Macro And Industry Environment In The Southeast Asian Region For New Budget Airlines

Liberalization Policy of the Government

Question:

Case study on management in Global Environment.
 

As opined by Studwell (2013), both the macro and industry environment in the Southeast Asian region for the new entrants such as new budget airlines is one of great potential. Roy (2014) added in this context that the success of the new budget airlines depends on the liberalization policy of the government. In order to more precise, when the government of this region liberalizes the airlines in their nations, the new budget airlines would able to make growth and acquire success as well. Stockport (2012) compared the Asian airlines industry with the airlines business of rest of the world and found that the Asian airlines industry was highly cost competitive. This is because of the suitable macro environment of the Southeast Asian Region for the airline business. In the late 1990s and early 2000s, no frills fliers were there that could have threatened the Asian airlines (Pauka, 2015).

However, Studwell (2013) explained that some challenges as well as opportunities are associated with the macro and industry environment of Southeast Asian region. In the recent years, the competition in the Asian airlines has been increasing gradually. It has been found that the number of potential travelers increases day by day and this is the prime reason of the increasing competition. Besides, the successful existing businesses attract the new business and thus the completion in this region increases. Along with that, as the government regulations have decreased in this region, the businesses are able to explore opportunities where they could enhance their business (Stockport, 2012). Besides, the low fare Asian airlines increase the number of potential travelers and hence this growing number delivers opportunity to make more profits. Apart from this, the fuel cost along with the cost of ground operations and passenger services create challenges in balancing the cost and revenue (Pauka, 2015). 

Liang (2012) mentioned that the income level in most of the Asian countries is way much lower than the income level of North America and Europe. Besides, the availability of the alternative transportation is comparatively higher in the Asia Pacific region. The airline industry confronts strong completion from the high speed rail as the rail fare is much lower than the fare in airlines. Jeddi et al. (2014) added in this context that small percentage of Asian travelers tends to utilize more expensive airlines. Further, it has been mentioned that the Asian consumers are more cost sensitive than the consumers of North America and Europe. The Asia travelers are highly attracted by the low fare transportation and thus the demand for low fare service in this specific region is way much higher in comparison with those two regions (Mutum & Ghazali, 2014).

Furthermore, Mutum & Ghazali (2014) stated that the modern technology changes the ways of leading life. The percentage of internet users increases rapidly across the world. However, the Asian consumers are still limited in full potential utilization of internet resources. They are highly dependent on the middle man and travel agents. Before the low fare airlines services in Asian Pacific region, the middle income and low income groups could not ever think to use airline services. These are the reason that the airline industry applied low price strategy (Francis, 2012). The low fare airline services enhance the demand for the airline services in this specific region. Further, the airline industry in Asia targets the customers who would not use their service if the price is higher (Pauka, 2015). This is the prime reason that the demand for lower fare service is comparatively higher in the Asian Pacific region than the North America and Europe.    

Cost competitiveness in Asian Airlines Industry

As per the discussion of Kamisan & King (2013), AirAsia tries to emulate efficient operational strategies of Ryanair and successful people-oriented strategies of Southwest. It is important to note that the Southwest and Ryanair adapted the specific strategies to differentiate themselves in the American and European markets. In these specific markets, large number of lost cost service providers is present and thus it created the airline industry highly competitive. These strategies helped them to acquire competitive advantages and this is the reason that AirAsia imitate these strategies. AirAsia is similar with Ryanair and Southwest in terms of operational and people oriented strategies.

However, some factors are there based on which the AirAsia’s generic strategy can be differentiated with the strategies of other incumbent carriers and the strategies of Ryanair and Southwest as well. Majumdar (2015) defined the generic strategy as the cost minimization, product differentiation and market focus strategy. Jeddi et al. (2014) elaborated that the cost leadership strategy of AirAsia led them to increase their revenue and profit by reducing the operational cost. Along with that, they charge industry-average price for their service which is the largest difference between their strategy and the strategies of other incumbent carriers. Besides, the company increased their market share by charging lower price. In this context, it is essential to mention that still they are able to make reasonable profit in each sale because they reduced the cost of the business (Yashodha, 2012).

Further, the differentiation strategy defines that their prime focus centered on the research, development and innovation which led them to success (Lee & Dy, 2015). The differentiation strategy helped them to offer high quality service at lower possible price. Through focusing on the innovative techniques, they are able to enhance the quality of their service. Lastly, through their market focus strategy, they concentrate on the need of the market and develop uniquely low cost service (Birla, 2013). In Asian Pacific region, people are more price sensitive and thus the business adapted low pricing strategy in order to attract more number of travelers (Hongdiyanto, 2012). The generic strategy made them world’s most successful budget airline (Wong, 2014). 

The case study clears that Fernandes was well aware about the economic and operational uncertainties and risks. Further, the case indicates that Fernandes has played crucial role in the decision making process by considering the differences of this geographic region. When he took over Asia, he has taken professional advices from Conor McCarthy of Ryanair and some other business professionals who have been successfully leading their business. However, Hongdiyanto (2012) discussed that when Fernandes took over AirAsia in the year 2001, the business could led to the failure. Considering an incident, the September 11 attacks lead the air travel downturn. This was the one of the major threat that he has ever faced in the business (Hongdiyanto, 2012). At that time, Fernandes still decided to take risk and relaunch the airline. It has been decided by predicting that the dropping airlift leasing cost and availability of experienced staffs would help them to lead to business towards success (Hongdiyanto, 2012).

Increasing competition in Asian Airlines Industry

Furthermore, form the case study, it has been noticed that Fernandes might have overlooked the area of macro political risks. In this context, it is important to note that major political decisions likely to affect all industries in a country or region. In order to support the statements with an example, it can be stated that several political issues that a number of Asian countries are continuously confronting might spillover effects on the airline industry (Temporal, 2012). It has been found that political instability, discrimination issues, corruption problems, currency fluctuations, and religious turmoil in the Asian Pacific region are the major factors that might affect the airline industry (Temporal, 2012).

Following the statement of Steyer (2015), a strong entrepreneurial spirit along with the determination necessary led Fernandes to achieve the purpose of the business. It has been noted that he was insightful, flexible, and responsive to change. This helped him to deal with major challenges and uncertainties. Jeddi et al. (2014) identified the prime entrepreneurial strategies of Fernandes that helped him to make the business ‘World’s Best Low Cost Airline’. Crucial focus of Fernandes centered on the strategies that include branding, marketing, good grasp of finance, no fear of failure, digital technology, corporate culture and government support. Fernandes placed the branding strategy on the top of their pricing strategy as he believed that only profit is not enough for the success of a business. Along with the branding strategy, it is important to adapt effective marketing policy to make themselves known to the customers. Besides, the personal knowledge about finance and education of Fernandes helped in leading the business (Mutum & Ghazali, 2014). Apart from all this, the most important strategy is to omitting fear of being failure. This was the reason that he took risk in the most difficult situation and made it successful. The digital technology has been widely incorporated by him in the business that helped them in their operational management (Lee & Dy, 2015). The corporate culture along with government support of Asian Pacific region helped Fernandes to bring innovation and apply strategic policies in the business (Mutum & Ghazali, 2014). The above discussion clears the fact that Fernandes’ entrepreneurial strategy led the business in market position where it is placed today.

As opined by Kamisan & King (2013), the core advantage that the business has, is of being first to the market. This gave the competitive advantages in terms of brand image, customer loyalty and government support. Further, AirAsia has the established knowledge of Asian culture that gave them advantage over the potential multinational competitors. AirAsia has the necessary factors which are needed for the business expansion. The business has significant resources, credibility and planning capacity that could help the business to expand their business in the international market before its major competitors (Steyer, 2015). However, the business have not confronted any hitches of bureaucracy, lack of efficiency, stagnant organizational culture and prevalent in incumbent and expensive carriers (Kamisan & King, 2013). These would help the business to respond to the challenges of new fare carriers entering in the Asian market and low fare strategies pursued by incumbent carriers.

Low Fare Transportation and Cost Sensitivity in Asia Pacific Region

According to Jeddi et al. (2014), the most effective approach of this particular business is to maximize their capitalizing policy rather than creating hostile competition. They should maintain positive relation with the government of Asian Pacific region to neutralize the threat of government (Steyer, 2015). As per my knowledge, it is likely that through maintaining positive relation with the government, AirAsia could maintain their competitive nature strong in the market. 

As per the statement of Studwell (2013), Asian Pacific region is similar with North America and Europe to some extent in terms of business market. As per my knowledge, as new businesses will enter in the existing market to offer low price services, the market becomes more competitive in nature. As a result, the consumers’ perspectives, their decisions and choices will be fluctuated and thus the business of AirAsia will be affected (Kamisan & King, 2013). As the Asian travelers are more price conscious, they do not stick into their loyalty, rather they would be attracted by the services which is offered at lower prices (Mutum & Ghazali, 2014).  

Some lessons can be drawn from American and European region. Temporal (2012) mentioned that some promotional tools may be incorporated and applied to keep their position and reputation unaffected. Further, it would help to maintain good customer relationship and customer loyalty as well. These promotional tools include mileage accumulation, frequent and timely scheduled, and more availability of routes (Temporal, 2012). Through including wide range of locations in their service, they would able to acquire competitive advantages and attract more customers. From North American and Europe experience, it can be learnt that sooner implementation would help to obtain competitive advantages. The profitability of AirAsia attracts more businesses which may enter soon and apply the same strategies which have been applied by the business (Yashodha, 2012). Furthermore, the number of Asian travelers also increases, that competition in the Asian pacific region will be increased more. Thus, it is advisable that AirAsia should incorporate these promotional tools sooner than rather than waiting for the later applications (Kamisan & King, 2013).   

From the case study, it has been found that AirAsia has proven that they had the ability to operate the budget airline successfully. They should enhance their ability their ability as well as capital by expanding their business in the similar business market such as China, Australia, India, and Europe. Through expanding their business market, not only they would be able to earn more profit, but also able to generate sustainable competitive advantages. In the present situation, it is expected that the competition would be increased to a larger extent. Thus, it is important for AirAsia to apply new strategic policies to maintain their position in the world airline business. However, it is essential to note that the business environment of other countries would be differed than the environment where it is operating now. Thus, AirAsia should identify the markets where they would confront less risk and more opportunity to enhance their business. Effective policies and strategies would help to acquire more competitive advantages over its existing as well as probable competitors.

Apart from this, it is expected that customer loyalty might be hampered due to the new entrants. As the new business would offer low price services, the travelers of the Asian Pacific region would be attracted. However, it is important to note that if the new services would be provided at lower prices in comparison with AirAsia, then AirAsia could confront strong competition. This might shake out current business position of the company. Thus, it is suggested that the company should expand their business in new markets.  

Reference List   

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