CHAPTER I EXECUTIVE SUMMARY Airline industry nowadays already have a lot of player that bring the industry to the fierce competition, the competition not only in one country anymore, it competition with the world player.
From the full service carrier until the low cost carrier, no one can avoided the competition, it’s about competing or die. Low Cost Carrier in airline industry begin more famous start since 36 year ago by southwest airline, which now is the third largest airline in the world.AirAsia from Malaysia that start their operation in 1996 and transform their carrier into Low Cost carrier in 2001 after bought by Tony Fernandes.
Not just AirAsia also Tiger Air from Singapore come with their Low Cost Carrier, and also Lion Air from Indonesia come with another Low Cost Carrier, and Jet Start from Australia that has been made by Quantas as their low cost carrier. In every low cost carrier have their own strategy to grab more passenger, most of them use their promo from free seat until buy 2 get 1, and from free baggage until no free baggage included.After all competition, AirAsia is the leader of Low Cost Carrier in Asia with their vision every one can fly, also AirAsia has won a lot of prestigious award from the world best low cost airline from 2009-2012. In 2011 AirAsia has more than 50 million passenger, and more than 100 routes. 1 CHAPTER II INTRODUCTION AirAsia established in 1993 and start their operation in 1996, AirAsia owned by DRB-Hicom. In 2001, Tune Air Snd Bhd company that owned by Tony Fernandes purchase AirAsia from DRB-Hicom. Then since that time AirAsia do rebranding and relaunching as a low-fare carrier.
As AirAsia Business model is a low cost carrier, it require the operation to be lean, simple and efficient. The several key that AirAsia have been employed toward this effect, including: • • • • • • Safety First High Aircraft Utilization Low Fare, No Frills Streamline Operation Lean Distribution System Point to Point Network (Exhibit 1 for the explanation) Nowadays, AirAsia has been the leader of Low Cost Carrier in Asia. But even they have been the leader, competition in the Airline Industry still competing each other.While the other competitor is not a small airline also, which they are Tiger Airways, Lion Air, Jet Star which also have a lot of passenger and routes around Asia. So, in order to achieve their vision which they are “To be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares”, 2 AirAsia should know when they have to attack and when they have to defense from their competitor.
2. 1. Objective This paper was written in last quarter of 2012, after the observation and ead the article there must be something that can be learned from AirAsia. AirAsia revenue start from 2001 keep increasing while other new competitors keep coming, and in the uncertainty of the fuel price.
As a Low Cost Carrier price is the first decision that the customer make, also with the crash of plane that can make the customer afraid to choose the cheap airlines, AirAsia can keep growing. Based on that situation customer purchasing power being bigger, since more choice that they have. In this paper the analysis will cover what strategy that AirAsia have that make they growth unshakeable. . 2. Scope of Work In this paper will be talk about the airline industry in Indonesia from 2007 to 2012 with 5 year timeline especially in low cost carrier that the origin from Malaysia, Singapore, and Indonesia. The focus on this paper is AirAsia, and will be compared to Tiger Airways, Lion Air as their big competitor. Actually all of them is in Low Cost so the price is the main strategy, but how AirAsia can win the competition above all the competitor.
The sampling for the competitor will just from Malaysia, Singapore, and Indonesia with the leader of Low Cost Carrier in each country.So, beside that will be not included in this paper. 3 2. 3.
Methodology Methodology that used in this paper are observing in order to gathering all information and resource that will be need in the analysis, after all the information that need have been collected, the analysis can start. The analysis will be start from external environment analysis (macro), and then internal environment analysis of AirAsia that drive them to be the leader. The tools that will be use in the analysis and support the argument are PESTEL, Porter’s 5 Forces, SWOT, etc. 4 CHAPTER III EXTERNAL ENVIRONMENT ANALYSISAirline industry nowadays especially for Low Cost Airlines is more affordable, that make people who doesn’t have plan to go anywhere but because the price is cheap and affordable that change some people habit, which they buy the ticket before planning. Also because of the increasing of the route number, it means the more regulation, safety level, people diversity that AirAsia should adapt.
Since the AirAsia has been the leader in Low Cost Carrier in Asia, the more competitor that AirAsia will face too. Especially in Indonesia, which the Leader of Low Cost Carrier is still Lion Air.There are some tools to analysis the external environment, in this paper the tool that will be used for external environment is PESTEL. PESTEL covers Political Situation, Economic Situation, Social Situation, Technology Situation, Environment Situation, and Legal Situation. Below is the PESTEL Analysis for AirAsia: Political Situation Jakarta just finish their gubernatorial election which Jakarta have a new leader. Also other main issue is the corruption that they were the thing that the political have is the corruption. So, it be the domino effect to the investment on the bank. Economic SituationFor the economic situation Indonesia is the best place to growth, 5 because Indonesia has highest GDP in South East Asia’s with US$ 500 billions.
So, it effect the increasing of people buying power which also will effect the increasing demand of the Airlines. Also the growth rate in Indonesia for 2012 was estimated for 6. 5%, while it is higher that Malaysia with 5. 2%, Thailand with 4.
5%, Philippines with 5%, and Singapore with 4. 4%. In December 2011, Fitch and Moody’s have also upgraded Indonesia’s credit rating to investment grade to BBB- from BB+ of local currency rating (Central Intelligence Agency, CIA, 2012).Social Situation The social situation in Indonesia nowadays is being better, if we see it from the GDP in Indonesia, Indonesia have the highest GDP in South East Asia with US$500 billion. The social in Indonesia also increasing, people more like to travel with higher level than train and bus, and now Indonesia people are want everything fast even it more expensive which is airplane for traveling. (Central Intelligence Agency, CIA, 2012). Technology Situation The technology usage in Indonesia still growing which is can be seen from the internet user in 2011 Indonesia total population 245.
14. 043 people and 22. 4% (55.
000. 000) of them are the internet user, with 17. 7% (43. 532.
740) are facebook user. (Internet World Stats, 2011) Most of them were accessing internet from their mobile phone or smart phone. So, the technology in Indonesia are improving year by year.
Indonesia people nowadays can be spread from technology anymore, they are 6 expecting higher technology year by year. Environment Situation The Indonesia Environmental situation which spread into 5 island which is the easiest way to reach destination far away is by plane.The bad condition of the road sometimes make people are very uncomfortable. Also the changes of the season because of the global warming also the main issue to Indonesia environmental situation.
Legal Situation Legal regulation of the Aviation Law and government policy, airlines or foreign investor will still be able to build the airline in Indonesia, as long as the majority of shares held by local investors. The rule on Law No. 1, 2009 on Aviation, the aviation world investment of at least 50 million U. S. dollars is very burdensome and threatening local investors. CHAPTER IV INDUSTRY AND INTERNAL ANALYSIS After the External environment analysis there is still two kind analysis that will be done in order to know the Airline Industry and the AirAsia internal situation it self.
The tools that will be used in both analysis are Five Forces of Porter and SWOT analysis. 4. 1.
Industry Analysis To analyze deeper, industry analysis can give a big picture about the competition and comparing what had AirAsia competitor done, and what AirAsia can do to attack their competitor or to defense from their competitor.To analyze the Industry, below there will be the 5 Force of Porter’s: Threat of new entrants (Low) Supplier (Moderate) Rivalry (High) Customer (High) Substitute (Moderate) Figure 4. 1 Five Forces of Porters 8 The power of Supplier: AirAsia as the airline industry that have decide to use Airbus as their fleet, it make them not have much choice in the supplier, which is only one supplier for their fleet. But because AirAsia is big customer for the supplier both of them have same power in influence each other. But for the spare parts they have can purchase it from other company.
Beside that AirAsia have more power in influencing their other supplier such as for their IT hardware, system, and software. So, for AirAsia the supplier bargaining power is moderate. The power of Substitute: The threat of substitute for AirAsia comes from Train, Bus, Car, also from Ship. Indonesia people in order to go to other cities, they have a lot of choice beside plane. While AirAsia is a low cost carrier, which have customer with price sensitive habit. So when the fare or the cost of train, or bus, or ship, or car can be cheaper, people can choose that.So, the bargaining power of substitute can be moderate, because when people are planning to go to other cities that on the different island, they usually choose plane than ship because the time of the trip have a big differences, and Indonesia separated into 5 island. The threat of New Entrants: The threat of new entrants in Airline industry is lower, because in order to make an airline it self need a big capital.
Also customer 9 when they have loyal to an airplane is not easy to attract their attention to try another airline, except they can get much cheaper than the airplane that they usually use.While in managing the cost, the new entrants hard control the cost to be lower than the airline that have more experience. Especially in the low cost carrier that should manage their cost as low as they can.
The bargaining power of Customer: The customer bargaining power for AirAsia is high, because for now the low cost carrier not only one or two player, but in Indonesia it self more than 4 player, even some of them is not a big player. When most of low cost carrier customer now is promo hunter or cheap price hunter, because of that when the price is high, customer can choose other airline that can offer lower fare.Industry Competitors Rivalry: The Competitors rivalry in Indonesia for low cost carrier is moving from moderate to high for AirAsia. Before the competition is not so tight since AirAsia is the only one that can give the lowest fare in Indonesia, now Tiger Air come also with more promotion for cheap fare. Also other low cost carrier have cheap ticket fare promotion also, while Lion Air still the leader for domestic route because they have cover almost all cities in Indonesia.
4. 2. Key Industry Player 10 Indonesia is a good market for Airline Industry especially for the Low Cost Carrier, since it has many cities that spread into 5 big islands.Because of that the Airlines were competing each other to grab the Indonesia market 240 million population.
Lion Air as the local player and Tiger Air are the competitor for AirAsia, in this competition Lion Air have more benefit since it was local airline. Below will be explain more about the key industry player: Lion Air Lion Air established in December 1999 and starts their first operation in 2000 with only 1 fleet and with their slogan “we make people fly”, they start their operation from national route in Indonesia.Lion Air in their operation choose to use Boeing as their primary fleet than Airbus. Lion Air also has ordered 100 the newest Boeing 737 version which is Boeing 737-900ER, because of that Lion Air be the first customer for Boeing 737-900ER.
Nowadays Lion Air already has 36 national routes and also have international routes to Singapore, Malaysia, and Ho Chi Min. In Indonesia Lion Air still the leader of Low Cost Carrier, which they have 51% market share for Domestic Market in 2011, but for they only have 6. 1% Market share for International Market in 2011.Lion Air in order to expand their business, they’ll launch their new brand in Airline which in Full Service carrier that they named it Batik Air that will be start their operation in March 2013. In 11 September 2012 Lion Air have do joint venture with Malaysia’s National Aerospace ; Defence Industries (NADI). NADI is a 11 conglomerate that do business in MRO, maintenance, engine modification, aerospace manufacturing. It can give Lion Air a benefit in order to reduce the cost their fleet maintenance, which can give the domino effect to their fare and margin.Tiger Air Tiger Air is a Low Cost Carrier, which established in December 2003 in Singapore, which also be the location of their main hub.
In their operation Tiger Air decide to use only Airbus as their fleet, especially for Airbus A320s in order to minimize their maintenance cost, reduce the manpower, and also minimize the number of spare parts stock. Also because Airbus is simplicity in operation, better fuel efficiencies and lower maintenance cost. On January 2004 their first airbus arrived at Singapore. In order to ncrease their plane performance and to manage their plane condition always in best condition, Tiger Air sealed a $110 million maintenance contract with SIA Engineering. On December 2004 Tiger Air announce their new president and chief executive officer that effective per January 2005, He was Tony Davis that also already have 18 years experience in airline industry, including 3 years as founding managing Director of Bmibaby the success British low cost carrier. On March 2005 after opening routes to Vietnam, Thailand, Macau, nd Manila. Tiger Air decide to penetrate Indonesia market start from a unique route, which still no airline open that route, the route is 12 Singapore? Padang. On February 2006, Tiger Air celebrate their budget airport and they start their operation there on March 2006.
October 2006, Tiger Air has reported that they growth 70% year on year in the passenger volume. On November 2006, Tiger Air won the CAPA (Center of Asia? Pacific Aviation) Low Cost Carrier of the year (2006). June 2007, Tiger Air has order another 50 A320s fleet.After their long journey, finally on March 2011 they decide to open a new route for Indonesia, which is Singapore? Jakarta. In order to expand their business on Indonesia, on January 2012, Tiger Air decide to buy 33% Mandala Airline share. So now for the Indonesia routes and some other routes is operate by Mandala, and they as before they open a new unique route, which is Medan? Singapore. Before AirAsia came into Indonesia in 2004, the ticket fare competition were not too tight.
The market leader for International route is Garuda Indonesia, and the market Leader for domestic route is Lion Air.But now AirAsia has been the leader for the international route. For the domestic route standard ticket fare since AirAsia came to Indonesia has been decrease. Also the way to buy the ticket also change, before AirAsia came all Indonesia airline still use traditional way, which is from travel agent, or ticket counter.
Now, Lion Air position as the market leader for domestic route is in threatened from AirAsia. 4. 3. Strategic Group 13 AirAsia has a great strategy in order to attract their customer, with their best promotion, which is free seat.That promotion has made AirAsia as an airline that has cheapest ticket fare.
Even when there is no promo the ticket fare not so cheap. But AirAsia can give the promotion that no other airline can offer the same, because of that AirAsia steal the market leader immediately, especially on international market. On 2011, AirAsia international market share has been the largest share with 25%.
In order to expand their market in Indonesia, and to reduce their cost, AirAsia move to budget airport as they strategy in almost every country. Because of the AirAsia is the company that own by Malaysian, they route is limited in Indonesia.Finally AirAsia decide buy Batavia Air share, after they buy the Batavia share 49% for $77 millions, then AirAsia will have more fleet, from 19 fleet into 33 fleet for Indonesia route. Because of that AirAsia can increase their domestic route in Indonesia from current domestic route, which is the route still limited. AirAsia just do their promotion again which is free seat, that the travel period on March-September 2012. The cheapest fare is only 5. 000 rupiah for one way, and under 12 hours the promo ticket is sold out for JakartaSemarang route. 4.
4. Internal AnalysisThe tool that will be use to analyze the internal AirAsia is SWOT analysis, below is the SWOT Analysis for AirAsia: Strength Weakness 14 – Has a good record on safety flight – The route in Indonesia still limited. – Have move to budget Airport Just bought Batavia Share Strong brand equity – The expensive of the baggage Opportunities Open more domestic route in Indonesia – Threat Unstable oil price More LCC from other country start too penetrate the Indonesia market. Asean Open Sky enacted in 2015 Table 4. 1 SWOT Analysis 4. 5.
Leadership AirAsia is a company that have a big debt before until finally it sold toTony Fernandes, and since they bought by Tan Sri Dr. Anthony Francis Fernandes widely known as Dr. Tony Fernandes, he also be the CEO of AirAsia. Tony Fernandes that have much experience in top management level in multinational company, and under the Tony Fernandes leadership, AirAsia since 2001 until now always have a good growth year by year. As the AirAsia CEO Tony Fernandes start from 2003 almost every years win the award from several organization, they were: Ernest ; Young, American Express, CAPA, Malaysia Business Leadership award and The Business Time.
Not just the CEO that got the award, also the Airline it self won a lot of world-class award. 15 CHAPTER V COMPETITIVE STRATEGY ANALYSIS 5. 1. Counter Attack by Lion Air On 2004, Lion Air as the market leader of low cost carrier in Indonesia, they were different from other low cost carrier. Lion Air at that time more shinning than the other, and in the December 2004 they got an attack from foreign Low Cost Carrier, which is AirAsia. Lion Air market share got stolen by AirAsia suddenly because of the AirAsia price really low and all the ticketing system was online also.So, customer can be easy on bought their ticket, and check the schedule or seat available.
Lion Air in order to response the attack, they did the counter attack strategy. When the AirAsia can give cheaper price, Lion Air also reduce their price and do the promo also. In order to made their customer easy to bought the ticket, Lion Air made the website also, and to reduce their cost they stop the food service on the fleet so the ticket price be cheaper.
5. 2. Pre? mptive Strikes ; Flanking by Tiger Air Tiger Air was started penetrate Indonesia market on 2005, in order attacking face to face, Tiger Air choose to use pre? emptive strikes.
They no penetrate Indonesia start from Jakarta? Singapore or Jakarta? Kuala Lumpur, they started from route that AirAsia still not penetrated yet. Even the route that they opened, which is Singapore? Padang was the route that still no competitor. 16 After for a few year they done it well, they start fight with AirAsia face to face for the international route.In the time they decide to open Singapore? Jakarta, they were attacking AirAsia with Flanking Attack because in that time AirAsia still not the market Leader. Even after the attack Tiger Air did not win from AirAsia, but some of the AirAsia market share has been stolen by Tiger Air. 17 CHAPTER VI AIRASIA PASS STRATEGY AirAsia start came in Indonesia on 2004, they were use Frontal Attack by attacking the market leader at that time, which is Garuda Indonesia for the international route, and Lion Air for the domestic route.There were use the cheapest fare promotion, which made the Indonesia market attention move to them. Beside the pricing strategy, AirAsia sold their ticket with new way in Indonesia, which is they were the first that sold the airline ticket online.
It made people can check the schedule and the fare directly without have to go to the counter or travel agent to check it. So AirAsia also change people perception in buying airline ticket, which they prefer online and it forced their competitor to upgrade their IT system in order to fulfill the market changes.Firstly because AirAsia main hub is Malaysia, so it was only have Jakarta? Kuala Lumpur route, and at that time AirAsia still did not have seat number except the passenger that pay more when they bought the ticket can choose their seat first when the plane was boarding. But because of the limited fleet that AirAsia had, they usually got delayed their flight for some reason. As the time goes AirAsia made Indonesia AirAsia, which is more focus to Indonesia market, and they performance were getting better.The number of route also increases for Jakarta? Denpasar, and Jakarta? Joga.
Beside that on time performance for AirAsia also increases, and after that they change the way 18 people got the seat into got the seat number while check in. So, while a passenger paid more, they can book the seat that they want. Then AirAsia do cooperation with HSBC by making AirAsia HSBC credit card which AirAsia will give 1 day earlier on promo to whom use the AirAsia HSBC credit card.
Also to give their passenger the easiness of bought the ticket, they made the mobile application, from mobile web, blackberry application, and iPhone application, while by using that application their customer can do exactly same as they did on the web. In order to reduce the cost of human power, AirAsia were forcing their passenger to do the web check? in. So, the people that need to be placed on the counter can be reduce until 50%, and they force it by giving extra charge whe