Expansion Strategies for Achieving Competitiveness Among Airline Companies in Malaysian Territory
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Sys Rev Pharm 2020; 11(1):761-769 A multifaceted review journal in the field of pharmacy Expansion Strategies for Achieving Competitiveness among Airline Companies in Malaysian Territory 1 Mohd Shukri Ab Yajid*, 1 Shakeerah Mohd Shukri, 1 Ali Khatibi 1Management and Science University *Corresponding author: [email protected] ABSTRACT The aim of this study is to examine the strategies that are adopted by the airlines Keywords: strategies, competitiveness, Malaysian airline in the Malaysian territory. Air Asia was incorporated as a private limited company in Malaysia in 1993 and became Malaysia’s second national carrier in 1996 and Correspondence: officially commenced operations as a full-service domestic airline with only two Mohd Shukri Ab Yajid aircrafts. The company was facing losses most of the time and eventually on Management and Science University December 8, 2001 the company was taken over by Datuk Tony Fernandez, a Corresponding author: [email protected] visionary leader who has no related experience in airline at all. He changed the business model and re-launched Air Asia as a low-cost carrier. Air Asia became the first low-cost carrier to take to the skies in the region. Since the takeover in 2001 with only 2 aircrafts, Air Asia has revolutionized air travel in the region to become a leading low fare airline in South East Asia. It has achieved remarkable growth in all aspects of its business such as fleet grown to 28 now, recorded strong revenue growth from good passenger seat sales, as well as achieved strong profit growth and financial position. This case study would attempt to look at Air Asia’s key success factors and challenges faced and to propose suitable strategies for Air Asia to maintain its dominance. Some of tools employed include Ratio Analysis, PEST Analysis, Porter’s 5 Forces, Competitive Profile Matrix (CPM), SWOT Analysis, Internal/External Factor Evaluation Matrix, Stakeholders’ Analysis, BCG Matrix and TOWS Matrix. INTRODUCTION gathering of information regarding its services area and In December 2001, Air Asia was acquired by Tune Air from related revenue streams. The above four factors and five DRB-Hicom and was then turned into the first low cost forces have a huge bearing upon Air Asia’s current and airline in Southeast Asia. Air Asia has made a remarkable future performances. In addition to the above two achievement with first mover advantage and became the analyses, a Competitor Profile Matrix (CPM) was also leading low-cost airline in Southeast Asia by constructed. The CPM basically pitched Air Asia against its revolutionizing the air travel industry in Malaysia and the major competitors in several critical areas such as Price region, at the same time establishing Air Asia into a superb Competitiveness, Marketing/Branding, Regional brand. From a losing company in 2001, Air Asia has Expansion, Customer Service, Maintenance and Safety achieved significant reduction of losses in 2002 and Standard, Cost per ASK, Route Coverage, Flight Frequency, become an increasing profit making company for year Management Leadership, and Aircraft utilization. 2003 to 2005 amidst aggressive expansion and the However, Tun Dr. Mahathir, who would rather have them pressure of rising fuel cost and insurance premium. The buy an existing airline than to start a new one, probably successful achievement of low-cost model in Malaysia is would like to realize his vision of turning companies being replicated in Thailand and Indonesia to capture the around as opposed to starting new ones. From then Datuk Southeast Asian and the Asian Market including China and Tony and his partners have made many greatest things India in its long-term expansion plan (Lawton, 1999; De happened besides the fact that, Air Asia already had a Silva et al., 2018a; De Silva et al., 2018b; Nikhashemi et al., strong brand. He just changed the strategy to a low cost 2013). airline and revolutionized the air travel industry in the In order to accurately assess the current scenario within region and continuously bringing Air Asia to the greatest Air Asia, it is essential to have an understanding of its height (Li & Ling, 2013; Doa et al., 2019; Maghfuriyah et al., background and history. In understanding the current 2019; Nguyen et al., 2019). situation within Air Asia, the starting point was its corporate values. The corporate values were used to LITERATURE REVIEW supply information related to management and leadership Since taking over the reins at Air Asia in 2001, with his principles, business principles, as well as corporate dynamic and charismatic leadership he has revolutionized governance principles. This was then followed by looking the air travel industry in the region and “CEO of the Year at its recent to medium-term operational and financial 2003”, and the “25 Stars of Asia” honoree listing by performances (Blanchard & Muet, 1993; Dewi et al., 2019; Business Week. Apart from that he was awarded the Pambreni et al., 2019; Tarofder et al., 2017). These two “Emerging Entrepreneur of the Year 2003” in Ernst & parameters were useful in helping to gauge how capable Young Entrepreneur of The Year Award, the “International Air Asia would be in undertaking new strategic initiatives. Herald Tribune” award for the Visionaries and Leadership Information regarding Air Asia’s organizational structure Series in 2003, and the “Asia Pacific Aviation Executive of and associate companies were also compiled as these the Year 2004” (Gorynia, Nowak, & Wolniak, 2005; helped in understanding its current focus areas. The Pathiratne et al., 2018; Rachmawati et al., 2019; understanding of Air Asia’s current areas of business and Seneviratne et al., 2019; Sudari et al., 2019; Tarofder et al., expansion exercise was further strengthened by the 2019). Recently in July 2005, he has been conferred 761 Systematic Reviews in Pharmacy Vol 11, Issue 1, Jan 2020 Yajid MSA et al: Expansion Strategies to Achieve Competitiveness Datukship due to his visionary leadership in the domestic activity in Philippines; and Thai Air Asia, Lion revolutionizing the airline industry and his great Air and Val air made up 2% of the international activity in contribution to the economy and low-cost airline industry Singapore (Wu, Sinkovics, Cavusgil, & Roath, 2007). in the region (Tracey, Vonderembse, & Lim, 1999). The travel industry is very much a regulated industry as Its expansion’s strategies includes increase of frequency described in the topic “Governmental Regulation in The on existing routes, opening new routes which are Airline Industry” in Section 5.5 on page 70. Apart from underserved with high potential as well as replicating its complying with the regulation, the potential of the aviation successful models via joint ventures in Thailand and industry is driven by the policies of the government in Indonesia and at the same time further lowering its term of the liberalization of bilateral aviation agreement operating cost. Thai Air Asia is a joint venture between with other countries, relaxation of travel permit, and Malaysia's Air Asia via its subsidiary company, AA developing of new airport capacity to accommodate the International Limited (AAIL) and Thailand's Shin Corp. increasing demand. Southeast Asian is unlike the aviation PCL (SHIN.TH) with shareholding of 49% and 51% industry of America and Europe which are highly respectively. Operation in Thailand started in February liberalized. Although countries in the Southeast Asian 2004. Apart from that Air Asia also flies to the Philippines countries are beginning to broadly liberalize the and serves the region of China through Thai Air Asia. international bilateral agreements to increase air travel, Trade liabilities from major creditors at the point of however, Air Asia faced difficulty in its recent plan to takeover amounting to RM40 million have been repaid. expand to Singapore (Di Gregorio, Musteen, & Thomas, Air Asia has enjoyed an impressive growth profile since it 2009; Nikhashemi et al., 2017; Tarofder et al., 2019; Ulfah launched its first flight in January 2002 with just two et al., 2019; Tarofder et al., 2016; Udriyah et al., 2019). aircrafts. At the end of FY03 (June) it had made an income However, Thailand has liberated its domestic markets in of RM 18.8 million, which jumped 160% to RM 49 million 2000 and recently signed an “open skies” agreement with in 2004 and is forecasted to grow another 200% to RM 153 China that allows nearly unrestricted operation between million in 2005 and about 50% to M$226 million in 2006. the 2 countries. At the same time China also encourages its As of the 3rd quarter unaudited financial performance citizen to travel by increasing the number of exits visas it report to Bursa Malaysia for fiscal year 2005, Air Asia’s issues to independent and group travel. Moreover, China is first 9 months’ revenue totaled to RM 466.7 million while keen to build more liberal air framework with other its net income for the first 9 months surged to RM 95.14 ASEAN countries. million. The Singapore government started moving ahead to build The fleet enlargement is essential as it expands to more a US$26.4 million terminal for low-cost carriers to be in destinations across Asia. In fact Air Asia’s short fall in its operation by 2006 to handle 2.6 million annual passengers forecasted net income growth for 2005 was mainly due to (MAP8) to cater to Southeast Asia's growing number of the delay in the delivery of its ordered aircrafts. Air Asia budget airlines (Esterhuizen & Van Rooyen, 2006). The wishes to establish its goal to be the leading low-cost terminal will be at the Singapore's Changi International carrier in Asia with the strategies in stimulating demand Airport, one of the Asian region's busiest hubs. If Air Asia by offering low fares, expand within Asia (Dwyer & Kim, was allowed to use the Subang Airport for its operation 2003).