Airasia – Southwest Airlines

1. Company Background:
AirAsia, as the second Malaysian National Airline, provides a totally different type of service in line with the nation’s aspirations to benefit all citizens and worldwide travellers. Such service takes the form of a no frills – low airfares flight offering, 40%-60% lower than what is currently offered in this part of Asia. The story of emergence of AirAsia is similar to Ryanair, since both carriers underwent a remarkable transformation from a money-losing regional operator to a profitable, low cost airline. 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 AisAsia 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.

2. Industry Background:

2.1. Vision Statement:
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.

2.2. Mission Statements:
• To be the best company to work for whereby employees are treated as part of a big family. • Create a globally recognized ASEAN brand.
• To attain the lowest cost so that everyone can fly with Air Asia. • Maintain the highest quality product, embracing technology to reduce cost and enhance service levels.

2.3. Strategic objectives:
The strategic objectives of the company is as following: • Safety First: Partnering with the world’s most renowned maintenance providers and complying with the with world airline operations. • High Aircraft Utilization: Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity. • Low Fare, No Frills: Providing guests with the choice of customizing services without compromising on quality and services. • Streamline Operations: Making sure that processes are as simple as possible. • Lean Distribution System: Offering a wide and innovative range of distribution channels to make booking and travelling easier. • Point to Point Network: Applying the point-to-point network keeps operations simple and costs low.

2.4. Industry Analysis
In 2004, the airline industry flew 1.8 billion passengers, of which about 30% were in Asia. Airline traffic in Asia is projected to grow at 7.1% annually for the next 5 years and more than triple in the next 20 years. Given AirAsia’s strong presence in the region, this presents vast opportunities to enlarge the company’s market shares. The Airline businesses are closely linked to economic activities in Asia and the world. As such, AirAsia needs to be cognizant with the business cycle so that it can to take full advantage of such effects especially when there are changes in discretionary income and consumer spending patterns. AirAsia also needs to be mindful that increase in demand of fuel and limited supply can lead to higher fuel price that decrease yield. Last but not least, the impact of crisis such as 9/11 (2001) and SARS outbreak (2003) was able to hit the airline industry badly and as such they continue to pose serious threat to airlines.

3. SWOT Analysis
A SWOT analysis is done to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a AirAsia’s business. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objectives. Internal factors as well as external factors are used to analyze company and the External environment.

3.1. Internal Factors:
Strengths:
a) Management team:
The real strength of Air Asia is based on its strong management team with strong links with government s and air line industry leaders. The executive management come from diverse background which consists of industry experts and ex-top government officials .The Air Asia management team is good at strategy formulation and execution. They adopted the proven strategies of South west Airline and Ryan air (no frills, landing in secondary airport), Southwest’s people strategy (employee comes first) and Easy jet’s branding strategy (linking with other service providers like hotels, car rental).

b) Branding:
AirAsia’s brand name is well established in Asia Pacific region now. Besides the normal print media advertising & promotions, AirAsia’s top management also capitalized on promotions through news by being very “media friendly” and freely sharing the latest information on Air Asia as well as the airline industry. Their partnership with other service providers such as hotels and hostels, car rental firms, hospitals (medical tourism), Citibank (AirAsia Citibank card) has created a very unique image among travelers. 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. The links with Manchester United (one of the world’s most famous football teams) and AT&T Williams Formula One team have further boosted AirAsia’s image to a greater extend beyond just the this region c) Low cost leadership:

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

d) Utilization of Information Technology (IT):
Information Technology has contributed to the progress of Air Asia to a greatest extent. This includes the contribution made by IT in promotional activities (email alerts and desk top widgets ), brand building exercise ( with 3 million hits per month and is a most widely used search engines of the world today).IT also resulted in direct purchase of tickets by customers and savings in air line agent’s fee.

e) The Malaysian government support :
The government of Malaysia offers whatever assistance it can without jeopardizingthe national interest and its flag carrier ,Malaysian Airlines (MAS). For instance, as per report in Starbiz week, on 5th March 2011 , the Sarawak government has offered to AirAsia to build a dedicated low cost carrier terminal (LCCT).

f ) Financial position:
From the very beginning the financial performance of AirAsia has been very good. The revenue of the company is impressive and is increasing. This is attributed to low operation and distribution costs which enable the airline to offer an attractive ticket price which no other airline can match. The profitability of AirAsia is further enhanced through its diversification strategies( such tune hotel , tune talk etc) and joint ventures ( ie. With Thai Airways and Indonesian Airways)

Weaknesses:
a) Maintenance, repair and overhaul (MRO ) facility:
The air craft maintenance cost is surging. Air Asia does not have its own maintenance, repair and overhaul (MRO) facility. 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 and about another 100 planes to be received in the next few years, Air Asia have to ensure proper and continuous maintenance of the planes which will also help to keep the overall costs low. It is a competitive disadvantage not to have its own MRO facility.

b) Good customer service is critical :

AirAsia receives a lot of complaints from customers about its service. Examples of complaints are around flight delays, being charged for a lot of things and not able to change flight or get a refund if customers could not make it. Good customer service and management is critical especially when competition is getting intense.

c) Air craft Financing:
AirAsia as part of its expansion plan, AirAsia is purchasing more aircrafts to cater for the increased demand. However, this cost is surging. to overcome this problem, Air Asia now getting the planes on lease instead of buying.

3.2. External Factors:
Opportunities
a) Increased fuel price:
The increasing oil price at the first glance may pose threat for Air Asia. This is not so. Being a low cost leader, AirAsia has a upper hand in this matter because its cost will be still the lowest among all the regional airlines. Thus, Air Asia has a great opportunity to capture some of the existing customers of full service and other low cost airline’s customers. However, there will be also some reduction in overall travel especially by casual or budget travelers.

b) ASEAN open skies
The “ASEAN Open Skies” allows unlimited flights among ASEAN’s regional air carriers since December 2008.This led to the liberalization of ASEAN capital routes. This has resulted in increased competition among the regional airlines. However, AirAsia with its “first mover” advantage as well as its strengths in management, strategy formulation, strategy execution, strong brand and “low-cost” culture among its workforce viewing this agreement as more of opportunity than threat.

c) Partnership with other low cost airlines
There is also some opportunity to partner with other low cost airlines such as Virgin airlines enhance their existing strengths or competitive advantages such as brand name, landing rights and landing slots (time to land).

d) Population increase
The population of Asian middle class will be reaching almost 700 million by 2010.This creates a larger market and a huge opportunity for all low cost airlines in this region including AirAsia.

Threats
a) Air port charges
Air port charges imposed by air port authorities includes airport departure, security charges and landing charges and these are beyond the control of airline operators .This poses a threat to all airlines especially low cost airlines which tries to keep their cost as low as possible. For instance, Changi airport in Singapore charges SGD21 for every person who departs from Singapore.

b) Competition from other airlines
Now AirAsia is reaping profit margin of more than 30% and this has already attracted many competitors. Most of the full service airlines already 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.

c) Fluctuating fuel price
There is always fluctuations in the fuel price due to economic and political factories. Shortage, war .This is a major threat to the company as
its operations heavily dependent on jet fuel.

4. SWOT matrix analysis
Using external and internal factors a SWOT matrix is done to formulate the appropriate strategies. There are 4 types of strategies : 1.SO strategies 3.WT strategies 2.ST strategies 4.WO strategies

4.1. SO strategies
This means using AirAsia’s strengths to seize opportunities. (O1, O2, 04, 07 ) This strategy focused on expansion of untapped markets, diversification (related and unrelated) , new services or products such long distance budget travel .This is because of the opportunities presented by globalization (01) and AirAsia’s strong financial strength.(S3)

4.2. ST strategies
This strategies are use strengths to overcome or contain threats. AirAsia has to fight off competition and new entrants into market, Government regulations which are threats( T1,T3 and T4) by using its strength such as strong financial position and branding ( S 3,S6 )

4.3. WO strategies
The weaknesses are high operating costs ( W1, W2 ,W3 ) are can be overcome by its strengths such as (S1, S2 and S3) can be contained or reduced by its strengths ( S1, S2 , S3 and S5).

4.4. WT strategies

Now AirAsia needs to focus on issues such as the high cost of operations, critical customer service and thinning profit margin (W1, W2 and W3) in the wake of threats such as strong competition, substitutes new budget airlines, and further increase in fuel and take appropriate ( T1, T2, T3, and T 6). AirAsia must try to minimize the impact by prudent management. 5. Conclusion and recommendations:

5.1. Conclusion:
The competition among airplane industries is very tough. Each of Airplanes Company in the world trying to conduct some strategies to compete with another competitor in their industry. To compete with their competitor in the business environment, a company needs to make a strategy to achieve their long terms objective and can be successful for doing their business. The strategic management becomes important due to the following reason such as globalization to survival their business, and then e-commerce become the critical success to the company nowadays. A company needs to consider the company ability and how to integrating it with the as well as main factor in the internal and external factor.

5.2. Recommendations:
To be a leader in the low cost carrier, firstly, AirAsia need to consider about their strategic management. The reason why need to consider strategic management because the first reason is because the airline industry is a unique and complex industry. The second reason, the strategy that AirAsia need is not just how to reduce cost and make the operational activities running effectively. But, AirAsia needs to come out with the strategy that can make competitive position that the company performs different activities from rivals or performing similar activities in different ways to achieve their business successfully, the third reason because a globalization and implementing E-commerce. The current issues in AirAsia Company are more focused in the competition of the cost among an airplane industry. AirAsia as an industry company which is more focusing in the low cost carrier airplane industry need to consider to make the lowest possible cost to compete with the other competitors in their airplane industry. The first is to identify and analyze the SWOT analysis, and then to solve the current issues with some strategies such as Maximized IT and implementing E-commerce in AirAsia business, Operation effectiveness and outstanding efficiency, and the last one is implemented outsourcing in the AirAsia business.

Southwest Airlines

1. Company Background:
Southwest Airlines is the nation’s fourth largest carrier in terms of customer boarding’s. Southwest began Customer Service on June 18, 1971 with three Boeing 737 aircraft serving three Texas cities – Dallas, Houston, and San Antonio. Southwest has grown immensely since then and now operates over 350 Boeing 737 aircraft all over the United States. With the lowest operating cost structure in the domestic airline industry, Southwest provides primarily short-haul, high frequency, point-to-point, and the lowest and simplest fares. The airline serves 59 airports in 58 cities in 30 states. Southwest also retains one of the best overall Customer Service records. “Southwest’s core advantage is that they work more productively, more flexibly and more creatively.” 34,000 employees currently work for Southwest, which launches nearly 2,800 flights a day.

2. Industry background:
2.1. Vision Statement:
To have a conservative increase growth, capitalize and cutback schedules of other airlines. And continue expanding conservatively in long-haul success. 2.2. Mission Statement:
• The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. • To the employees: we are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer.

2.3. Strategic Objectives:
The main objectives of Southwest’s business strategy include focusing on transporting high numbers of passengers on short trips with high frequency, providing low fares, making a strong commitment to its employees and customers, and aggressive marketing.

2. 3. Industry Analysis
Since the Airline Deregulation Act of 1978, the airline industry has endured a number of years of low profitability. “Deregulation sent airline fares tumbling and allowed many new firms to enter the market. The financial impact on both established and new airlines was enormous.” In order to understand the consequences of deregulation, it is important to examine Porter’s Five Forces as well as the influence of complements to the airline industry.

3. SWOT Analysis:
3.1. Internal Factors:
Strength
1. Southwest Airline is a top 5 of all major carriers for on time performance and held Triple Crown. 2. Southwest gives high preference to their employees which, makes them a big family. 3. Southeast is a low-cost structure, fuel hedging and no-frills airline. 4. They operate in more than 3200 flights per day with fleet of 483 Boeing 737s. 5. Southwest serves 63 cities in 32 states.

6. Employee commitment to work (can-do-spirit)
7. The first airline to establish a home page on the web.
8. Southwest high standard and poor credit rating in industry. 9. They have earned extremely high credibility in every market in its services. 10. In 2006 Southwest had 67.7 billion revenue passengers mile (RPM) compared with 60.2 billion (RPM) in 2005. Weakness

1. New plane delivery was delayed and renovation of the head quarters was scrapped. 2. Southwest spends more time at planning the parties than policies. 3. Southwest does not provide meal- only peanuts and drink. 4. Southwest does not subscribe to any centralized reservation service and Internet agent such as Orbits and Expedia. 5. Southwest do not even transfer baggage to other carriers 6. Southwest do not have the international flight.

7. Southwest has always utilized conservative growth tactics, which the competitors are using as well as unique ones to win over consumers. (Management)

3.2. External Factors:
Opportunities
1. Other major airlines are doing badly in business due to the terrorist attack. (terrorist attack). 2. Southwest just have domestic flight and now the international needs are increasing in America. (operation) 3. Because of financial losses, United filed for bankruptcy in December 2002. (financial problem) 4. Going long haul on ground scale which rivals couldn’t meet it up. 5. Southwest is capitalizing on the schedule cutbacks other airlines have made. 6. Southwest provided service to only 63 cities in 32 states, so there are tremendous opportunities for expansion.(expansion) 7. Southwest has been asked to begin their service by more than 100 cities because of their positive impact in the new location. (Government encouragement) 8. Southwest Airlines take over to operate West Coast routed because 8 airlines surrendered that route. Threats

1. The incorporation of the new tax system replaced a percentage tax with a tax that included a flat, per-segment fee, which hits low-fare carriers harder. ( new tax system) 2. Delta is the second largest U.S carrier and has established an alliance with Continental and Northwest Airlines 3. Due to the new government-mandated security measures, southwest’s advantage of fast check-in is being challenging. 4. Economic slowdown (recession)

5. There is a rise in oil price and a serious tension in Middle East. 6. There is many competitors who provides similar service in common places such as Jet blue, Delta, Sky West, Ata etc. (competitors) 7. JetBlue also implemented same strategies as southwest with the help of the former employee of southwest

4. SWOT Matrix Analysis:
4.1. SO Strategies
1. SW Airlines to offer International service to three Asian Countries through strategic Alliance (Asian Airline) (O2, S1,S2,S3, S7, S8, S10) 2. SW Airlines to grow in those areas that were earlier dominated by competitors by offering more flight. (O3, O5, O6, O7, O8, S1, S2, S5, S9, S10) 3. Merger and Acquisition: 1.1 United Airlines, buy equipment facilities and acquire staff and skills with new firms (O3, S2, S5, S7, S8, S10) 4. increase the number of long haul services within America cities (O2, O4, S4, S5, S7, S9, S10) 5. Increase a promotional activity that leads to capitalization on west coast. ( O5, O8, S1, S2, S4, S6, S9)

4.2. WO Strategies
1. Co-operation with the bigger airline for the transfer of the customers luggage safely and on time. (W5, O2, O4, O5) 2. Create the strategic plans and implement new policies to increase its market share. (W1,W2, W6, O2, O5, O6,O7, O8)

4.3. ST Strategies
1. Focus more the fuel hedging and the operational department.(T4,T5,S3, S4, S9) 2. Organize more of the charity programs; sponsor the events to increase its brand equity. (S1, S6, S8 ,S9,T1, T6) 3. Increase penetration activities by employing competitive strategies to gain market share from competitors (Special package during festival and holidays. (S1, S3, S4,S6, S8, S10, T1, T6, T7) 4.4. WT Strategies

1. Sell meal on the board.(W3, T1,T6)
2. Open central reservation centers and internet booking through their own website to increase the sales.(W4, T1,T7) 3. Increase diversification activities- add new related market to increase its sales and profitability. (Hotel, call centers and mobile services) (W3, W4, W5, W7, T1, T3, T6).

5. Conclusion and recommendation
5.1. Conclusion:
Southwest offers a low cost, friendly and simple service that distinguishes itself from its competitors and will allow it to sustain profitability in the airline industry. Southwest has been able to a build a loyal customer base with its genuine customer service and its employee’s love of their job. Southwest always remembers that in order to succeed in an industry, it is often not the case of having a strategy of “doing it better”, but rather one of “doing it differently.”

5.2. Recommendation:
Offering International flight to three Asian countries (China India and Malaysia) through strategic alliance. In order to capitalize the main business hubs in Asia and increase the new market share, Southwest would go for the strategic alliance with Air Asia which is the master in Low cost Airlines and has captured maximum places of Asia. Since, the Asian economy has reached to the second largest economy in the world after United States and comprises of 60% of the world population. Globalization and international market is expanding rapidly in Asian region. Countries like; China has its mission and vision to be totally open within 2020 as well as India is also aiming to be the fastest growing civil aviation market in the world by 2020. Malaysia is looking forward to be a fully developed country within year 2020. So this is a great opportunity for Southwest to have the strategic alliance with Air Asia and help to accomplish their vision which will give great return to them.