Identify and Discuss the Sources of Airasia’s Competitive Advantage

Identify and discuss the sources of AirAsia’s competitive advantage

There are two ways in which a firm can achieve competitive advantage over its competitors, either by suppling a similar product/service at a lower cost, or by supplying a differentiated product/service at a premium price. AirAsia has mainly achieved its competitive advantage through cost advantage, illustrated by the fact that UBS research showed that AirAsia was the world’s lowest-cost airline by 2007. AirAsia’s streamlined operations helps explain why it has succeeded, but it does not provide the whole picture. Only when AirAsia’s effective exploitation of external change is taken into consideration can one understand how AirAsia has managed to offer its customers lower ticket prices, in comparison to competitors, while also earning higher profits.

Overall AirAsia’s success depend on several aspects working in harmony to create competitive advantage. With scarcity among resources hard to identify in the airline industry it is rather AirAsia’s ability to deploy their organizational capabilities in a way that has utilized emerging opportunities which has set it apart from other airlines. To explain how and why AirAsia has successfully established its competitive advantage the following sections will present and analyze the various sources of AirAsia’s competitive advantage.

Low prices

By keeping its prices below competitors AirAsia has successfully attained and preserved its customers. Key behind AirAsia’s low prices has been its low operations costs in conjunction with high utilization, with several factors within its strategy playing a part. Single aircraft type, single class, minimal customer service, ticketless flights, and no aerobridges has allowed for substantial cost-savings and better utilization of planes. AirAsia has clearly utilized several drivers of cost advantage, such as the simple and standardized design of its aircrafts and offerings, its high capacity utilization, and its integrated information technology. Everything has been streamlined, with activities more effectively and efficiently performed by third parties outsourced.

Maybe most important in AirAsia’s quest for low operations costs and high utilization is its culture. The corporate culture of a firm is unique and sometimes play an important role when it comes to cooperation and coordination. Through Fernandes management style, performance goals have been embedded within the organizational culture at AirAsia, resulting in a unified work force where everyone understand and contribute towards the intended goals.  

Responsiveness

The airline industry is characterized by high fixed costs, therefore high volume is necessary to achieve if profits are to be made within the industry. AirAsia expanded its operations quickly, from 2 aircrafts to 79 aircrafts between 2002 and 2009, establishing it as Asia’s most successful low-cost airline. AirAsia’s successful adaptation of the low-cost carrier model to the market of Southeast Asia is mainly due to its exploitation of, and responsiveness to, external sources of change. The timing behind AirAsia’s expansion for air travel in Southeast Asia also played an important part, with rising prosperity and airline deregulations providing a large potential market which AirAsia capitalized on.

Competitive advantage is a consequence of change, and AirAsia’s successful growth is down to effective exploitation of external change. To achieve competitive advantage from external change a company needs not only to act on opportunities arising, they need to act quickly. AirAsia’s flexible work force and IT-system allowed it to quickly respond to market changes. An important requirement for quick response capability is the availability of information. By using web-based IT-systems, integration of AirAsia’s information technology was enabled, allowing for future demand to be estimated and planned for.    

Positioning

In highly mature industries companies often seek ways to differentiate outside of their main offerings. Whereas AirAsia has kept its flight offerings standardized and simple, competing through lower prices, it has diversified a lot when it comes to its availability and visibility towards customers. Distribution is one area where AirAsia has diversified, offering a wide range of innovative distribution channels towards customers. AirAsia took advantage of the extensive mobile phone usage in the Asia-Pacific region by offering booking and information services via mobile phones. In advertising AirAsia has had large expenditures in various channels in comparison to other LCC-airlines, and it has also increased its visibility through sponsorships and co-branding relationships.

As in the case of consumer goods, where industry maturity changes firms focus from product differentiation towards image differentiation, similar behavior can be identified in AirAsia’s case. By building its brand through availability and visibility AirAsia may possibly create much needed distinction from other airlines and through that entrench customers in the long run. AirAsia’s extensive focus on branding could also help explain its rapid growth in the industry.

Overall connection

The LCC model was not innovatively created by AirAsia but merely adopted. Still, adopting it to a new market with differing restrictions and requirements, like AirAsia did in Southeast Asia, is a type of strategic innovation. Thus, AirAsia’s source of success is not constricted to either responsiveness to change or innovation, but rather a mix of the two. Streamlined operations and effective resource utilization has allowed for a low pricing strategy. Timing and responsiveness to changing market conditions enabled rapid growth. Substantial marketing efforts and a heavy emphasis on branding has resulted in availability and visibility towards customers. Together these sources has provided AirAsia with a competitive advantage in the LCC industry, allowing it to earn higher profits than competitors.

Further, the fact that AirAsia’s competitive advantage stem from multiple sources can help explain why it has managed to sustain its advantage. By relying upon multiple sources of competitive advantage it becomes harder for competitors to understand the basis of AirAsia’s success. With competitors not being able to identify the sources they are not able to copy them either, which has allowed AirAsia to sustain its competitive advantage.

Should AirAsia expand its long haul business and to what extent should AirAsia and AirAsiaX be integrated operationally?