PRODUCT, STRATEGIES AND TACTICS ANALYSIS FOR AIR ASIA

INTRODUCTION

About The Product
Air Asia is a low cost airline based in Kuala Lumpur, Malaysia. It operates scheduled domestic and international flights and is Asia’s largest low fare, no frills airlines. Air Asia pioneered low cost travelling in Asia. It is also the first airline in the region to implement fully ticketless travel and unassigned seats. Its main base is the Low Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA). Its affiliate airlines Thai Air Asia and Indonesia Air Asia fly from Suvarnabhumi Airport, Thailand and Soekarno-Hatta International Airport, Indonesia, respectively.

The airlines established in 1993 and started operations on 18 November 1996. It was originally founded by a government-owned conglomerate DRB – Hicom. On December 2, 2001 the heavily – indebted airlines was purchased by the former Time Warner executive Tony Fernandes’s company Tune Air Sdn Bhd for the token sum of one ringgit. Fernandes proceeded to engineer a remarkable turnaround, turning a profit in 2002 and launching new routes from its hub in Kuala Lumpur International Airport at breakneck speed, undercutting former monopoly operator Malaysia Airlines with promotional fares as low as RM1 (US $ 0.29).

Air Asia operates with the world’s lowest unit cost of US$0.023/ASK and a passenger breakeven load factor of 52%. It has hedged 100% of its fuel requirements for the next three years, achieves an aircraft turnaround time of 25 minutes, has a crew productivity level that is triple that of Malaysia Airlines and achieves an average aircraft utilization rate of 13 hours a day.

Air Asia currently is the main customer of the Airbus A 320. The company has placed an order of 175 units of the same plane to service its routes and at least 50 of these A320 will be operational by 2013. The first unit of the plane arrived on 8 December, 2005.

Support
As a pioneered in low cost air transportation in Asia, Air Asia has several subsidiaries and associate company to support its operation.

Subsidiaries
Thai Air Asia was established as Subsidiaries of Air Asia Berhad on 8 December 2003 as joint venture with Shin Corporation. Flight operation was commenced on 13 January 2004 from its base in Don Mueang International Airport. Since 25 September 2006, the airline is based at the new Suvarnabhumi Airport.

The other subsidiary is Indonesia Air Asia. This airline is based in Soekarno-Hatta International Airport. Air Asia acquired the then defunct Awair in 2004 with a 49% stake in the airline. Awair commenced services on behalf of Air Asia in December 2004; full rebranding to Indonesia Air Asia was completed on 1 December 2005. The airline is based in Soekarno-Hatta International Airport.

Associated companies
They also have associate companies such as Air Asia X, Fly AsiaXpress, Tune Hotels and Tune Money. Air Asia X is a service operated by Air Asia X sdn.Bhd. (previously known as Fly AsianXpress Sdn.Bhd.) as a franchise of AirAsia. It has started offering long-haul services from Kuala Lumpur to Australia and China using Airbus A330. The inaugural flight was on 2 November 2007 to Gold Coast, Australia.

The first AirAsia ‘no-frills’ hotel, Tune Hotels, is ready for occupancy in Kuala Lumpur and Kota Kinabalu and later in Penang, Johor Bahru, KLIA, Miri, Kuching and Sandakan.

Tune money is Asia’s first ‘no-frills’ online financial service owned by Tune Air Sdn.Bhd. Modelled aftaer Virgin Money, it comprises life, home and motor vehicle insurance as well as prepaid cards.

Destination
Air Asia operates over 200 flights a day, to over 75 domestic and international routes covering Malaysia, Thailand, Indonesia, Singapore, Brunei, Myanmar, the People’s Republic of China, Vietnam, Laos, Cambodia, Australia and the Philippines.

In 2007, 19 new routes had been introduced over the Air Asia wide network. These include routes from Kuala Lumpur to Gold Coast (Via Air Asia X), Vientiane and Banda Aceh and the connection of Southern China (Macau and Shenzhen) with different Malaysian hubs and Bangkok. In 2008, new routes were introduced which included destinations in India and China.

Air Asia future plan is seeking to set up a hub in Malacca serving Medan, Pekan Baru, Palembang, Padang, Penang and Langkawi. Air Asia has gained approval from India authorities to start flying to destinations in India such as Chennai, Madurai and Kochi.

Value Added Services
On 15 May 2007, a service named ‘Xpress Boarding’ was launched, enabling passengers to get priority boarding for a fee. This product is available in all hubs including Thai Air Asia and Indonesia Air Asia.

On Air Asia X flights, passengers are given a choice of purchasing extra baggage weight, meals, comfort kit and seat selection all with nominal fees.
On 26 November 2008, Air Asia has launched its Air Asia X London flights to London Stanstead Airport.

PRODUCT ANALYSIS

As with living organisms, products have a life cycle. For some, such as the Boeing 747, the life cycle is measured in decades whilst for others, for example the merchandising spin – offs from popular movies, the life cycle may be measured in mere weeks.

The Product Life Cycle (PLC)

A product enters the market in one of three ways. The first may be as an improvement on an existing product, in which case there will already be a customer base. The second is as a competitor to an existing product, in which case a customer base exists, but its loyalties may lie elsewhere. The third way is as a totally new product, in which case a customer base needs to be built up.

Research has shown that many new products never move out of the launch stage. In the 1960s it was stated that 96 per cent of all new product launches failed. By the 1980s this had improved to the extent that only 80 per cent of product launches failed.

Reasons for failure were given as:
· Incorrect segmentation – trying to reach the wrong market.
· Incorrect pricing – either too expensive to provide consumer value or

too cheap to sustain the costs of production and market activities.
· Incorrect communication mix – failure to create the required levels of

awareness, interest and action.
· Incorrect distribution – not in the right channels or if in the right

channels, not in enough of them.
· The product itself – by far the most common reason. The product does

not provide any new benefits or it provides benefits that are not sought

or valued by the customer. It has no beneficial differentiation to

existing products already established in the market.

Air Asia, Airlines Company with 58 flight destination is in the growth phase position of Product Life Cycle (PLC) stage. The growth phase is when loyalty begins to be built up. Some products or services can be taken up by the customer base very quickly and achieve rapid growth. Sales of Air Asia Airlines grew tremendously in every country in which they were available.

It is during the growth phase that the product will begin to recover its development and launch costs and slowly move through the break – even mark to begin to make a profit for the organization. During the growth stage of a new market or a new product, competitor will also enter the market with similar products or services and competition will become increasingly evident.

The characteristics of products or services in the growth phase are Gain market share instead of create awareness and promote trial as the objective, increasing the sales, moving from the non profits into profit, the competition is growing.

As Air Asia gain high market share begins to make a contribution to overall profitability. Revenue pays off the development costs. It will begin to make rival product or service into problem. As the market still growing, revenues can be expected to increase. This period correspond to the star phase of the Boston Consulting Group (BCG).

The market mix elements during in the Growth phase are as follows.

Product
Product extension and minor modification.

Price
Penetration Pricing for Market Share.

Advertising
Heavy media even not as heavy as introduction phase, to build awareness and create brand.

Sales promotion
Reduce as demand increases instead of intensive sales promotions to encourage trial likes introduction phase.

Distribution

Move from selective distribution to intensive distribution.

SWOT Analysis

A SWOT (Strengths, weaknesses, opportunities and Threats) analysis is a common component of organizational planning and marketing. The analysis is in two parts, the first part looks at the strengths and weaknesses of the organization and is thus an internal analysis and the second part considers the threats and opportunities facing the organization from the external environment, which are derived from the external analysis.

The strengths of an organization are those things it does particularly well, especially when viewed against the operations of its competitors, where as its weaknesses are areas in which it is weaker than the competition. However well run and competitive an organization is, it will still have weaknesses.

Opportunities are those external factors on which the organization can use its strengths to outclass the competition, and threats are those factors from external environment from which the organization may suffer because of its weaknesses.

STRENGTHS

• Low cost carrier (Value for money)
• Internet booking systems (Reduce the man power cost and cut down the channel and time of distribution as they as close to the market already)
• Reputation gained over time (the market share is gained as Air Asia is not in the introduction phase)
• Added value on the service. We can book the hotel, rental car, tour package, meals in the same time of ticket booking thru the internet instead.

WEAKNESSES

• Inflexible, when passenger needs to change his flight reservation.
• Operate out of less popular airports (Budget terminal).
• Lack of spare aircraft hinder flexibility and occasionally caused flight delay.
• Less varieties of in flight shopping
• Meal and drink are not provided by the airlines.
• No reward mileage for customer loyalty.
• Tight leg room makes it uncomfortable for bigger size passenger.
• Certain flights departs at odd hours (ie. 4 or 5 am)
• No fixed seat selection resulting in passenger rushing for seats.

OPPPORTUNITIES

• Due to current economic situation, many people moved to budget airlines.
• Increase the uses of Internet. (More people aware and understand how to work with and the using of Internet)
• Alliance with other carriers and hotels.
• Mass segment is wider than premium target.
• People like travelling and they like to pay low cost.

THREATS

• Other low cost operators such as value air, tiger air, jet air, etc
• Cutting price (promotion class) offered by traditional airlines such as Garuda Q Class.
• Increases in airport charges.
• Fluctuation in fuel price.
• Threat of world recession. Travel is often one of the first activities to be hit.

STRATEGIES AND TACTICS

Strategy is used to refer to an overall plan of action. The strategic plan of a company will indicate where the organization is going and how different functions fit into the plan. Tactics are the smaller scale actions that are taken to realize the objectives of the strategy. Gaining 40 percent market share for a product in order to boost profits is a strategy. Lowering the price of that product for a time in order to stimulate sales is a tactic.

The Internet plays a vital part in the Air Asia business and has proved to be critical to the success of the business. As a low – cost operation, controlling the cost of doing business is clearly highly important to the airlines’ ability to be competitive by offering low fares. The Internet provides the most cost – effective distribution channel available.