development of AirAsia Searching deeper into the social factors can help AirAsia have a better understanding of the demands of customers in the real market These factors can include demographic trends, changes in attitudes, cultural trends, and changes in lifestyles as well

3.1 Cultural trends

AirAsia's success is fueled by its embrace of cultural diversity Because the airline operates in multiple countries, it employs Allstars from different walks of life and cultures, which has contributed to its internal development and progress, providing equal opportunity to all regardless of color, ethnicity, religion, or gender As AirAsia grows its company, it also strengthens inclusivity and diversity in the workplace and onboard These Allstars explain that diversity is central to AirAsia's values, a principle shared by over 20,000 employees worldwide

Because of the diversity of customers, AirAsia provides their customers with diverse services For example, it even accommodates diverse needs through its in-flight food options Alcoholic beverages aren't served in some countries, while special meals are offered on routes to Japan and Korea, along with vegetarian and halal dishes for those with dietary restrictions

6 3.2 Changes in lifestyles

Lifestyle changes have significantly impacted how AirAsia operates The idea of air travel has shifted from being an exclusive privilege of the upper class to something accessible to everyone AirAsia played a major role in this transformation by rebranding and relaunching an ailing full-service carrier into a "low fares, no-frills" airline for the masses, thereby reshaping the aviation industry This change made it possible for ordinary people to experience the convenience of air travel

Research also suggests that Asians are less inclined to travel than Europeans and typically spend less on tourism This behavior can be attributed to their sensitivity to price fluctuations, leading them to seek the most affordable and reliable options to fulfill their needs and desires Air Asia, recognizing this trend, crafted a business model focused on offering low-cost flights without compromising customer safety and service quality

Additionally, AirAsia's affordable approach to flying has helped many fulfil held dreams For some, it was about taking their first-ever flight, enjoying a bowl of Assam Laksa in Penang, or even tying the knot onboard By making air travel accessible and cost-effective, AirAsia has turned countless dreams into reality for millions of people

long-3.3 Demographic trends

Demographic trends play a crucial role in predicting the demand within an economy For example, as the populations in the European Union age, there's a growing need for products and services that cater specifically to older adults To stay ahead in such a dynamic market, AirAsia should consider these trends when developing new products, ensuring that the offerings are tailored to this aging demographic As populations get older, the demand for high-tech gadgets might decrease, creating opportunities for other types of products and services that better suit this demographic

3.4 Attitude ifferencesd

Attitude towards Authority and Savings are the things that impact the decisions of AirAsia The way that different cultures view authority varies throughout the world While in the West authority is something to be rebelled against, in Asia, it is respected A thorough

examination of the attitude toward authority is necessary before AirAsia launches a marketing campaign to promote its goods and services On the other hand, the US and China have quite different cultures when it comes to saving money In 2017, China’s

savings rate, as a percentage of GDP, was over 50 percent, while the U.S rate was less than 20 percent The kind and amount of consumption are influenced by this savings and consumption culture

4 Technological factors

Technology is rapidly transforming business practices across many sectors Key tech trends like artificial intelligence, machine learning, and big data analytics are shaping how companies predict consumer behavior, while platforms are becomi ng more significant than traditional service providers With technology rapidly evolving, companies must continuously update themselves to stay ahead of the competition In response, AirAsia stays at the forefront of tech innovations and digital media

AirAsia has leveraged technology to establish itself as an industry leader, driving digital transformation As the first airline in Asia to go ticketless in 2002 and the world's first to offer SMS-based booking, it was also the pioneer in launching a comprehensive booking system for mobile phones and wireless devices in 2005

Capitalizing on the slowdown in air travel during the pandemic, AirAsia pivoted from primarily an airline to a comprehensive digital company, offering nearly 20 different travel and lifestyle products and services, all within its "AirAsia way of life." This included launching the AirAsia Super App, a one-stop platform for travel and lifestyle needs Through the AirAsia Super App, users can book flights, arrange rides to and from the airport, purchase duty-free items, order food, groceries, parcels, and more all in one —place

AirAsia also established a tech-enabled regional logistics operation called Teleport This service encompasses freight, delivery, and e-commerce, enabling 24-hour cross-border door- -door deliveries by using the network of AirAsia and its partner airlines to

8 Moreover, AirAsia ventured into digital banking with BigPay, its fintech division focusing on payment solutions, remittance, and lending Similar to how it made air travel more accessible, BigPay aims to democratize financial services in the ASEAN region and is on its way to becoming ASEAN's first virtual bank

AirAsia's transformation into a data and technology-driven travel and lifestyle group earned its recognition as one of three ASEAN Unicorns based in Malaysia in a recent Credit Suisse report The company is no longer just an airline; it has become a digital services group AirAsia is proud to contribute to changing users' lifestyles by providing a wide range of affordable services and products at their fingertips, while also creating positive impacts throughout the entire value chain

In short, AirAsia needs to monitor technology application trends, new technologies, changes in technology platforms, and industry standards to ensure sound investment decisions The corporation needs to ensure that its systems comply with applicable security standards to protect customer data and information At the same time, discovering and overcoming technology gaps will help AirAsia strengthen its position in the ever-growing digital market

5 Environmental factors

Environmental efforts have consistently remained concerns for organizations that require to be addressed constantly Being a leader in ASEAN travel and aviation, AirAsia acknowledges its significant role in promoting sustainability through efficient practices Accordingly, AirAsia has adjusted its sustainability strategy to concentrate on 10 material areas encompassing Economic, Environmental, and Social aspects, with a primary emphasis on aligning with 6 UN Sustainable Development Goals (SDGs)

Figure 1: Sustainability strategy of Air Asia

Collaborating with airports to upgrade existing facilities such as implementation of no frill Service, is essential for minimizing capital expenditure and mitigating environmental impact

AirAsia believes that investment in cutting-edge technology and maximizing aircraft efficiency is driven by the potential for substantial savings across its group-wide operations Natural disasters such as the 2015 earthquake in Nepal and volcano eruptions in Indonesia significantly impacted airline operations In response, AirAsia has launched the Airbus A321Neo series, featuring Sharklets and next-generation engines, which are not only more efficient but also larger than the A320 series (27% increase in seat capacity), With a 10% reduction in fuel usage, these aircraft contribute to significant carbon dioxide savings, lower fuel costs, and decreased environmental waste Additionally, registered participating countries including Malaysia, Thailand, Indonesia, and The Philippines are mandated to report verified carbon emissions data on international flights annually from 2019, in preparation for the introduction of a carbon offsetting regime by 2023 However,