Five force analysis airline industry

One of the forces in Porter’s Five Forces analysis that can be applied to the airline industry is the force of rivalry among competitors. Although the system of airlines is backed up by some extent by nationalization, there is a lot of competition, especially with the entrants of cost-cutting new airlines like JetBlue. Rivalry among competitors is a problem in the airline industry, as is shown by the close proximity in which airlines work in airports, and the fact that they often order airplanes from the same manufacturers.

The main problem is that competitors tend to be equally balanced in this industry, which requires that they build to a large extent within the economy of scale in which they operate (large fuel and operational costs, liability risk, regulation, etc. ). But some airlines operations are changing with new technology that allows them to increase their output significantly, separating them from other airlines.

If United, for example, was to start an operation and raise its average passenger load per flight by thirty-five or forty, it would have a distinct advantage over competitors with its capacity and profit structure. This type of competition, though, is hypothetical, and appears in reality to be divided among supply side economics. “When suppliers sell to a number of industries and a particular industry does not represent a significant fraction of sales, suppliers are much more prone to exert power.

If the industry is an important customer, suppliers’ fortunes will be closely tied to the industry and they will want to protect it through reasonable pricing and assistance in activities like R;D and lobbying” (Porter, 1980, p. 31). The airline industry has a high-stakes atmosphere, the company must also pay crucial attention to issues of safety and corporate responsibility.

REFERENCE Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press

Read more

Identifying Individual Preferences in the Airline Industry

Transportation services are becoming more common and broadly used in recent decade, in line with the advancement of technology. Generally, transportation services can be divided into three groups: water transportation, land transportation and air transportation (Gee, Choy, & Makens, 1984). Airline industry, which this essay focusing on, is one of the discoveries of newest innovations in the travel services sector. It has been developed so much in recent year to operate more effectively. Not only guarantee a safe journey to the destination place, the airline companies are now trying to create a competition in the market by providing the best services to the travellers and offering competitive prices (Hensher & Louviere, 1983). Those strategies are aimed to attract more consumers to travel by their airline companies.

This essay will discuss the theories of consumer economics and their applications in the real consumer issues in airline industry, mainly on the factors that changing the consumer demand of airplane ticket, as well as the underlying reasons of why consumers prefer some particular airlines to the others. Furthermore, the behaviour of different types of consumers toward the choice of different airlines will also be discussed here. In observing those issues, this paper will focus on two airline companies: Singapore Airlines and Jetstar. The price data were obtained from a single route from Melbourne to Singapore.

The core idea in analysing consumer behaviour in making choices in the economic activity, mainly in the airline industry, is because of their limited incomes and unlimited wants. Those then lead to trade-offs and opportunity costs.

Consumers in the airline industry could be divided into two groups, which are business and pleasure travellers.

Elasticity is the percentage change in one variable resulting from a 1-percent increase in another (Pindyck & Rubinfeld, 2009). When the price elasticity is greater than 1 in magnitude, we say that demand is price elastic because the percentage decline in quantity demanded is greater than the percentage increase in price. If the price is less than 1 in magnitude, the demand is said to be price inelastic.

Graph 1. Elastic and inelastic demand

(Inelastic demand) (Elastic demand)

In this case, elastic demand of airline industry is exceptionally unstable because it depends on the market conditions such as inflation, terrorists attack and price oil. In airline industry, price elasticity demand is considered both elastic and inelastic (Yahoo Voices, 2008). An elastic demand is in relation travel for pleasure. Pleasure travellers are extremely sensitive to the price of the travel. An inelastic demand is in relation for business travel. Business travels have little effect for increase in price of the travel.

Income elasticity of demand measures the degree of responsiveness of demand of a good to a change in consumers’ income. It has equation of : EI=[ΔQ/Q]/[ ΔI/I]=[I/Q]*[ ΔQ/ ΔI]. Airplane ticket is normal good as it has a positive income elasticity, which means when consumers’ income increase the consumption of ticket will increase as well.

Cross elasticity of demand measures the degree of responsiveness of demand of one good to a change in the price of another good. It is shown in the equation: EQ1P2 = [ΔQ1/Q1] / [ΔP2/P2] = [P2/Q2]*[ΔQ1/ ΔP2]. If airplane ticket and other consumption (i.e. food and cloths) are considered as a group, there will be a positive cross-price elasticity, which tells us that if the price of one good (other consumption or ticket) goes up, the demand for the other good goes up as well.

Consumer behaviour analysis attempts to understand the consumers’ allocation of incomes among different goods and services to maximize their well-being. It consist of three distinct aspects: consumer preferences, describing the reasons why people might prefer one good to another; budget constraints, reflecting consumers’ limited incomes that restrict the quantities of goods they can buy; and consumer choices, which are the combination of the consumer preferences and budgets constraints (Pindyck & Rubinfeld, 2009).

There are some basic assumptions made in observing consumer preferences in the airline industry. First, preferences are assumed to be complete. Complete means that consumers are able to compare and rank all possible market baskets. However, this assumption ignores costs. Second, preferences are transitive or consistent. And third, “more is better than less” since goods are assumed to be desirable.

Indifference curve represents all combinations of market baskets which provide consumer with same level of satisfaction (Pindyck & Rubinfeld, 2009). Indifference curve and utility functions (set of indifference curves) are used to analyse the consumer behaviour and preferences in choosing market baskets, in which relate to consumer demand (Gould, 1973). Higher indifference curve is more preferable to the lower one because it represents higher welfare (Telhado, 2007). Moreover, indifference curves cannot intersect and the slope of each point in the indifference curve represents marginal rate of substitution (MRS), which is the maximum amount of a good that consumer is willing to give up to obtain one additional unit of another good.

Indifference curves of consumers in the airline industry are assumed to be downward sloping and bowed-inward, reflecting diminishing MRS, since the demand of airplane tickets and comparable goods are both desirable. The shape of the indifference curves is different among group of consumers. Indifference curves of the first group of consumer, business travellers, are steeper than pleasure travellers. Graph 1 below shows that the business travellers’ group is willing to trade more of other consumption (a) to exchange it with an airplane ticket (b), since they need to directly travel to other place establishing business transactions.

Graph 2. Indifference map for business travellers

While in the graph 2, pleasure travellers is unwillingly trade more of the other consumptions in order to purchase a unit of airplane ticket (a < b). It is because they travel to seek pleasure, not urgently need to be done directly. Thus, they are more flexible in the decision making process of which airline company they want to travel with and the time of travel.

Graph 3. Indifference map for pleasure travellers

Along with indifference curve, there is budget constraints which restraint consumer’s consumptions due to limited incomes (Mary, 2007). Assume that the budget lines for business and pleasure travellers are equal which can be seen from graph 3 and 4 below; the steeper indifference curves for business travellers show their optimal choices between purchasing airplane tickets and other goods. Business travellers seem to purchase more airplane tickets rather than other consumptions because they want to give up more of other consumptions to obtain an additional airplane ticket.

Graph 4. Indifference map and budget constraints for business travellers

In contrast, for pleasure travellers, the flatter indifference curves will lead them to purchase other consumptions rather than allocating a large portion of income in purchasing airplane tickets. The tangent between indifference curve and budget constraint will be the point of maximum well-being which can be achieved. Area below the optimal point shows that the consumers are not maximising their consumption. Whilst the area above that point means the consumers do not have enough income (budget) to achieve that consumption level.

Graph 5. Indifference curve for pleasure travellers

In general, when there is a change in consumer’s income, there will be a parallel shift in the budget line, either downward or upward. As shown in graph below, initially, the utility-maximizing consumption choice is at A, at which point he buys X1 units of airplane ticket and Y1 units of other kinds of good. If his income increases, his budget line will shift outward, allowing him to attain the higher utility level associated with indifference curve U2 and then U3. His optimal consumption choice is at B (and then D) now. At this time, the consumer can purchase larger units of tickets (from X1 to X2 to X3). It can be seen in the income-consumption curve that the slope is upward, because as income increase, the consumption of both airplane ticket and other consumption increase.

Graph 6. The effect of a change in income level

On the other hand, when there is a change in product’s price and income level held constant, there will be an intercept rotation on the budget line. Recent condition in the airline industry is many companies try to attract more consumers to purchase the airline tickets from them by cutting the airfares. This strategy increases the competition level among the airline industry. The reduction in price of the air fares will result in outward rotation in the budget line on the ‘x’ axis, which represents airplane ticket. People can now purchase more airplane tickets due to lower price, representing the increase in consumers’ welfare or utility level. It is associated by the movement of indifference curve from U1 to U3 by selecting point D. At this time, consumption of ticket will increase from X1 to X3. Moreover, the slope of the second budget constraint is now decreasing, represents lower opportunity cost of obtaining a unit of airplane ticket.

Graph 7. The effect of the decrease in price level

In most cases, consumers would like to buy more airplane tickets as their income increases, but in some cases, the quantity demanded falls as income increases, the income elasticity of demand is negative. As shown in graph below, for relatively low levels of income (between point A and B), both Singapore Airlines and Jetstar flights are normal goods. However, as income rises, some consumers tend to buy less Jetstar tickets and more Singapore Airlines tickets as Singapore airlines has better service, food supply and in-flight entertainment system. At this time Jetstar has become an inferior good, the income-consumption curve bends backward from point B to C, which means its consumption has fallen when income has increased.

Graph 8. Jetstar becomes an inferior good as income increases

Even though Jetstar has been said as inferior good in some cases, in general, airline ticket is assumed as normal good. Refer to that, a decrease in the price of airline tickets due to the market competition has both income and substitution effect.

As shown in the graph below, the consumer is initially at A, on budget line RS. When the price of ticket falls, consumption increases by A1A2 as the consumer move to B. Keeping real income constant, the substitution effect A1E can be got when the price of ticket falls, associated with a move from A to D. If keeping relative price constant but increasing purchasing power, the income effect EA2 can be got, associated with a move from D to B. As airplane ticket is normal good, the income effect EA2 is positive. Therefore, the total effect of a change in ticket price is equal to the sum of the substitution effect and income effect.

Graph 9. Total effect of a change in price

After discussing the demand curve for individual consumer, market demand curve for airplane ticket will be shown now. It can be derived as the sum of the individual demand curve of all consumers in the market, as stated previously. As shown in graph below, the market demand curve is also slope downward as all the individual demand curves slope downward. However, the market demand curve is not a straight line.

When more people choose to travel by airplane, the market demand curve will shift to the right. In addition, if most consumers in the market earn more income, as a result, their increasing demand for airplane ticket will also shift the market curve to the right. If the economic crisis breaks out as what happened several years ago, many people lose their job and the income decreased. Thus, the market demand curve for airplane ticket will shift to the left.

Graph 10. The market demand curve for airplane ticket

From the actual rates, Singapore Airlines has the higher average price than Jetstar. In the same time, there is a survey about the level of satisfactions of international airlines shown by the graph below. From the graph, it illustrates that Singapore Airlines has the highest satisfaction level figure.

From the risk and uncertainty point of view, Singapore Airlines provides superior service and it maintains an eye on rivals’ prices and ensures it stays competitive among other airline companies. The airline cancellations and delays usually provided with explanations and apologies. This airline is also providing advantage on frequent flyer consumers such as “priority passengers’ service”. This service is suitable for business travellers as it will give them advantage in booking urgently needed flights for important meetings.

This airline is also suitable for those high-income pleasure travellers as it offers great entertainment and amusement, such as popular movies with multiple language options, games and dozens of audio channels. In addition, Singapore Airlines catering supply is trying to provide varieties of meals menu which match the likely passengers’ needs. For example, there will be Indian and western food provided for subcontinent flights. Moreover, Singapore Airlines has a modern fleet and the aircrafts have been maintained with the highest standards. Thus, the cost of flights is higher which result in the higher airfares, however, safely of this airline is guaranteed.

Comparing to Singapore Airlines, Jetstar offers lower price to the consumers. Their food, beverages and entertainment standard are much lower than Singapore Airlines’. Jetstar is known for having many complaints from its passengers in term of its services, such as frequent delays and cancellations of flight. Those seem to be serious problems for business travellers, as time efficiency is the main factor. However, Jetstar’s network is constantly expanding by opening flights to some new locations in Asia. Thus, Jetstar is more suitable for pleasure travellers which have shorter travel distance and not much concern about the services provided on board.

As the theory of equal marginal principle states that “the utility is maximized when the consumer has equalized the marginal utility per dollar of expenditure across all goods” (Gordon, 2007), the business travellers who are not price prioritize will choose to travel with Singapore Airlines since they prefer in optimal satisfaction. However, for the pleasure travellers that prioritize the price factor will choose to travel with Jetstar which provide low price for consumers rather than best satisfaction.

Graph 11. Satisfactions with International Airlines 2009-2010

Even with a high level of satisfaction, Singapore Airline has experienced a decline in market share over the last five years, as shown in Graph 13. Low-cost airlines such as Jetstar have contributed to the lack of growth for more premium airlines. Additionally, Peter von Moltke stated that “the low cost sector is a major influence in sustaining a steady growth trajectory for the global aviation industry.” (PR Newswire, 2011).

Graph 12. Market share of Top 10 Airlines in Australia

(Department of Infrastructure and Transport, 2012)

So far, it has assumed that people’s demands for airplane ticket are individualized. That enables us to obtain the market demand curve simply by summing individuals’ demands (Kris, 2007). In real-life, however, one person’s demand always depends on other people’s demand. That is a network externality, which can be positive or negative. It is a good chance for airline companies to attract more passengers by using bandwagon effect of a positive externality.

As shown in the graph below, when consumers believe more people have purchased the product, the demand curve shifts further to the right (D1 to D5). The market demand curve is found by joining the points on the individual demand curves, which can be seen that it is relatively more elastic. Suppose the ticket price falls from P1 to P2. Without bandwagon effect, the quantity demanded will increase from Q2 to Q2’. However, as more passengers choose to fly with Jetstar or Singapore Airlines and think it is worth to be the first-flying choice as it is trustworthy, the bandwagon effect increases quantity demanded further to D4. Therefore, airline companies use bandwagon effect to increase the response of demand in relevance with price change.

To obtain this effect, the airline companies could target its potential segment and use advertisement to build up their brand image and reputation among the market. For example, Singapore Airlines could use ‘comfortable, quick and always on-time’ image to attract its business travellers. And for Jetstar, the image of cheap and flexible could help the company to obtain its bandwagon effect in pleasure travellers’ market.

Graph 13. Bandwagon effect

To conclude, the consumers’ demand of airplane ticket is affected by their income, ticket price, and the demand elasticity. Business travellers prefer to travel with Singapore Airlines, even with a higher airfare. They concern more on punctuality and the service provided and their price elasticity of demand is low. In contrast, pleasure travellers are less concerned with the quality of service provided, focusing on reaching their destination with the lowest cost. Their price elasticity of demand is high, thus, Jetstar is preferred in this case. In the intense market competition, Singapore airlines and Jetstar could use the bandwagon effect to attract more passengers by building up their own brand image.

Read more

Case on Air Deccan

Air Travel in India For decades, air travel in India was meant for the most elite and powerful in society. An overwhelming majority of travellers who could not afford the prohibitive air travel fares, preferred to journey on trains and buses. The revolutionizing effects of liberalization swept India with dynamic changes in the aviation sector.

From being a service that few could afford, the sector has now graduated to being a fiercely competitive industry with the presence of a number of private and public airlines and several consumer-oriented offerings. In ten years of competition in the aviation sector, private airlines have changed the rules of the game, and they now account for more than 60 % of the domestic aviation market. More and more middle class families in India now prefer air travel to the more traditional travel by train. In 2003, 10 million Indians travelled by air domestically.

In 2004, 25 million took to the skies within India and 6 million Indians travelled abroad. The Centre for Asia Pacific Aviation estimates that the domestic Indian market will add 5 million passengers every year for the next five years, growing to 45 million passengers by 2010. Today, the relationship of domestic to international travel stands at 40:60 whereas in 1994 it stood at only 25:75. But taking into account a growing middle class with increased and increasing purchasing power, there are 200-210 million potential spenders. The Indian population grows at a rate of 8% per year.

Around 100 million travellers every day on state-owned Indian Railways, If air travel bites into even a small percentage of this huge pie, that’s still clearly a tremendous growth opportunity. The entry of budget airlines like Air Deccan, the introduction of cheap airfares by other domestic carriers, combined with rising incomes and consumption of the middle class as also their growing aspirations, have created this new paradigm: Air travel is no longer for the elite. Air Travel Market The new entrants have caused a shift in the market share for the old hands.

The three legacy airlines, Jet Airways, state-owned Indian and Air Sahara, saw their market share slipping in first quarter of this year. Jet Airways, still the leader, found its share of market volumes slipping with 34. 9%. Indian at 23. 9% and Air Deccan at 10% followed suit. Low-cost airlines are certainly giving a tough time to full service carriers whose market share has dipped, as has their revenue. Fares have been slashed drastically and both Jet Airways and Indian are wooing the consumers with special schemes and promotions.

Several new entrants such as Air Deccan, SpiceJet, GoAir, Kingfisher and Paramount have begun to dot Indian airspace, garnering a market share of more than 31% in the first quarter of 2006. The leader among this brat-pack is clearly Air Deccan – the airline has doubled its market share to 15. 2 per cent. Kingfisher and SpiceJet have captured a market share of 8. 3 per cent and 6 per cent respectively. Coimbatore-based Paramount Airways has publicly confirmed garnering 0. 3% of the market. Jeh Wadia’s GoAir is also going great guns by cornering 1. 6% of the air traffic in a short time p.

These airlines took to the skies after the first quarter of last year. All the airlines have seen an increase in the number of passengers carried in the first quarter. With all the start-ups planning significant increases in capacity this year — Kingfisher (fleet may go up to 20 planes), Deccan (38 planes), SpiceJet (12/14 planes), Go (7/9 planes) and Paramount (10 planes) — the market is set to sizzle. The market is gearing up for an adventurous ride of price wars as six more low-budget airlines waiting in the wings – Jagson Airlines, King Air, Mega Airways, Indus Air and Megapode Airline.

IndiGo has made its entry as well, with ambitious plans to induct 100 aircraft into its fleet. According to analysts, airfares will continue to nosedive, as nearly 200 new aircraft will be added to the existing 250 aircraft in the country. All this translates to further downward revision of fares and packaged offers for passengers. Lessons The case is replete with illustrations of how Captain Gopinath crafted the company from scratch. He went on a ‘boot strapping’ mode, which is the hallmark of a successful entrepreneur. The constancy of purpose, focus and humility are evident.

His ability to sense opportunities from chance encounters (such as a visit to the USA or the Southeast Asian countries) are out of the ordinary experience. These and many other qualities are a ‘must have’ list of qualities of a successful entrepreneur. Anyone aspiring to succeed in an entrepreneurial venture will do well to emulate these qualities, among others. Rise of Air Deccan “It hit me like a ton of bricks. This country has a population of a billion, but only 15 million air passengers. May be the time is right. If one billion people can fly, and we get a miniscule percent of the market, imagine how big that will be? It’s not an impossible dream. ” – Captain Gopinath, in The Hindu, Sunday, August 15, 2004 Air Deccan, India’s first Low-cost Airline (LCA), started off with more of a whimper than a bang in September 2003 with an aborted maiden flight from Hyderabad that didn’t quite make it off the ground when a fire broke out in one of its engines. Adding to the embarrassment was the presence of the then Union Minister of State for Civil Aviation, Pratap Singh Rudy and other senior Indian politicians on the flight. The press had a field day criticizing the ‘maestro behind the mayhem ‘Captain Gopinath, the Managing Director of Air Deccan.

There were many prophesies of doom by competing airlines and industry analysts who were convinced that the bad publicity with which the airline took off would drive away customers. Captain Gopinath, however, remained unfazed and calmly went about doing what he did best succeeding at the task that he had set out to do. Making a shaky start with just two ATR turbo-prop aircraft in September 2003, Air Deccan now operates 75 flights a day to around 32 destinations in India and has increased its fleet to three Airbus 320’s and seven ATR 42’s. This flock of aircraft is constantly growing.

As of March 2004, Air Deccan has recorded annual revenues of $120 mn (Rs. 5520 mn) with a passenger load as high as 83% across sectors and some routes like Bangalore-Hyderabad and Bangalore-Goa, recording 100% loads (Exhibit 1 and 2). In December 2004 Captain Gopinath cut a deal with Airbus, the world’s largest manufacturer of civil aircraft, for the purchase of 30 A320 aircraft valued at over $1. 4 bn. The delivery of these new aircraft will commence in 2007. While the airbus will operate on trunk routes, the smaller airports will be connected with ATR’s.

The company has signed a deal with ATR for supply of 30 aircraft over the next few years, of which half will be on lease and the rest will be purchased. A distinctive strength of Air Deccan vis-a-vis any of the big three airlines in the country (Indian Airlines, Jet Airways and Sahara) is its ability to penetrate into the small towns of India. This provides the company almost an exclusive access , to 75% of the population of the country that lives in small towns and rural areas. Air Deccan has been instrumental in getting the Government to open up many of these small town airports, some of which had fallen into disuse over the years.

In contrast to the swanky airports of the big cities Such as Mumbai and Chennai, these more modest cousins need very little investment on the part of the government to recommission them and the ‘airport terminal’ is often no more than a tin shed or a thatched hut. But according to Captain Gopinath, ‘What the hell, they serve their purpose’. This obsessive focus o costs and functionality is perhaps what best epitomizes the philosophy of the main behind Air Deccan. The Low Cost Business Model: A popular mantra Air Deccan triggered the race to the bottom in the low cost sector.

Their model forced the industry to move from having simple economy, business and first class fares, to multiple slab tariffs such as apex fares, internet auctions, special discounts, bulk purchases and last day fares. Some of the tariffs offered are so low that they have brought airline fares neck-to-neck with upper class railway fares. This low cost model is two-fold: offering connectivity between smaller cities and major metros and making air travel a feasible option to a new class of passengers.

While aviation is centrally managed, the regional structure of India’s government and regulations, combined with the often regional management of airline companies, has created a fragmented market for corporate travel. The challenges that the company has to face are now only beginning. In the initial stages of the company, many of the established players (Indian Airlines, Jet Airways and Sahara) would have trivialized the company and not expected it to reach the level it has reached now . Suddenly, the company has appeared as a big dot on the radar screen of these well-established players. The existing paradigm is that running an airline requires large funding, something that Captain Gopinath lacked. Hence, the existing players would have concluded that this venture was bound to fail.

However, there was a lot of entrepreneurial creativity manifested by Captain Gopi that helped him make his dream a reality, and today Air Deccan is a force to reckon with. Besides, many other ‘me too’ low cost airlines are already on the anvil. The Government and the realities are also things to reckon with. Participant teams may identify other challenges as well. How Captain Gopi and his team will deal with all these identified challenges will make observation interesting. Strategy as per the porter’s force model: Kingfisher airlines has signed up with Air-Deccan to buy out the Bangalore-based low-cost airline’s extra ASKMs (available seat kilometres) on category 2, 2A and 3 routes. The Vijay Mallya promoted airline will buy about 800,000 ASKMs for the months of October and November, which will enable it to continue its expansion on the metro routes. The DGCA guidelines require airlines flying on the primary routes to fly a certain percentage of their total flights on other, less popular routes.

Indian Travel is on a roll here’s why In India, travel and tourism activity is expected to grow by 8. 0% per annum in real terms between 2007 and 2016. As per World Travel and Tourism Council (WTTC), India will emerge as the second-fastest growing tourism economy globally between 2005 and 2014, second only to by China. Successful promotions such as the Tourism Ministry’s hit “Incredible India” multimedia campaign and the budget air travel boom are reckoned to have contributed to the tourism gold rush.

Indian Skies are experiencing a new dawn:

  • Rising income and consumer confidence in key markets-personal travel demand on an increase
  • Travel liberalization gathering pace
  • Leisure travel increasingly more affordable
  • Low Cost Carriers are reshaping air travel, leading to regional liberalization
  • Branded hotels with air routes have discovered India in exotic places like Goa and the North East
  • Airport privatisation of Mumbai and Delhi progress and confidence develops in creating tourism infrastructure

Read more

Swot Analysis for Airasia

For example, Shin Corp… (formerly owned by the family of former Thai Prime Minister – Mr… Taking Sinatra) hold 50% stake in Thai Raisin. This has helped Raisin to open up and capture a sizeable market in Thailand. On top of that, they have strong relationship with Airbus which they can get a better discount for aircraft purchases which is also more fuel efficient as compared to Boeing 737 planes that is being used by other airlines

* The management team is also very good in strategy formulation and execution.

The strategy which they have formulated from the beginnings was taken from the ideas of the low cost airlines in Europe and USA. For example, Southwest’s airline – People strategy (employee come first); Ryan’s operational strategy (one of the original budget / no -frills airline); Asset’s branding strategy (linking with other Soot Analysis for Raisin By Anglophone

* Raisin’s brand name is well established in Asia Pacific. Besides the media advertising and promotions, Raisin has many other link-up with the hotels industries, banking industries (Raisin Citibank card) etc.. Which has created a unique image among travelers. For example, the Citibank card; it gives priority booking and special fares to the travelers.

* Raisin is the low cost leader in Asia. With the help of the Raisin Academy, Raisin has successfully created a “low cost image” among their workforce. The workforce is very flexible and high committed and very critical in making Raisin the lowest cost airline in Asia.

* The excellent utilizations of IT. The excellent utilizations of IT has also contributed much to Raisin promotional activities.

For example, emails alert – which update the travelers and also to do on- line tickets purchases convenient.

WEAKNESS

* No MR.. Facility and heavily outsourcing Raisin does not have its own maintenance, repair and overhaul (MR..) facility. Air Asia outsource to another company for MR.. Services. SST Aerospace is Air Sais’s MR.. Service provider. Thus, they are heavily relying on SST aerospace for their MR.. Facility. There might be a risk of loss of control if the appropriate monitoring and controlling tools are not put in place SST aerospace. Too dependent on IT Despite being the first airline in Southeast Asia to utilize e-ticketing, there is a high risk of having system disruption. When the system break down, it would show that Raisin’s system is not robust enough to handle booking efficiently. Such incident will eave a bad impression on Raisin, causing customer’s confidence and satisfaction level to drop and resulting in loss of customers. Read another article “SWOT Airasia”

* Unable to handle irregular situation Being a budget airline, the main idea is to keep cost low.

Thus, having low human resources is not an exception. Hence, this results in not able to handle irregular situation that arises during operations to cater situational needs. Raisin receive numerous complaints from customer on their service. For example, flight delays and unknown charges incurred * Oil Prices Increase The increasing in oil price may sound like a threat but being a LLC (low cost carrier) deader on the other hand, its cost will be still the lowest among all airline company. The major airline carrier would have large and older plane.

Older plane are less fuel efficient compare to Raisin smaller and newer aircraft. LLC planes are on average 1 – 5 years old. Thus, being a leader in budget airline with more fuel efficient plant, the increase of oil price will squeeze out unprofitable airline carrier.

* The Opening of SEAN skies Following the liberation of SEAN skies, Raisin has more opportunity to expand further in the region. Raisin SEAN open its regional office in Strata Just months before the open sky policy to show her dominant present in the aviation industry. Increasing demand of flight from younger consumer has increase tremendously over these few years. There have been a surge in the demand from the younger generation to travel. This is further prove by the DATA (Adventure Travel Trade Association) states that Gene Y is the faster growing segment in the travel industry. However, being young, they have limited financial capabilities and therefore being a low cost carrier will gain an upper hand acquiring these new consumer. THREATS Civil unrest in middle eastern countries causes fluctuations in oil prices.

As airline operations depend heavily on fuel prices, the currently rising fuel prices would trim the profit margins of Raisin, despite measures taken to reduce the impact. This has also indirectly affected Raisin Ax’s PIP listing. It was delayed by one year and is expected to commence listing in December 2012.

* Constant emergence of low-cost carriers to ride on the wave of budget travel. As air travel becomes more affordable due to competitive pricing from various Laces, more well-known companies are eyeing on budget airline.

The formation of Strata and Tiger Airways in 2003, Scoot in 2011, offering similar pricing as well as destinations, and the recently formed Mailing Airways which operates in Malaysia itself, directly affects the passenger load for Raisin as consumers now have more products to choose from.

* Newer and more attractive products of competitors According to Ashtray reviews, the overall satisfaction for Raisin has dropped significantly with a score of 6. 5 out of 10. Competitors with newer product offerings using newer aircraft types might prove to be a more attractive choice.

Read more

PESTLE Analysis of the Airline Industry

Table of contents

POLITICAL

Government policies could facilitate a flow of dollars into the U. S. By making improvements to speed the visa application process and customs inspections b. Taxes represent approximately 20% of a customer’s airfare

ECONOMIC

a. Macroeconomic cycles, such as the Savings ; Loan Crisis and the sass’s boom followed by the dotcom crash, have caused contractions and expansion in the industry

b. With highly unionized workforces, companies have little control over labor costs during periods of demand fluctuations, incurring huge losses without deductions in force. Also read R yanair PESTLE analysis

SOCIAL

a. Wars, political instability, terrorism, diseases, etc. All affect customer demand for passenger air travel

b. Customers value on-time flights. Congestion management has been an ongoing challenge, particularly for large hub airports that are seeing unprecedented levels of demand

a. Newer aircraft provide technological advantages, impacting flight range, fuel efficiency, and passenger comfort

b. Frequent flier programs have allowed airlines to amass a wealth of information on their customers, including flight patterns and travel references

LEGAL

a. Contractual renegotiation’s and mandated procedural methods can significantly drain resources and attention

b. Union strikes always demand quick action by the airlines to resolve the matters as quick as possible to get their labor force back to work. Weather delays not only cost the airlines in excess fuel and operating costs, but it also causes an increase in ICC emissions

c. Similar to technology, advancements in aircraft design/construction has led to much more fuel efficient aircraft

PESTLE Analysis of the Airline Industry By insular

Read more

Globalisation in the Airline Industry

Globalization is the single most influential factor for growth and development of businesses and economies in the 21st century. It is the main push factor that carves internal and external coterminous harmony under the natural forces of the market. According to Clifford and Clifford (pp. 102-103), all countries and business entities are inclined or repositioning to operate globally. Through globalization, local boundaries are rendered void and with supra natural international outlook and greater focus on international strategies for growth.

It carves particularistic but broad niches that expands cross boarder social, economic and technological exchange if technology in the wild competition. Such has been the case with the airline industry which has seen a long struggle to the current highly adored status. Airline industry remains one of the fastest growing industries at the local and international market. It anchors world trade through economic growth and development supplements. Globally, over 75% of the passengers using local and international air transport have external travel demands.

Though scholars have differed over the claims of “non existence” of the airline industry without globalization, it is clear that the industry is strongly dependent on global cooperation and interlink with other companies while taking advantages of global and regional economic cooperation. Such has been the case with the US Airways which has metamorphosed through embracing globalization to become one of the best airlines locally and internationally. Over view of the paper

This paper explores globalization in the airline industry by examining the operations of American Airways. To niche out the progress and preference of globalization, the paper traces the progress of the company from its roots to the current status in the United States and globally too. Comparing its progress with others in the global market over the same period, impacts of regulations and deregulations are evaluated on a global scale. Using current examples, the paper looks at the current developments in the air travel industry with relevance to globalization.

Analysing the airline industry’s progress in relation to globalization, the paper predicts possible future of the business. Holistic recommendations are also given to assist younger airlines trace the correct path and assume fast and better growth. Background of the US Airways, Inc, and globalization Similar to other American based airlines, US Airways traces its origin back to the World War II period when All American Aviation Company was founded by Du Point brothers in the year 1939 and was involved with airmail services only (Berechmank ; Jaap, 1999, pp.

103-104). However, it assumed the name “All American Airways” after it expanded its services to include passengers transport in the country. By 1972, the company absorbed Lake Central Airlines and Mohawk Airlines to become one of the largest carriers in North Eastern US and the sixth largest in the world by passengers boarding. However, it was strongly restricted by the airline strong regulations which dictated the routes and terms of services for all airlines operating in (US Airports Council International, 2002, PP. 11-12).

After passing and coming to effect of then US Airlines Deregulation Act of 1978, the company expanded its operations to most of the towns in US. However, its current highly rated status has mostly been linked to its 1980s acquisitions of Pacific South west Airlines and Piedmont Airlines that gave it more operation bases to Baltimore, Dyton, Syracuse and Charlotte in US as well as London Gatwick Airport in Britain (Doganis, 1998, p. 59-61, Berechmank ; Jaap, 1999, pp. 103-104). ).

According to the International Air Transport Association (IATA), (2008), air travel has grown by 7% in the last decade. In the year 2007, about 1. 5 billion passengers used air transport globally. To add to that, governments in the developing countries have realized the benefits of airline industries in relation to tourism. IATA, predicts that air travel demand will increase with 6. 6 % by the year 2010. Currently, US and EU remains the most visited regions by the airlines due to their effective political, economic, and social development of policies and supportive infrastructure.

Globally and particularly in US, the September 11 terrorist attacks spelt doom to the airlines industry as consumers keep off airlines for security considerations. This has been compounded by the biting economic down turn being experienced currently. Notably, airlines are entirely dependent on individual countries policies and regulations that either encourage or discourage cooperation with particular countries (Doganis, 2001. pp. 36-39, Babcock, 2002, pp. 98-99).

Read more

AirAsia Case Study Report

Table of contents

AirAsia Case Study Report

Assignment 1

Executive Summary

Strategic management has played a key role in the success of many business organisations in the world including airlines and AirAsia is no exception. Commencing in 1996, within fifteen years, AirAsia managed to expand its operations into another ten countries. In addition, through its associate company AsiaX, it launched long-haul low-cost air services from Malaysia to Australia and the United Kingdom. This paper will look at the award winning Malaysian low cost carrier- AirAsia’s by analysing its strengths and weaknesses using strategic tools such as PESTEL analysis, SWOT analysis, Porter’s five forces Model. Key to the success of AirAsia has been their ability to capitalise of the liberalisation of the Asian airline industry, this has significantly helped the airline grow. AirAsia needs to also address their threats and delve into new opportunities if it wishes to still remain profitable.

Introduction

AirAsia was initially launched in 1996 as a full-service regional airline offering slightly cheaper fares than its main competitor, Malaysia Airlines. Before 2001, AirAsia fail to either sufficiently stimulate the market or attract enough passengers from Malaysia Airlines to establish its own niche market. The turnaround point of AirAsia is in 2001, while it was up to sale and bought by Tony Fernandes. Tony Fernandes then enrolled some of the lending low-cost airline experts to restructure AirAsia’s business model. He invited Connor McCarthy, the former director of group operation of Ryanair, to join the executive team. In late 2001, AirAsia was re-launched in Malaysia as a trendy, no-frills operation with three B737 aircraft as a low-fare, low-cost domestic airline.(Habib, 2010) This paper will examine the external Political, Economic, Social, Technological and Legal factors influencing the airline. Carry out a SWOT analysis to evaluate the internal potential and identify areas that may contribute to future success. Conducta Porter’s five forces analysis to understand the attractiveness of the industry and potential for long lasting profitability. The market liberalisation of Asia will also be discussed, and look at how this impacted upon the growth of the airline.

Air Asia PESTEL Analysis

Political

Flying outside Malaysia is difficult. Bilateral agreement is one of the obstacles in the way of Asian budget carriers. Landing charges at so-called gateway & airports; and navigation charges are often prohibitively expensive, and in key destinations like Bangkok, Beijing, Hong Kong and Singapore there are no cheaper, secondary airports. Threat of terrorism, people are afraid to fly after the September 11 terrorist attacks incident. Read another article “SWOT Airasia”

Economic

In spite of stiff competition from Malaysian Airline (MAS), AirAsia’s low-cost carriers offer cheap tickets and few in-flight services are gaining attraction in the region. In theory, Asia has most of the ingredients for making a budget airline work which has a huge and dense population base, the emergence of underused regional airports, a growing propensity among some upwardly mobile people to travel, and relatively high Internet usage. Rising incomes and economic growth are empowering more Asians to board aircraft. With the economy slowing down, more people will want to enjoy its cheap tickets. Social

Passengers are reluctant to board a no-frills airline for a long-haul flight. The longer the route, the less price-sensitive the passenger becomes. They don’t want to be crammed into a plane for six or eight hours. Especially, when there are limited or no in-flight services. AirAsia wanted to become a company that worked on the basis of the average man in the street being able to afford our air fares, and people who would not have considered flying, or would not fly as often as they as do now.

Technology

AirAsia provides online service that combines air ticketing with hotel bookings, car hire and travel insurance. To help keep costs in check, Air Asia has pushed internet booking services. Particularly in parts of the region that are poorly served by road and rail infrastructure, people will prefer to travel by airplane. AirAsia has bought in A320 to replace Boeing 737. The Airbus A320’s improved fuel efficiency and extra capacity which leads to better performance and reliability. AirAsia and its subsidiaries need to take an awareness of environmental factors. The companies through the nature of these influences are inextricably linked to social, legal and political factors. For Air Asia, it is subject to intense regulatory scrutiny by Environmental Protection. Green issues have also been a concern for Air Asia, it now tow’s its aircraft to a general boarding area, saving the huge amount of electricity used to operate an aero bridge while minimizing taxiing time, which significantly reduces fuel burn. Legal

Legal considerations are again more a concern directly for Air Asia in terms of the regulatory. As their ticket booking are transacted through internet, Air Asia is concerned about the consumer privacy right. Therefore Air Asia pledges to be responsible on gathering and protecting it consumer privacy, even though it does not create legal right to the customers. As an air operator, Asia concerned is the air worthiness of it airplane. Any civil aviation authorities of the country ban their legal right to operate from their air space/airport will impact on their business operation. Hence Air Asia has to ensure that all it air plane was given the approval to operate.

Air Asia SWOT Analysis

Strengths

Air Asia has a very strong management team with strong links with governments and airline industry leaders. With their strong working relationship with Airbus, they managed to get big discount for aircraft purchase which is also more fuel efficient compared to Boeing 737 planes which is being used by many other airlines. The management team is also very good in strategy formulation and execution. The strategy that they have formulated at the beginnings was a clever blend of proven strategies by other low cost airlines in US and Europe. AirAsia’s brand name is well established in Asia Pacific. Air Asia’s local presence in few countries such as Indonesia (Indonesia AirAsia) and Thailand (Thai AirAsia) have successfully “elevated” the brand to become a regional brand beyond just Malaysia AirAsia is the low cost leader in Asia. The workforce is very flexible and high committed and very critical in making AirAsia the lowest cost airline in Asia.

Weaknesses

Air Asia does not have its own maintenance, repair and overhaul facility (MRO). It may be a good strategy when they first started with only Malaysia as the hub and few planes to maintain. But now, with few hubs (Malaysia, Thailand and Indonesia) and over 100 planes currently owned, AirAsia have to ensure proper and continuous maintenance of the planes which will also help to keep the overall costs low. AirAsia receives a lot complaints from customers on their service. Good customer service and management is critical especially when competition is getting intense.

Opportunities

The increasing oil price at the first glance may appear like a threat for AirAsia. But being a low cost leader, AirAsia an upper hand because its cost will be still the lowest among all the regional airlines. Thus, AirAsia has a great opportunity to capture some of the existing customers of full service and other low cost airline’s customers. There is also some opportunity to partner with other low cost airlines as Virgin to tap into their existing strengths or competitive advantages such as brand name, landing rights and landing slots. Threats

Certain rates like airport departure, security charges and landing charges are beyond the control of airline operators and this is a threat to all airlines especially low cost airlines which tries to keep their cost as low as possible. AirAsia’s profit margin is about 30% and this has already attracted many competitors. Most of the full service airlines have or planning to create a low cost subsidiary to compete directly with AirAsia. For example, Singapore Airlines has created a low cost carrier Tiger Airways. Users’ perception that budget airlines may compromise safety to keep costs low.

Air Asia Porters Five Forces Model Analysis

Threat of Entry

There is a high barrier entering airlines industry since it requires high capital to set up everything such as purchase or lease air craft, set up office, and hire staffs. Therefore, this has reduced the treat to Air Asia. Moreover, brand awareness is quite important in this industry. Consumers always choose the product or service they really trust. Thus, instead of creating brand awareness, new entry has to create brand loyalty as well. (Singh et all. 2010) However, the government legislation is one of the barriers for entering airlines industry. For example, MAS has been protected by Malaysia government on the route to Sydney and Seoul. Therefore AirAsia will find it very difficult getting a new route from the government. Nevertheless, this has limited the new entrance due to the government policy. Overall, the treat of entry is low to Air Asia.

Power of suppliers

Every industry has someone to play the role as suppliers. Power of the suppliers is important as it will affect the industry. In an airline industry, the power of suppliers is quite high since there are only two major suppliers which are Airbus and Boeing hence there are not many choices to airline industry. Nevertheless, the global economic crisis has limited the new entrant and also reducing the upgrade of planes in the immediate future.(Peng, 2006) However, both suppliers provide almost same standard aircrafts and hence the switching to AirAsia is low. Generally, the power of supply is moderate low to AirAsia.

Power of buyers

Buyers are one of the factors which will give influence the industry whether making profit or loss. Nowadays, those buyers are much more knowledgeable and high educated. Thus, they are very sensitive to the price no matter in what product or service. In this case, even Air Asia always provide lowest price to customers, but they still will make comparison between airlines. Secondly, to switch to other service is very simple because Air Asia is not the only one who provides airline service, customers still can choose MAS, Tiger Airway, Firefly and etc. (Chee & Harris, 2008) Moreover, Air Asia always leaves customers an image as they always delay the flight. Hence, as an investor or business man, they will choose more reliable airlines instead of AirAsia. In this case, the power of buyers is quite high to Air Asia.

Threat of substitutes

Substitutes are products or services which can replace the original products or services and give almost same satisfaction to the consumers. In airline industry, there are two types of substitutes, indirect and direct substitutes. Indirect substitutes include train, bus, cruise and etc. On the other hand, direct substitutes indicate the other airline. Consumers usually prefer low cost. For example, from Kuala Lumpur to Singapore, there are few transports that consumers can choose such as bus, train and air travel. If the customer is going for a budgeted trip, definitely he will choose bus which is the lowest price among the three. However, the technology now make information much more easily to assess. Customers can easily compare the price among few airlines just by assessing internet as internet make information more transparency. Nevertheless, the archipelago geographical structure in Malaysia make air travel is the most viable, efficient and convenient mode of transportation.(Peng, 2006) However, air plane are much more convenient and also lesser time consuming compare with taking bus to Bangkok. Thus, the threat of substitutes is moderate to Air Asia.

Rivalry among existing competitors

In every industry, there is positive or negative trend to industry growth rate. If there is positive trend, then the firms have not to steal the market share among them. (Singh et all. 2010) However, in airline industry, the growth rate is really low due to limited customers. Thus, in order to expand, Air Asia has to steal the market share from its competitors. Secondly, Air Asia leads the main battlefield in price among competitors due to its low operating costs. However, there are more competitors enter to airline industry who have major carriers as their backers or owners which may lead to unreasonable’ price war in the future. Moreover, AirAsia is not the only one who provides airline service. There are few low cost carriers such as Firefly, Tiger Airway and etc which makes their services provided weak differentiation. Thus, it becomes a threat to Air Asia. In this case, the rivalry among existing competitors is quite high to Air Asia.

Market Liberalisation and the impact on AirAsia

The Malaysian government supported the establishment of AirAsia in 2001 to help boost the under-used Kuala Lumpur International Airport.(Mohshin 2010) The growth of low cost airlines in south-east Asia has a significant effect on which airports will dominate the regional aviation market. Low cost airlines are seen as helping funnel more passengers to airport hubs. Therefore, there is a realisation among regional governments that they need smashing airports and feisty carriers or they are going to miss out big time. Therefore, these governments are more willing to support low cost airlines. The liberalisation of aviation sector of India is another contributing factor for the growth in Asia. The Indian government has liberalised the aviation sector long dominated by the national carriers. Now, only a few low cost airlines, e.g. Air Deccan, have launched their services there. Moreover, the national carriers, Indian Airlines or Air India, despite their domination of the Indian skies, do not seem to be much interested in operating low-cost services. Therefore, it is a good chance for AirAsia to open up the Indian market.

Conclusion

Air Asia has clearly highlighted how a keen and critical strategic movement may drive a company towards phenomenal success. Its focus on innovation, cost efficiencies, safety, technology and superior quality customer service and employee satisfaction has allowed it to add value to its offerings and activities undertaken in its pursuit of establishing itself as a low-fare, no-frills airline. With these factors combined, AirAsia has displayed how synergies between management, employees and its environment can develop a competitive advantage that has over the past few years brought phenomenal success to the company and has allowed it to be the market leader amongst its competition. The liberalisation of many airline industries has allowed AirAsia continue to grow and move into countries and develop new routes and relationships. AirAsia has created a strong brand with a loyal customer base, although the airline needs to continually identify new opportunities and try to eliminate or reduce any new threats it may encounter, if it wants to remain viable in an extremely competitive environment.

References

Organisations and Management (2010), compiled by Mohshin Habib, Swinburne University of Technology. Pearson Australia Custom Publication Peng Mike W, 2006, Global Strategy, Thompson, United States

Chee H and Harris R, 2008, Global Marketing Strategy, Financial Times Pitman Publishing, Great Britain Singh, K, Pangarkar, N ; Heracleous, L 2010, Business strategy in Asia a case book, 3rd edn, Cengage Learning Asia, Singapore http://www.airasia.com/iwov-resources/my/common/pdf/AirAsia/IR/AirAsia_AR09.pdf

Read more
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat
Close

Sometimes it is hard to do all the work on your own

Let us help you get a good grade on your paper. Get professional help and free up your time for more important courses. Let us handle your;

  • Dissertations and Thesis
  • Essays
  • All Assignments

  • Research papers
  • Terms Papers
  • Online Classes
Live ChatWhatsApp