Air Asia

Air Asia

Name:

Institution:

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

• Executive Summary……………………………………………………………………………………………………3
• The Marketing Plan…………………………………………………………………………………………………….3

2.1 Marketing Objectives and Financial Information………………………………………………………3

2.1.1 Constituents of the Target Market…………………………………………………………………..3

2.1.2 Expected Sales for 2013…………………………………………………………………………………4

2.1.3 Profit Expectations for 2013…………………………………………………………………………..4

            2.1.4 Market Penetration Coverage…………………………………………………………………………5

3.0 Foreign Markets Where Air Asia Wishes to Invest…………………………………………………………7

3.1 International Market Analysis…………………………………………………………………………………7

            3.1.1 China…………………………………………………………………………………………………………..7

3.1.1.1 Entry into the Market……………………………………………………………………….7

3.1.1.2 Adaptation………………………………………………………………………………………7

3.1.1.3 Pricing Decision………………………………………………………………………………7

3.1.2 United States………………………………………………………………………………………………..8

3.1.2.1 Entry into the Market……………………………………………………………………….9

3.1.2.2 Adaptation………………………………………………………………………………………9

3.1.2.3 Pricing Decision………………………………………………………………………………9

3.1.3 The Greater African Region (South Africa) …………………………………………………….9

3.1.3.1 Entry into the Market……………………………………………………………………..10

3.1.3.2 Adaptation…………………………………………………………………………………….11

3.1.3.3 Pricing Decision…………………………………………………………………………….11

3.2 Human Resource at the International Level…………………………………………………………….11

3.2.1 Comparative International Human Resource…………………………………………………..12

3.2.2 Strategic International Human Resource………………………………………………………..12

3.3 International Operations Management……………………………………………………………………12

3.3.1 Emerging Patterns and Structures………………………………………………………………….13

3.3.2 Quality Management……………………………………………………………………………………13

4.0 SWOT Analysis……………………………………………………………………………………………………….14

4.1 Strengths…………………………………………………………………………………………………………….14

4.2 Weaknesses………………………………………………………………………………………………………..14

4.3 Opportunities………………………………………………………………………………………………………14

4.4 Threats……………………………………………………………………………………………………………….14

5.0 Final Recommendations…………………………………………………………………………………………….15

5.1 Location and Geographic Distribution……………………………………………………………………15

5.2 Culture Positioning………………………………………………………………………………………………15

5.3 Political Social and Economic Dimensions of China……………………………………………….15

6.0 Conclusion………………………………………………………………………………………………………………16

7.0 Sources of Information……………………………………………………………………………………………..17

 

 

 

 

 

 

 

1.0 Executive Summary

Air Asia is a low cost airline with its main headquarters in Kuala Lumpur, Malaysia. Air Asia has been declared a leading airline in terms of low cost making flights affordable to a majority of people in the greater Asian region. Air Asia operates domestic and international flights spanning over 20 countries to 100 destinations. Air Asia continues to pave way for low-cost flights and together with its associate airlines, develop through innovation, effective processes and an efficient approach to business. Air Asia is set to take the low-cost flight experience to a new high in order to encourage everyone to fly. The airline seeks to venture into three main international markets namely China, the United States and the greater African region. This market plan aims to explain the most rewarding and productive business prospects that will increase the airlines revenues substantially.

2.0 The Marketing Plan

2.1 Marketing Objectives and Financial Information

            2.1.1 Constituents of the Target market. Air Asia should operate on reasonably low cost in order to reach a wide range of customers. The Air Asia target market has been divided into three segments. The first segment refers to the lowest in the social class. They travel at most twice a year for purposes of leisure and are very price sensitive. They also attach a high importance to the value of money. The second segment refers to the middle class consumers who also place great importance in the value for money and travel moderately for leisure. The third segment refers to the middle social class whose usage rate of money is high and travel frequently for business reasons. They are also price sensitive especially with the unhealthy economic climate, which makes them attach a high importance to the value of their money (Air Asia, 2009b). Consumers always wish to pay the least possible cost for a seat in a flight (McCartney, 2013).

2.1.2 Expected sales for 2013. Air Asia should set their sales based on the cost of production. The profit forecast in the final quarter of the year 2013 will depend on the prices of aviation fuel and oil during that period.

2.1.3 Profit expectations for 2013. The airline’s profits have been cut owing to the rising cost of oil and the influences of slow economic growth in the cargo-air market. Global industry profits are expected to be $11.7 billion from $7.4 billion last year. This is a reduction of $1 billion from the previous forecast (Cameron, 2013). Income statement for the year ended December 31 shows the financial details and profits for the last five years.

(RM million, unless otherwise stated)	For the 6 months ended 31 December	For the year ended 31 December
	2007	2008	2009	2010	2011
INCOME STATEMENT
Revenue	1,094	2,855	3,133	3,948	4,495
Net total expenses	875	3,207	2,220	2,881	3,332
EBIT	219	(352)	913	1,067	1,163
Share of results of jointly-controlled entities	–	–	–	–	12
Share of results of associates	–	–	–	–	(6)
Profit before taxation	277	(869)	622	1,099	777
Taxation	149	373	(116)	(38)	(222)
Net profit	426	(496)	506	1,061	555

(Air Asia.com)

The net profit for the year 2013 is estimated to be over $ 580 million. This will however be subject to various economic, competitive and business uncertainties. Many unexpected events most of which cannot be controlled by the Directors may change over time. The industry is subject to numerous factors that influence the financial performance of Air Asia. This is the best estimate with factors such as foreign exchange, passenger load factors, average fares and company costs put into consideration.

2.1.4 Market penetration coverage. Air Asia operates to 100 destinations in over 20 countries. Air Asia is affiliated with airlines such as Thai Air Asia, Philippines Air Asia, Indonesia Air Asia, Air Asia Zest and Air Asia Japan. Air Asia has hubs in Clark International Airport, Don Mueang International Airport, Ninoi Aquino International Airport among others. Air Asia plies more than 142 routes to all its destinations. Air Asia utilizes the LCC policy (Low Cost Coverage) with the aim of attracting both a wide range and number of customers. In the year 2012 alone, the airline has managed to serve 8.3 million passengers. This increase from the previous year was marked by the increase in the fleet size. The airline also acquired two new aircrafts, which will help in reaching more destinations.

 

 

3.0 Foreign Markets Where Air Asia Wishes to Invest

3.1 International Market Analysis

            3.1.1 China. The airline should establish new routes from Bangkok to Chongqing, Xi’an and Wuhan. Air Asia should also establish a route from Chiang Mai to Macau a special area of administration for the Republic of China. China is characterized by a fast expanding global economy and a high population growth marked by an increase in the number of the middle class. The GDP growth annually is about 10% per year with more than 500 people lifted from poverty. This is a potentially profitable market for Air Asia.

3.1.1.1 Entry into the market. The entry strategy into a target country should involve sharing of ownership of the newly created business. This should involve binding contracts between the Air Asia and the government of China and all the requirements of both parties should be stated adequately in the contract. The contract should also indicate the terms of doing business, which includes financial audits and reports.

3.1.1.2 Adaptation. Adaptation to the Chinese market will be necessary. This may involve changing a few elements of design to suit the needs of the market. It may also be necessary to develop new products in the market such as putting Chinese language settings in the aircrafts that will ply the routes to China.

3.1.1.3 Pricing decision. The Airline should consider adequately all the factors affecting consumer economics in the market. Essential factors to be considered include competition in the target market. The growing population in China is likely to have consumers who are sensitive to the price levels and tend to attach high importance to the value for money. The managers of the prospects should adopt policies that control prices to avoid arbitrary change in price, which may cause an imbalance in the market. The prices should be consistent with the global prices, constraints and opportunities. Air Asia may need to consider its penetration pricing as it enters China’s air-cargo industry. The prices should be appropriate to increase the company’s market share and control competition.

The exchange rate is also of major importance in price settling. The Chinese Yuan against the currencies of other countries should be considered. The Chinese Yuan remains tightly managed as other currencies reduce in value, giving China much more power to take control of the exchange market (Kitchen, 2013).

3.1.2 The United States. The United States is characterized by a moderate level of population growth and a rather shaky economic status. The United States has been characterized by a recession that wiped out over 9 million jobs in the year 2007 (Badenhausen, 2011). The economy suffered a major setback in the recession (increased unemployment rates). Some states such as Texas proved to be the least affected and the most resilient in the recovery from the recession. Texas is the most populous county in the United States (Badenhausen, 2011) and shows evidence of good economic prospects through its resilience. Badenhausen also relates that Texas could create “190,000 jobs in the next three years.” (2011). Texas would provide a good base for airports and the airlines investment in Texas would be profitable because of the “low costs and pro-business regulatory environment” (Badenhausen, 2011).

High immigration rates into the United States are also an important factor to consider. Immigration into the United States is considerably high with “Asian newcomers driving immigration” (Shah, 2013). Shah claims that in the year 2012, “America’s foreign born population grew by nearly 447,000 according to the Census Bureau’s annual American Community Survey.” (2013). Behind this increase in number of foreign nationals, is an ever increasing Asian population. Air Asia is well established in the greater Asian region and it would therefore be profitable to establish a route to the United States.

3.1.2.1 Entry into the market. The United States market may be rather difficult to penetrate owing to the existing policies that control the entry into the market. Many industries operate as monopolies and thus have patent rights to reduce or eliminate any competition. Some States such as the aforementioned may be easier to enter since they have less business regulations as compared to others.

3.1.2.2 Adaptation. The American Market may however be easier to adapt to due to the wide variety of culture present and the great flexibility of the American consumer. Redesign of only a few of the airlines products would be necessary in order to meet the needs of the diverse American and English speaking market.

3.1.2.3 Pricing decision. The prices in the America market will be greatly determined by the prices and market conditions in the current American market. Air-cargo industries in the American market are well established and have strict regulations on the pricing methods. The exchange rate is also an important factor and the rate at which various currencies trade against the US dollar should be considered. Weak Asian currency against the dollar may reduce the number of people traveling to the United States, which is likely to reduce the country’s income.

3.1.3 The Greater African Region (South Africa). The other international target market for the Airline is the greater African region with main emphasis on South Africa. South Africa is Africa’s largest economy and the most developed country in the region. It has been characterized by an accelerated level of economic growth. In 2010, the South African economy rose to 4.8%, surpassing the expectations of The Economist (Bischof, 2011). The country’s manufacturing industry has also proven to contribute actively to the state of the Economy. The cost of investing the region would therefore be cheaper as the factors of production are readily available and therefore the operation costs would be relatively low. South Africa is also referred to as the “gateway to Africa” (“The Gateway to Africa,” 2011). According to the article, the African continent is “the second fastest growing economy in the world” (2011). With a GDP of nearly $2 trillion, the continent provides great potential fro business. South Africa would be the best location for initial operations of the airline in the continent.

(The Economist)

The diagram above represents the GDP level per person in various African countries. South Africa has the highest GDP value per person “of over $11,000 at purchasing power parity, bigger than China’s or India’s and more than four times the African average.” (“The Gateway to Africa,” 2011). South Africa is also home to the largest population of the middle class, with response to its population, in the African continent. This is evidence that South Africa could bring adequate revenue to the airline.

3.1.3.1 Entry into the market. Entry into the African market would need signing of contracts with the government in order to determine the terms of doing business and the conditions to operate under. The country’s industry is governed by laws that prevent unregulated free entry and exit into the market.

3.1.3.2 Adaptation. The airline would require putting various measures into place in order to adapt and be able to satisfy the needs of the consumers in the African market. This may require changing a few elements in the design of some services. The African market would require that the staff in the airline be language speakers of the common languages in South Africa. This may require training or hiring the locals to facilitate efficient communication. Coming up with new products and services to serve the African market would be necessary to attract a wide variety of clientele. It would also be necessary to establish routes from other continents to South Africa and within the major cities in the continent. This will enable the airline to expand its customer base and increase its revenue reserves. It would also be appropriate to charge a lower price or offer discounted services as the company enters the African market.

3.1.3.3 Pricing decision. Like many other target markets, price setting would be based on the existing level of prices in the market and the price sensitivity of the consumers. The consumers in the South African market are sensitive to changes in the prices and therefore price setting should be based on the consumer preference, the factors of production and the policies governing price-setting policies in the region. The South African Rand fares rather well in the foreign exchange market and this is important in considering whether to invest.

3.2 Human Resource at the International level

With the rapidly growing economy, matters relating to internationalized human resource management are coming up. There has been an increased appreciation for global trading and it is vital to develop the human resource aspects at the international level. The success of a company can be attributed to how effectively a company manages its workers (Lawler III, 2011). Proper management of the workers in Air Asia requires the expertise of human resource professionals. The process would also involve the proper organisation of the workers to encourage specialization. Human resources in any organisation entail the workers, the company policies, social and political aspects of the human resources.

3.2.1 Comparative International Human Resource. Different countries tend to have different cultures and this has varied human resource implications on the organization. One of the main challenges of Air Asia as it globalizes its operations would be the adaptation of the company’s workers to the new environment and foreign culture. The representation of different cultures in the airline would also need to increase in order to make the company more suitable to serve any given clientele. Many other factors would be important to consider such as the languages being spoken, the political and legal environment, and the economic conditions of the market that the organizations seeks to explore.

3.2.2 Strategic International Human Resource. Strategic human resource mainly refers to the adaptation and the integration of the workforce into the new environment. The concern of strategic human resource management is to ensure that practice in human resource are consistent across all policy areas, they are well adjusted through training and welfare programs and that the workers are fully integrated into the company’s resource management system as stipulated in the company’s strategic needs. The company will operate in a very diverse market and it will be necessary to have adequate information on the potential areas where the company wishes to establish its market. It would be necessary for the airline to facilitate a multi-domestic response that is consistent with the global response

3.3 International Operations Management

            Operations management is concerned with the overseeing, controlling and designing the various processes of the Airline and coordinating the redesign of business operations. At the global level, operations management of Air Asia will involve the airline’s keenness on the effectiveness of management of the customers’ needs. In the process of creating new products and services for the foreign market, the company should ensure that the equipments and the airlines systems are well maintained in order to ease communication in the airline. The company will need to develop products that serve customers according to their different cultures. This may involve developing cultural cuisines that suit the needs of the target market. Human resource skills, creativity and rational analysis would be necessary to make this process successful.

3.3.1 Emerging Patterns and Structures. The airline would need to consider the patterns and trends of the potential market. The company should identify the tastes and preferences of the market and incorporate that aspect into the production process. For instance, the African market is characterized by a high number of youth and therefore installing modern entertainment systems would encourage them to use the airline. Businesspersons on the other hand would need to access modern technology in order to manage their businesses during a flight. This would require business management systems to be installed in the airbuses. The American authorities are also on the move to lift the ban against usage of electronic devices in the airplane below 10,000 feet (Gibbs, 2013). Providing internet cards for the customers would make the airline more competitive in the air-cargo industry as the company will meet the increased demand for the use of the internet.

3.3.2 Quality Management. The airline would need to ensure that the quality and characteristics of a product is suitable for its target audience. The Air Asia should determine future trends and expectations of the target market in order to develop a strategic production plan that will suit the needs of the consumers even in the future.

 

 

4.0 SWOT Analysis

4.1 Strengths

            Air Asia is a world-renowned flight company mostly because of its Low Cost Carrier (LCC) policy. The key to maintaining the LCC policy is to keep the productions costs low and properly utilizing all the available resources. Air Asia should ensure that standard operating procedures are maintained and everything flows smoothly to keep the LCC policy afloat.

The airline has received numerous awards for exemplary customer care services. Air Asia also has an efficient operation system that enables systematic training of the workers to make them more effective and more competitive.

4.2 Weaknesses

            Air Asia tends to focus almost entirely on its LCC policy. Air Asia should also consider other factors such as price discrimination in flourishing markets in order to increase its revenue reserves. The Chinese market for instance, proves to be a rapidly growing economy that when tapped into, can reap high returns.

4.3 Opportunities

Air Asia possesses the ability to expand its products and services into the global market. The airline has established new routes and target markets that can expand its revenue network. The airline also has the ability to purchase the latest technology from the best producers in the world, which may be used to increase the efficiency of the normal day-to-day activities.

4.4 Threats

            There is increased competition in the air-cargo industry. Threats to Air Asia at the international target market include other airlines such as Virgin Atlantic Airways Limited in the United States, China Airlines Flights in China among others. The company’s potential investment is also threatened by the strict regulations in the potential markets that limit entry into the market and thus competition from foreign airlines.

5.0 Final Recommendations

            China is the best potential market due to its economic flexibility in many aspects that make it a desirable location for potential business.

5.1 Location and the Geographic Distribution

            China is the most populous country in the world with an estimated population of over 1.3 billion people. The rising level of the population of the middle class also shows the existing potential if the airline is established in the region. The country is also placed at a strategic position, East Asia, which is close in proximity to the airlines operation area. The country has also managed to achieve almost all of its Millennium Development Goals, among them being its achievement of shifting over 500 million people from poverty. The country has also been characterized by a rising middle class level over the years (Wang, 2011).

5.2 Culture Positioning

            The growing population of China results in a subsequent increase in the demand for goods and services. The growing market also spills out into the global scene. Many Chinese citizens are investing into the global market and engaging in many global ventures. There is need for travel and the airline is an efficient and convenient company to aid the mobility of Chinese investors and businesspersons to other parts of the world. The aggressive business culture by the Chinese government offers great opportunities for business.

5.3 Political, Social and Economic Dimensions of China

The People’s Republic of China is one of the worlds few remaining socialist states. Various restrictions in the country contribute to the well being of the population. The social state of the country provides a good environment for the strategic management of the company’s human resources. The country has also been characterized by a stable political climate and a rapidly expanding economy. Regulations by the Chinese government are more flexible than in any other target market and this makes the country a favorable region for doing business.

6.0 Conclusion

            The Chinese market has proven to be the most suitable for the expansion of the airline, owing to its favorable political, social and economic climate, advanced technology, strategic location and its appreciation of Air Asia’s brand. Air Asia should therefore invest in the China market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7.0 Sources of Information

References

Air Asia. (2009b) Company profile. Retrieved from http://www.airasia.com/amazing/en/pageWithHeader.php?menu=one&content=one_awards

Badenhausen, K. (2011, June 29). The Best Places For Business. Forbes Magazine. Retrieved from http://www.forbes.com/sites/kurtbadenhausen/2011/06/29/the-best-places-for-business-and-careers/

Bischof, J. (2011, May 31). South Africa’s Economy Accelerates. The Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB10001424052702303745304576356992731374686

Cameron, D. (2013, September 23). Airline Profit Forecast is Cut for 2013. The Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB10001424052702303983904579093053245592202

Gibbs, S. (2013, September 27). Using the Internet on Planes: Your Questions Answered. The Guardian. Retrieved from http://www.theguardian.com/technology/2013/sep/27/using-the-internet-on-planes-your-questions-answered

Kitchen, M. (2013, October 14). China Tries to Push Yuan Down as Other Currencies Suffer. Market Watch: The Wall Street Journal. Retrieved from http://blogs.marketwatch.com/thetell/2013/10/14/china-tries-to-push-yuan-down-as-other-currencies-suffer/

Lawler III, E.E. (2011, November 11). Human Resources- It’s Time For a Reset. Forbes Magazine. Retrieved from http://www.forbes.com/sites/edwardlawler/2011/11/30/human-resources-its-time-for-a-reset/

McCartney, S. (2013, October 24). Holiday Fare Soar This Year, Up 9% for Thanksgiving Already. The Wall Street Journal. Retrieved from http://blogs.wsj.com/middleseat/2013/10/24/holiday-fares-soar-this-year-up-9-for-thanksgiving-already/

Shah, N. (2013, September 19). Asian Newcomers Drive Migration. The Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB10001424127887324807704579083411301711316

The Gateway to Africa (2012, June 2). The Gateway to Africa. The Economist. Retrieved from http://www.economist.com/node/21556300

Wang, H.H. (2011, December 12). The Biggest Story of Our Time: The Rise of China’s Middle Class. Forbes Magazine. Retrieved from http://www.forbes.com/sites/helenwang/2011/12/21/the-biggest-story-of-our-time-the-rise-of-chinas-middle-class/