Air Asia Macro-Environment

1.0 Introduction
AirAsia (AA) is a renowned low cost carrier that offers short and long haul flights based in Malaysia. AA has expanded rapidly since 2001 and has been awarded as the World’s Best Low-Cost Airline in 2008, 2009, and 2010. One of the reasons for their success is by their strategy formulation, implementation, and control over the macroenvironment, discussed in this report, in terms of political, economic, social, technological, and natural forces, by turning risks into opportunities that benefit the company as a whole.

2.0 Political Environment
2.1 Government Assistance
One of the major factors that assist in the growth of AirAsia would be the continuous support and assistance of the Malaysian government. Over the years, AA has noticeably boosted tourism in Malaysia and has helped transform KLIA into a major air travel hub (The Star Online, Saturday 15th July 2006). Hence, the Malaysian government offers many incentives to AirAsia in term of landing rights, lowering passenger service charges, tax benefits and exemptions (Malaysian Industrial Development Finance Berhad, 2011; The Star Online, 2006). This not only allows them to offer lower fares to further boost the country’s tourism revenue, but it also helps to increase AirAsia’s net income after tax.

2.2 Government emphasis on socially responsible actions
Due to the emerging trend in Corporate Social Responsibility (CSR) internationally, the Malaysian government implemented The Bursa CSR framework, since 2006, that requires all listed companies to disclose their CSR activities (Bursa Malaysia Berhad, 2011). It is designed to deliver sustainable value to society at large. Despite being a listed company, corporate social responsibility is inherent in everything AA does. The One Million Free Seats campaign that AA hold every year since 2006 is one of their unique contributions to society, followed by offering rescue mission when Egypt struck with political turmoil, running blood donation campaigns for Tsunami victims, running a Donate Your Loose Change campaign for needy patient, and joining hands with UNICEF to raise funds for Haiti earthquake victims in 2010 are among some of the CSR activities that have been done by AA (AirAsia, 2011). Not only does it help create a positive brand image, charitable work also found to be able to foster loyalty among customers as the “goodwill would become an attribute or feature of the product or service provided” (Smith, 2008).

3.0 Economical
The recent economic recession affecting Malaysia was the global economy downturn in 2008/09. The contraction of Malaysia’s real GDP growth at -1.7 and high unemployment rate has led to depreciation in the overall household income distribution (Department of Statistic, Malaysia, 2011). As a result, consumers tend to scale back their expenses in order to sustain their living. This has resulted in a very challenging and uncertain market to most organizations; however AA took it as an opportunity by offering low fares with an increasing amount of high margin paid option to travellers for amenities (Malaysian Industrial Development Finance Berhad, 2011). Average fare drops are offset by higher ancillary income distribution (AirAsia, 2009). By taking advantage over the shift of consumer spending pattern from full service airlines to Low Cost Carriers (LCC), AA saw a growth in terms of profitability and market share even in a negative economic condition.

4.0 Social
As the population becomes more educated, they tend to be more sensitive and consistent with how they respond to price (Dellaert & Lindberg, 2003). Educated customers know that they do not need to pay so much for brands or services. Their increased knowledge on the value of money leads to a growing demand towards LCC. With the philosophy of “Now Everyone Can Fly”, AA has created a population of travellers by making travelling more affordable for everyone (AirAsia, 2010). The shift of culture among travellers provides opportunities to AA which further encourages them to create even more attractive low fare packages. It can be said that AA indirectly helps the development of the nation as travelling helps deliver the most outstanding intercultural experiences that benefit the nation’s development in the long run.

5.0 Technological
Practically, everyone has at least one or two mobile phones, hence making services available via mobile and smart phone crucial for a company’s survival. For the past decade, AirAsia has always been very creative in utilizing technology for greater efficiency and cost saving. AirAsia is the first airline to launch SMS booking in 2003 and offer a total, comprehensive booking system targeting mobile phones and wireless devices in 2005 (AirAsia, 2005). Social media has also become an integral part of AirAsia’s business model (AirAsia, 2010). With the “trend among professional and young adults gravitating towards fast and efficient do-it-yourself electronic services”, AA implemented the free, simple, and quick Self-Check-In service in January 2010 via AA web and mobile that allows customers to enjoy a quicker and more convenient check-in experience (AirAsia, 2011). To encourage guests to utilise the Self-Check-In service, “a fee of RM10 will apply at the airport for conventional counter check in for all booking made from 21st September 2011”. This fee will also serve as an additional ancillary income and services to counter the effect of jet fuel price hike (The Star Online, 20 January 2010). Not only does it help reduce AA’s cost by leveraging technology, AA also indirectly changes consumer behaviour by educating and encouraging the use of technology for better efficiency and effectiveness among their guest.

6.0 Natural Environment
Oil is a non-renewable natural resource that will eventually run out. Due to the increasing oil demand and speculation, oil prices have been increasing drastically. It cost $140/barrel in the 2nd quarter of 2011 compared to $23/barrel in 2004 (AirAsia, 2011). Despite the fluctuation of average fuel prices, AA turned this risk into opportunity by pushing ancillary income and services as a natural hedge over the oil price volatility (The Star Online, 25 February 2010). Every RM1 spent by a guest on ancillary item will effectively act as a buffer against US$1 per barrel increase in the price of oil (AirAsia, 2008). Not only does Air Asia manage to increase the number of passengers carried every year, they also managed to increase the amount each guest spent on items. In the 2nd quarter of 2011, the growth in passenger volume by 17% and ancillary income by 12% helped to drive up Air Asia’s revenue by 46% (AirAsia, 2011).

7.0 Conclusion
In conclusion, we can see AA’s ability to overcome and control macroenvironmental factors explain their success and leadership in the airline industry, thus setting a higher benchmark for the industry.

References
AirAsia, 2005, Annual Report 2005. [Online] Available at: < http://www.airasia.com/iwov-resources/my/common/pdf/AirAsia/IR/AirAsia%202005%20corp%20section.pdf> [Accessed on 30 August 2011]. AirAsia, 2008, AirAsia Analyst Presentation, 4th Quarter of2008. [Online]. Available at: < http://www.airasia.com/iwov-resources/my/common/pdf/AirAsia/IR/AA_4Q08_Analyst_Presentation.pdf> [Accessed on 30 August 2011]. AirAsia, 2009. AirAsia Analyst Presentation, 1st Quarter of 2009. [Online] Available at: < http://www.airasia.com/iwov-resources/my/common/pdf/AirAsia/IR/AA_1Q09_Analyst_Presentation.pdf> [Accessed on 5 September 2011]. AirAsia, 2010. Annual Report 2010. [Online] Available at: [Accessed on 30 August 2011]. AirAsia, 2011. Air Asia Analyst Presentation, 2nd Quarter of 2009. [Online] Available at: [Accessed on 30 August 2011]. AirAsia, 2011. Save time and beat the queue with Air Asia’s web and mobile check-in. [Online] Available at: [Accessed on 6 September 2011].

Bursa Malaysia Berhad, 2011. Corporate Social Responsibility (CSR) framework for Malaysian public listed companies. [Online] Available at: [ Accessed on 5 September 2011]. Dellaert, B.G.C., & Lindberg, K., 2003. Variations in tourist price sensitivity: A stated