Customer Centricity and Factors of the Continued Growth of Air Asia - Research Paper Example

AIRASIA BERHAD Course name: Professor’s name: University name: City, State Date of submission: Title and Introduction Air Asia is one of the standout companies in Asia in the airline industry. It is a global leader in the world of low-cost air travel. With over a hundred destinations globally covered by their sizeable fleet of more than eighty planes, the company continues to grow year to year. The company’s makeup includes a group of affiliated airlines in some countries with its headquarters in Kuala Lumpur, Malaysia[Cen16]. The airline has revolutionized the aviation industry in Asia by introducing low-cost services due to the airline’s low unit cost compared to other airlines in the industry. The company was formed in Kuala Lumpur in 1993 by DRB-Hicom, a Malaysian conglomerate but some factors led to the company amassing debts. In 2001 the company was a sold to businessman Tony Fernandes who was an executive at Time Warner. New management and strategies led to a change in fortunes with the company posting profits the following year. This change in fortune can be credited to the company marketing strategy that involved offering cheap and promotional fares. This marketing mix helped it undercut the monopoly held by Malaysian Airlines. Malaysia Airlines at the time were the dominant player in Malaysia’s short haul airline business. Its growth also led to the company becoming a regional leader in the low-cost airline business. It is currently the largest Low-Cost carrier in Southeast Asia region, referred to commonly as the ASEAN-Association of Southeast Asian Nations- region[ASE16]. The airline has expanded to as far as Japan, India and New Zealand[Air16]. The Low-Cost Carrier (LCC) industry is a relatively young industry and has revolutionized the way the world of air travel which is known for its expensive airfares. This industry caters to those who feel locked out by most airlines and also people who are willing to forgo luxury to save on cost. Airlines in this industry have very similar characteristics such as reduced ticket prices and extra charges for services such as baggage and priority boarding[LAV08]. There are also additional costs for food in most airlines in the industry. These airlines are also known for point-to-point routes, single class services, short turnaround times and direct booking of tickets. By cutting these luxuries that are the hallmark of major airlines globally, the companies can charge lower fares and attract low-income customers. AirAsia’s business model is similar to that of Southwest Airlines that is the world’s largest low-cost airlines tighter cost-cutting measures, especially in the human resource area. Air Asia has the lowest operating expenses in the LCC industry with unit costs for every available seat for each kilometre going as low as 0.023 US dollars. Due to high demand for its services the company can break even at about 50% passenger load[Man05]. The company’s tremendous growth is the basis of my research into the company and the industry as a whole. By looking into the company, I would be able to understand what it takes to turn a business idea into a successful commercial business opportunity. In the research, I will focus on the factors that contribute to the company’s growth, its expectations for the future and its approach towards customers. Growth is particularly a concern for an industry that is facing some challenges especially within the region the airline company is situated such as the growing number of aviation accidents. In the corporate society, growth is a significant factor for businesses since it is connected to profits and the future of an enterprise which are the main concerns for business owners and other stakeholders. A continuous period of growth results in maintenance of or increase in profits for the company it also enables the company lower costs significantly through economies of scale.[Sar12] Air Asia’s continuous growth since it was sold to Mr Fernandes has been tremendous making it a prime candidate to study the growth of businesses. Significance and Rationale The significance of this research is to identify the factors that have contributed to the growth of Air Asia and how the company can streamline its operations to make it more efficient by reducing cost. The company’s business model will be carefully analyzed including its organizational culture, how it deals with its employees for example. Its approach towards its customers and its environment will offer valuable insight for entrepreneurs looking to enter the competitive LCC industry. The paper may also give suggestions on how to improve operations and lower operating costs while maintaining high performance in a highly competitive industry. Research Questions Having identified research-worthy problems in the company, I came up with some questions that I hoped my findings from my time studying AirAsia would help answer or fix. These questions included: 1. What are the factors that have contributed to the continued growth of Air Asia? 2. Is Customer Centricity an unfulfilled ambition in the LCC industry? 3. With stretched revenue targets for the company to achieve where does future growth of Air Asia come from? 4. Must business operating costs be reduced to avoid a liquidity crisis in the company due to inefficient working capital management? 5. Is Organizational happiness through valued employee engagement a precondition for high performance based working cultures? 6. How is relevance determined and tracked in a competitive and regulated industry environment? 7. Literature Review AirAsia’s low-cost strategy is not new to the corporate world; many companies use this strategy to increase demand by targeting those locked out by conventional prices. This strategy though has been refined by the company and has contributed to its huge success over the years. The company has managed to ease the cost of operations yet has maintained the high-quality standards expected of the airline industry. This cost-cutting strategy has been the biggest factor behind the company’s continuous growth. The increased demand that came from employing this strategy was the main advantage of the strategy combined with an ambitious marketing campaign that saw the company introduce promotional fares that were 1 ringgit. The popularity gained from this marketing campaign enabled it to capture an unexplored market in the region and break the monopoly enjoyed by Malaysia Airlines. After winning a market share, the company continued its campaign while expanding within the country and eventually into the region[Poo10]. Another key factor that contributed to the growth of the company was its cautious and rapid expansion program. Expanding was a test for the viability and sustainability of the business model. Being a pioneer of low-cost carrier services in the ASEAN market meant that it was a risky venture to consider, yet, the company thrived and reaped immensely from the venture. The company decided to open wholly owned businesses in countries it expanded into rather than operating under one banner though the affiliated companies operated under an umbrella (parent) company. This foreign market entry strategy has some advantages associated with it. This approach enables companies to meet local regulations fairly quickly without affecting the overall business[Int14]. This increased flexibility and adaptability meant that affiliate companies could work as semi-autonomous entities that could collaborate with some level of independence to cut costs and become more efficient. Under the supervision of the parent company in Kuala Lumpur the affiliate companies were able to coordinate well and spread costs and benefits, this contributed to reduced operational costs and sustainable growth of the enterprise. The model employed by the companies in the LCC industry although cost-efficient has received criticism for not catering to the customers efficiently. Companies argue that by lowering the cost of travel the LCC industry is, in fact, catering to the most critical customer need. The business models for most, if not all companies in the industry can be considered to be cost centred, aiming to reduce operation cost while forgoing customer comfort and luxury. AirAsia like most companies has done away with small luxuries such as spacious seating to accommodate more passengers and in-flight services such as meals being minimized to save on cost. These cost saving measures have led to people arguing that doing away with personal consumer comforts the company is impeding its growth. Unsatisfied customers tend to seek better service elsewhere, but the demand for the airline’s services continues to grow as it expands into markets that were previously neglected by the major airlines in the region[Bol02]. The airline has worked to try to solve his issue of not being customer friendly in some ways chief of which is by incorporating technology in its primary customer related functions. By creating a website for online booking and ticketing the company has made it more convenient for customers to access their services whenever and wherever. The company has offices located in most major airports in the ASEAN region and as such customers can approach the company should they need to. Setting up a customer care centre has also helped to ensure that customer concerns are dealt with immediately and as fast as possible[Air161]. A customer care center is also a way for the company to gain feedback from the client. Clients can register complaints or seek further information from customer care agents while the company can be able also to get feedback on the quality of service so as to make informed decisions. Though the company has done so, numerous complaints about the slowness and ineffectiveness of the customer care hotline have been on the rise. These issues have an adverse impact on the company as it looks to grow into a global brand. The business environment in the airline industry is constantly changing, and futures of companies, especially in the LCC industry is not always assured. Companies are under immense pressure always to attract customers to enable it to keep up with competition and the dynamism of the environment. Low-cost airlines are usually most affected by fluctuating oil prices. AirAsia has addressed this concern by hedging its fuel; this enables it to cap costs on fuel and shields it from fluctuations. By controlling such costs, a company can monitor the dynamism of the environment. Though hedging is a good way of capping costs it also bars airlines from enjoying the benefits of low oil prices such as the current one. Companies end up paying more when they could have been paying less. AirAsia has recently set ambitious revenue demand to achieve this year. The pressure to achieve his goal brings into focus the future of a growing company. The company faces a challenge of attracting more customers than it already has. One such way that Tony Fernandes’ company has employed is an aggressive marketing campaign which includes sponsoring popular sports clubs in Europe and around the world such as Queens Park Rovers in England. Indeed, taking advantage of popular sporting events such as English football, the company has been able to advertise on a grander scale compared to its competitors. Asia has been known to be one of the biggest consumers of English football entertainment with many avidly watching matches. The company’s owner also recently bought a Formula One team, Lotus. By advertising on such platforms, the company can endear itself to sports fans. This kind of advertising also helps in gaining the trust of international clients who are often sceptical about low-cost carrier services. Winning international customers also improves the chances of expanding into new markets thus enabling growth.[Sar12] Another way to facilitate future growth in AirAsia is by working closely with tour operators and agencies. By partnering with agencies, the company can gain new customers quickly. The ASEAN region is a popular destination point, and this attracts many tour agencies to the area selling service travel packages to tourists. Should the company ally itself with more international travel agencies and offer them reduced ticket prices then the company would have a new source of customers[ACe09]. The free marketing that the agencies would offer would also contribute to the company’s marketing strategies. With a new source of customers, the company would be able to look towards the future. The operating cost of AirAsia could be the lowest in the industry. However, the company seems to head towards a liquidity crisis that may end up crippling the business[Poo10]. Among the solutions put forward to avoid this crisis was the suggestion that the company should lower its operating costs even further. An aviation company can be able to reduce operating expenses in some ways, for example, implementing good fuel hedging practices. Currently, AirAsia hedges 100% of its fuel which many have credited for its stability and profitability during the previous financial crisis that saw many aviation companies post huge losses with some collapsing. This hedging practice also prevented the company from enjoying the advantages of low fuel practices. A good fuel hedging contract should be able to anticipate changes in the market and as such should be flexible and not too long or short to enable it to take advantage of when the fuel prices may drop[Glo13]. The following are also ways in which AirAsia can reduce the operating cost; Negotiating airport fees to get the best deals possible, should there be a cheaper alternative airport companies are advised to deal with it. If a company shifts to a cheaper airport further from the major ones, this would lower operating costs and may even help lower ticket prices; customers have been known to accept landing in airports not too far from their destination if it meant lower ticket prices. Insurance is also a cost that airlines can control, looking for a cheaper and equally, the capable insurer can reduce operating costs considerably. Companies can also look to renegotiate existing insurance contracts to account for new changes in the insurance industry. The reduction of costs can help mitigate inefficiencies in working capital management of AirAsia and ultimately avoid a liquidity crisis. The human resource in any company in any industry should value immensely and strive to keep happy. The aviation sector is a high-performance industry and as such depends on a lot of the efficiency of staff and other components. AirAsia is a company that demands a lot from its staff and expects them to maintain high service standards. The pressure to meet company targets such as the 25-minute turnaround for the aircraft puts undue strain on the staff and can be said to constitute an unhappy working environment[Air16]. The company should consider making the workers happy should they still hope to retain them and keep up with the high-performance industry demands. One way the company can be able to keep the employees happy is by rewarding them for their hard work with bonuses and increased allowances. Increased remuneration can also be a motivator for these workers to achieve better results. Ethically, the company considerably shares its profits with the staff to recognise the role that they play in making these benefits. Role recognition is also a way of gaining the staff's loyalty, and good pay could get them to consider working with the company longer. Including workers in decision making is one way of showing employee involvement. Since crew members and support staff are the ones who deal with passengers on a daily basis, it is prudent to assume that they are the people who understand the immediate need of consumers and have the best ideas on how to address these issues. Companies that have been known to encourage employee participation in decision making perform better and more efficiently than those that do not[Lev99]. AirAsia can benefit from the knowledge of these employees to succeed, by increasing worker participation the company will be able to make workers happy and feel more valued by the company. This feeling would serve to motivate them to give their all at work since they identify with the company at a personal level. Holidays and flexible working schedules can contribute to organizational happiness. One of the primary functions for business owners, especially in the corporate universe, is to add the value of shares. Shareholders are one of the key stakeholders in any firm, and it is the duty of managers to come up with business models that increase shareholder value. For LCC airlines this model needs to be one that minimizes costs and increases profit margins. AirAsia has adopted this model efficiently and has been able to continue to post profits year in year out, and this also reflects in the value of shares. Models chosen by managers are required to be relevant to ensure sustained incremental shareholder value[Joh08]. This relevance is hard to determine and track. It is important to come up with ways for identifying and tracking the business model connection especially in industries that are highly competitive and regulated. How well a company keeps track and understand its target market and its needs is one of the ways companies can determine and track relevance. A company needs to be well aware of changes in the target market to make effective changes to suit this market. A good business model should be able to anticipate, recognize and meet trend shifts in the market. Other ways in which the company can determine and track business model relevance is how well the business deals with competitors in the market. Competitors are one of the leading external influences of any business. In the LCC industry competition is stiff with business models employed by these companies being more or less similar[Yas12]. These similarities offer a business an excellent opportunity for comparing the relevance of both models. Managers should be able to come up with points in which they can compare business models, for example, types, differences and successes of services offered. A good business model should be flexible enough to be able to make changes to outdo competitors in any way[Joh08]. Research Methodology and design An airline company was incorporated into the research; a noteworthy airline based in Malaysia operating in the ASEAN market, AirAsia. Data collected was the company’s public financial records. In this case, the results were compared to other competing airlines operating in the same region but not necessarily the same industry, i.e. the LCC industry. The research has used a qualitative method to address problems identified in the study, by analyzing public financial data of companies involved in the research and their services and how they differ. I observed the companies function to come up with data and identify problem areas. The methods used: 1. Observation (by observing the company structure, its services and staff from the beginning to end of the shift 2. Interviews will also use as the method for data collection. Interviews are the best information accumulation technique, and it should be possible using mail, phone or in the individual. The interview was unstructured since informal interviews (additionally called open-ended interviews me) are most appropriate for interviews. They concern the respondents' feeling on a particular matter, as it considers more flexibility in answering the question. Ethical Considerations: In the research, there were no identifiable ethical challenges of note as no breaches of confidentiality as no human research was involve. Data involved are in the public domain and anyone in need to research the company and its competitors can access them. Personal experiences also informed my research to safeguard from breaching confidentiality clauses in employees contracts. Outcomes I hope that this research can be used to tackle existing and emerging issues in the Low-Cost Carrier industry. Using an established company such as AirAsia will help investors understand the LCC market better. With this research, managers should be able to understand factors in which to reduce cost and how to improve on efficiency among staff and crew. Highlighting the factors that encourage or inhibit growth should assist future entrepreneurs looking to expand their companies globally, especially in the ASEAN region, how to mitigate or take full advantage of them. The research should also assist in shedding light on the corporate environment of the region in which AirAsia operates to help decision making of potential investors or entrepreneurs. References Cen16: , (Centre For Aviation , 2016), ASE16: , (ASEAN Secretariat, 2016), Air16: , (Air Asia, 2016), LAV08: , (Lavery, 2008), Man05: , (Man & Justine, 2005), Sar12: , (Sarker, et al., 2012), Poo10: , (Poon & Waring, 2010), Int14: , (International Strategy Solution, 2014), Bol02: , (Boland, et al., 2002), Air161: , (AirAsia, 2016), ACe09: , (A. Cento, 2009), Glo13: , (Global Risk Management, 2013), Lev99: , (Levine, 1999), Joh08: , (Reichmuth, 2008), Yas12: , (Yashodha, 2012), Read More