Improving Airasia Performance By Using Action Management Essay

✅ Paper Type: Free Essay	✅ Subject: Management
✅ Wordcount: 5431 words	✅ Published: 1st Jan 2015

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Historically, the United States has had the world’s largest civilian aviation market. By 2010, however, it is predicted that for the first time in history Asia will be the world’s largest aviation market. By 2025, it is predicted that both Europe and Asia will have larger aviation markets than all of North America. These estimates suggest that in 2025 the three largest economic regions will have the following approximate shares of the world’s aviation traffic: North America, 25 percent (it was 31 percent in 2005); Europe, 27 percent (29 percent in 2005); and Asia, 32 percent (26 percent in 2005). (Bamber, Greg J.; Gittell, Jody Hoffer; Kochan, Thomas A, 2009).

Asia is a much more diverse region than North America and Europe in culture, religion, race, income level, industry structure, and forms of political economy. While the United States, Canada, and the EU are primarily developed market economies, Asia includes several clusters of economies that are at different levels of development, as reflected by their contrasting levels of gross domestic product per capita. Asia includes developed market economies (Japan, Australia, and New Zealand); more recently industrialized “tigers” (Hong Kong, Singapore, South Korea, and Taiwan); emerging economies (China, India, Indonesia, Malaysia, Russia, and Thailand); less developed economies (e.g., Bangladesh, Pakistan, Nepal, and Vietnam); and oil rich states (e.g. Brunei, United Arab Emirates, and Iraq). Since the Many legacy airlines based in Asia and the Middle East, such as Malaysia Airlines, Singapore Airlines, Thai Airways, and Garuda of Indonesia are government owned. But some, such as Cathay Pacific of Hong Kong, Eva Airways of Taiwan, and Asiana Airlines of South Korea, are private companies. Some of the airlines in this region are not IATA members, so they were not constrained by IATA decisions on pricing and levels of service. This made it easier for them to offer lower fares and better service levels than IATA members. (Bamber, Greg J.; Gittell, Jody Hoffer; Kochan, Thomas A, 2009).

Bearing in mind the slower movement toward deregulation and the rapid recovery from the Asian financial crisis, Asian based airlines have generally been profiting from excess demand. (Bamber, Greg J.; Gittell, Jody Hoffer; Kochan, Thomas A, 2009). Many of the factors that allowed Asian airlines such as Cathay Pacific, Singapore Airlines, and Thai Airways to enjoy high profits in the early years of the twenty first century are diminishing.

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2. Malaysia Airlines

Malaysian Airlines was established in 1937 under the name of Malayan Airways Limited. After Malaysia gained its independence from Britain in 1957, the airline changed its name to Malaysian Airways. It changed its name again in 1966 to Malaysia-Singapore Airlines as a result of a joint ownership by the governments of Malaysia and Singapore. In 1972 when both countries decided to create their separate airliners, Malaysia-Singapore Airlines became Malaysia Airlines System. Fifteen years later the airline management decided to rename the airline again, and from 1987 on it is known as Malaysia Airlines (MAS) (Malaysia Airlines, 2010).

In setting up the national airliner the government acted as the entrepreneur. But Mahathir believed that the government would benefit more if part of MAS could be privatised. By picking the aviation industry as a winner, the Malaysian government would support MAS, which in essence became a mixed state-private sector company. In 1985 MAS was privatized with the government holding a 42% stake. According to Zainal Abidin (2005, p. 3), even though the government did not own the controlling stake in MAS, it held the so-called “golden shares”, which gave it veto rights on major decisions.

Malaysian Airlines, however, has not always been a ‘winner’. With the Asian Financial Crisis in 1997, the airliner suffered losses as high as MYR 260 million. By 2002, MAS recorded five years of consecutive losses and was burdened with approximately USD $2.4 billion worth of debt. In mid 2002, a rescue plan was drawn up and the government became the entrepreneur again by establishing a new holding company, Penerbangan Malaysia (PMB), which took control of MAS’ fleet and assumed all its liabilities. By this process, MAS was remoulded into an SOE (ZainalAbidin, et al., 2005, p. 12).

The history of MAS shows that despite strong government support, the airliner was not immune from financial trouble. It is also well known, that the global aviation industry is a volatile business. Entering this industry is not, therefore, an obviously rational decision. Moreover, the Malaysian government already had a commitment to MAS – the national carrier.

In December 2001, a few months after 9/11 left the international airline industry reeling, a new Malaysian company led by Tony Fernandes purchased AirAsia. It was then a small underperforming domestic airline, which he bought for only 30 cents- while assuming twelve million dollars in debt. Nevertheless, Fernandes has made AirAsia into one of the world’s fastest growing airlines. For the 2007 fiscal year, it reported a pretax profit of $79 million- more than triple that of 2006- on revenue of $458 million, a 17 percent margin that is third best in the industry, behind only Brazil’s Gol and Ryanair. It became profitable by adopting a new entrant model. Such transformations in Asia are not unusual with certain national airlines reforming as low cost carriers (as Aer Lingus did) in attempts to remain profitable. AirAsia X- a low cost, long haul airline. AirAsia X began flying to Australia and other destinations in 2007 and plans to start flying to Europe and the United States. (Bamber, Greg J.; Gittell, Jody Hoffer; Kochan, Thomas A, 2009).

The Virgin Group bought a 20 percent stake in AirAsia X in 2007. MAS’s plan to become “a five star” legacy airline at a new entrant cost base in a less regulated environment appears to be more rhetoric than reality. MAS’s strategy is like the tougher approaches that often prevail in many airlines in liberal market economies. (Bamber, Greg J.; Gittell, Jody Hoffer; Kochan, Thomas A, 2009).

3. Action Research

3.1 Introduction1

Action research is a practical tool that is often used by leaders of organizations to answer questions or solve problems. (R. Jack Hansen and E. Michael Brady, 2011). Action research (AR) has become a popular method for studying Information Systems. Over a dozen forms of AR have been developed to date (Chiasson et al. 2008; Davison et al. 2004). Each form has distinct characteristics, but all AR aims to both ameliorate organizational problems and contribute to scholarly knowledge (Avison et al. 1999; Eden and Huxham 1996). Action research was conceived in the aftermath of World War Two to address social problems associated with battlefield experiences (Lewin 1945, 1946; Trist and Bamforth 1951). The canonical form of AR has become a popular and influential research method in the IS discipline.

Action research (AR) aims to address real-world problems and improve organizational performance by combining theories and scholarly observations with practical interventions. The complexity of the problem and the drive to develop practice often time requires an action research approach. This is where researchers are often inspired by the view on action research as a group activity founded on a partnership between researchers and participants, that is educative and can advance knowledge, as well as refining and exploring application of theory (Waterman et al. 2001).

Coghlan and Brannick (2001) define action research as the twin focus on

action and research in a simultaneous and participative manner. That is, at times the researcher becomes a co-subject and subjects are invited to become co-researchers in identifying and solving a problem. This iterative approach lends itself well to applications in organisational settings (Sarantakos, 1998). Thus in AR, the researcher can play a double role in that he or she is both a participant in the process and the one who observes and documents it.

Stringer (2007), who has written voluminously about action research, defines it as “a systematic approach to investigation that enables people to find effective solutions to problems they confront in their everyday lives” (Stringer, 2007, p. 1). Stringer goes on to suggest that action research provides the means by which people in schools, businesses, and community organizations may increase the effectiveness of the work in which they are engaged. It assists them in working through the sometimes puzzling complexity of the issues they confront to make their work more meaningful and fulfilling (p.1).

Like other kinds of investigations action research may be substantially influenced by a rigorous review of research already done in the area to be studied that once the investigation is complete, results are communicated through a written report or presentation to key stakeholders and decision makers and in rare situations may even find its way into a published article. (R. Jack Hansen and E. Michael Brady, 2011).

These more traditional types of research tend to be conducted in such a way that the results may be generalized to a broad range of contexts and variables. (R. Jack Hansen and E. Michael Brady, 2011). Action research involves learning from investigation, making decisions about necessary changes, applying these and evaluating the consequences (Zuber- Skerritt, 1992). According to McGill and Beatty (1995), action learning is a continuous process of learning and reflection, supported by colleagues, within an intention of getting things done. Through action learning individuals learn with and from each other by working on real problems and reflecting on their own experiences. Kemmis (1991) crystallized this concept by defining four major phases of planning, acting, observing and reflecting which the ‘action research’ cycle moves through.

Gummesson (1991) refers to this cyclical structure as a hermeneutic spiral since each turn of the spiral builds on the understanding flowing out of the previous turn. Over a dozen forms of AR have been developed to date (Chiasson et al. 2008; Davison et al. 2004). Each form has distinct characteristics, but all AR aims to both ameliorate organizational problems and contribute to scholarly knowledge (Avison et al. 1999; Eden and Huxham 1996).

3.2 Action Research Process

The AR process involves four distinct stages: (1) diagnosis, (2) action planning, (3) action taking, and (4) reflection. These pose challenges for researchers. First, it may be difficult to develop a precise and holistic understanding of the organization’s situation and its processes after diagnosis. Second, although your planned interventions could be based on theory, researchers often lack a strong practical justification to guide these interventions or to implement the strategic changes needed by the organization.(Abang, 2012).

Third, it may not be easy to assess rigorously the effectiveness of the interventions. Fourth, notwithstanding the importance of theory for AR, it may be difficult to ensure that theory permeates all of the activities in the cyclical process model (Abang, 2012). The principles and criteria developed by Davison et al. (2004) encourage researchers to document and reflect on their investigations more thoroughly.

Action researchers and their clients use instrumental theories to facilitate specific activities, especially diagnosis, planning and evaluation. Other terms for instrumental theory include micro-theory (Markus et al. 2002) and theory for analyzing (Gregor 2006). Instrumental theories are particularly significant in AR because they play a mediating role between researchers and clients. Instrumental theories, which focus on analyzing the organizational activities central to the problem that is being addressed (see Gregor 2006), have the potential to soothe tensions and eliminate misunderstandings between stake-holders.

Instrumental theories include any tools, models, or processes that theorize how work is done or how outcomes are achieved. Hambrick’s (2007, p. 1346) comment that instrumental theories help us to “organize our thoughts, generate coherent explanations…[and so] achieve understanding.” Such theories will be practical (Lewin 1945) and closely match reality (see Weick 1995). Diagnosis, planning, and assessment are critical activities in the action change process. These require the researcher to diagnose the organizational situation independently, to plan for actions that aim to improve organizational performance, and to evaluate the outcomes of interventions.

3.3 Solving Problems Through Action Research

R. Jack Hansen and E. Michael Brady 2011

There are other situations in which leaders need a more in-depth and systematic approach to problem solving. If this occurs, you have considered entering the world of action research. (R. Jack Hansen and E. Michael Brady, 2011). The broad range of practical problems that may be addressed through action research may require any one of a number of different specific data collection techniques or some combination thereof. There is no “single method” with action research, and, in fact, in many studies using multiple or “mixed” methods is the preferred approach.

4. AirAsia

4.1 Introduction

AirAsia was originally established by the Malaysian government as a sister airliner to the major national carrier MAS. It was founded in 1993 by a government-owned conglomerate

DRB-HICOM13 and began operations in late 1996. Prior to 2002 MAS was virtually a

monopoly operator in the Malaysian domestic aviation market. Being a SOE, it had

tremendous government support; this also meant that in most cases the national objectives

over-rode commercial considerations. However, the government was more committed toward

MAS operations. Perhaps this was why AirAsia failed year after year to bring in profits, even

though AirAsia was set up as a sister airliner to cater domestic routes normally not serviced

by MAS.( SHAHRIL EASHAK ISMAIL, 2010)

By the time Fernandes came into the picture with the idea of developing a Low-Cost Carrier

in 2001, AirAsia was a shell of a company with a massive debt of USD $37 million. Why

would Fernandes enter this market and insist on meeting Mahathir in order to persuade

Mahathir to give him a license?

Initially, Fernandes intention during the meeting with Mahathir in June 2001 was to get the

prime minister’s official endorsement to be a new operator in the Malaysian aviation industry.

Journalists such as Pesek (2003) and Ranawana (2001) believed that the Prime Minister saw

this meeting as an opportunity for the government to offload the failing AirAsia, which the

government was trying to do so for two years .

At the time of the meeting, Fernandes had already registered a company in Kuala Lumpur

called TuneAir (in May 2001). It is interesting to note that his three partners, Kamarudin

Meranun, Dato’ Pahamin A Rajab, and Abdul Aziz Abu Bakar, were Bumiputras. Did Fernandes perhaps try to make himself popular with the government by having Bumiputra

partners?

It was reported in the Economist (2009) that at this meeting Mahathir agreed to allow

Fernandes and partners to start a new Low-Cost Carrier. But instead of issuing a new license,

Mahathir suggested that TuneAir could acquire an airline license by taking over AirAsia. The

exact role of Mahathir in this arrangement remains to be analysed in my doctoral thesis, but

clearly the needs of the government and the ambition of Fernandes were a good match at this

time. An agreement was drafted in September 2001. For a token sum of MYR 1 (about USD

$0.26 at the time) TuneAir purchased AirAsia which comprised of two ageing Boeing 737-

300 jets, and took over of 50% of net liabilities, or around MYR 40 million (USD $11 million)

worth of debts (Prystay, 2001). On the 8th December 2001, TuneAir officially acquired 99.25

per cent equity of 51.68 million shares from DRB-HICOM, and took over AirAsia (Li, 2003).

AirAsia’s resurgence

Different from the conventional Asian carriers at the time that focused on affluent business

travellers, the remodelled AirAsia targeted millions of Asians, many of whom had never

flown and wanted inexpensive basic transportation. This fits well with its slogan ‘Now

everyone can fly’.

As a Low-Cost Carrier, AirAsia was actually imitating the highly successful Ryanair. Cost

cutting measures included the use of a single type of aircraft, online ticketing to eliminate

travel agents commission, charging for in-flight meals, reducing turnaround time on the

ground, and ensuring frequent flights. It came to no surprise that Connor McCarthy Ryanair’s

former Director of Operations served as an adviser to Fernandes (AirAsia, 2006, p. 31).

Setting fares as low as USD $0.99, AirAsia commenced its first flight as a Low-Cost Carrier

on January 2002 (AirAsia, 2006, p. 10). The following table summarises the key

developments in AirAsia from the time of Fernandes’ takeover in 2001 to 2006.

AirAsia is one of the award winning and largest low fare airlines in the Asia expanding rapidly since 2001. With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand, and Indonesia. Today, AirAsia has flown over 55 million guests across the region and continues to create more extensive route network through its associate companies. AirAsia believes in the no-frills, hassle-free, low fare business concept and feels that keeping costs low requires high efficiency in every part of the business. Through the corporate philosophy of “Now Everyone Can Fly”, AirAsia has sparked a revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice of transport.( WONG Pui Man, Cary, 2009).

AIRASIA, is one among the top International brand in the low cost Airline Industry Airasia brand came into existence in 1993 it was a joint public-private sector enterprise, however in 2001 current CEO Mr Tony Fernandes purchased it and It was under him the Airasia brand got global recognition and unimaginable growth which started right from 2002 onwards by launching new routes from its main hub the capital of Malaysia till then the national carrier of Malaysia ruled the sky in and around Malaysia ( WONG Pui Man, Cary, 2009). In 2007 Airasia announced the birth of Airasia X the long haul budget flights , the first AirAsia X flight was from kuala lumpur International airport to Gold coast in Australia thus began the journey from south east Asia to capturing routes in major cities around the world. In 2007 Virgin Airline chief had 20 % stake in AirAsia X and had announced code sharing between Virgin Blue and AirAsia in and around Australian subcontinent.

AIRASIA, is Asia’s largest and one among the top 10 international brand in the low cost segment having physical base in three countries ;Malaysia ,Thailand and Indonesia. AirAsia has four subsidiaries: AirAsia, , Indonesia AirAsia, ThaiAirAsia and VeitJet Airasia. The company has a strength of around 3000 staffs and It flies to around 65 destinations worldwide using the 97 aircrafts and another 125 on order will be added to it’s fleet and it operates over 400 domestic and International flights, The total number of passengers that flew Airasia numbered 16,000,000 per year at a rate of 51000 per day for the year 2007 ( WONG Pui Man, Cary, 2009). With the average fare 40 to 60% lower than the fares of its full-service competitor, AirAsia was able to achieve strong market stimulation in the domestic Malaysian air market (Thomas, G. 2003). Thomas, G. 2003, ‘In tune with law fares in Malaysia’, Air Transport World, May: 45-46.

4.2 Core competencies

4.2.1 Computer Reservation System (CRS)

AirAsia’s CRS (Open Skies by Navitaire) has helped it to grow at a dramatic pace in the past couple of years. Tony Fernandes, CEO AirAsia described that Navitaire’s Open Skies technology has truly enabled Airasia’s growth from 2 million passengers to 7.7 million passengers in less than two years. Open Skies scaled easily to accommodate our growth. It is an integrated web-based reservation and inventory system. It includes Internet, call center, airport departure control and more. It is a direct sales engine that effectively eliminates the middleman (travel agents) and the sales commissions that need to be paid to them.

4.2.2 Enterprise Resource Planning System (ERP)

AirAsia has recently (May 2005) opted for a full fledged ERP system implemented by Avanade consultants. By implementing this package AirAsia is looking to successfully maintain process integrity, reduce financial month-end closing processing times, and speed up reporting and data retrieval processes.

4.2.3 Self Check In

With the use of the new self check in service a quicker and more convenient way to check in using mobile phones, laptops etc, connecting to the internet. This system is easier and faster for customers and their family to check in at or before they get to the airport without having to queue up at the counter to check in.

4.2.4 Air Asia credit card

Air Asia offers a choice of credit card facilities to fit in their customers travel life style be it business, leisure, training or holidays. With an Air Asia credit card a customer can purchase any goods or services while travelling anywhere in the world online.

4.2.5 Go Holiday services

Air Asia has a product called Go Holiday, with the help of E-commerce Air Asia is able to display their coverage maps, holiday resorts, first and average class hotels, car rental services, and activities in different countries with their different rates and prices on Air Asia’s web page. Using E-commerce, customers are able to select and make a holiday and travel arrangement with a hotel of their choice and class, a pick up car and even medical services. And payments for all this can be done on the internet using credit cards or other online E-payment methods ahead of travel time.

4.2.6 Foreign workers and Contractors strategy

AirAsia also target most foreign workers from Indonesia, Singapore, Thailand, China, Macau who may not afford the expensive flight home and offer them the cheap fare which attracted most of them as would go home very often without paying much.

4.3 STRATEGIC CORPORATE PLANNING OF AIRASIA

By September 2008 Airasia had 60 routes and was voted as ‘Worlds best New Airline for 2008’ at ‘World low cost Airline Congress in london’ inspite of tough competition it faced over Asian skies by brand which had committed fan following global recession and increased air fuel prices. Airasia managed to survive and grow against the odd solely based on their distinctive model and new strategies.

4.2.1 AIRASIA MODEL AND STRATEGIES

Although there is no single description of a low cost or no-frills carrier, and they vary in form (Mercer Management Consulting, 2002), there seems to be some general agreement about their basic characteristics. In very general terms, low cost carriers offer low fares by using a range of broad strategies, and not all are used by every low cost airline. These strategies both remove some elements of cost from their production functions, and reduce the levels of many of the remaining costs. In doing this, they offer a more limited rather of services and, in some cases, charge separately for the attributes they do offer.

To achieve Reduction in travel fuel cost Airasia concentrated on optimizing the air fuel consumption and with majority of the asset within the fleet being new Airbus planes. Airasia management based it’s model around latest technology including having access to it’s service [online booking, online checking and e-ticketing] through computers and mobiles.

Successive growth of Airasia since it’s re-birth in 2001 ,can be put on following main strategies which they adopted:

4.2.1.1 Cost reduction strategy of Airasia

Airasia vision is be a leader in the low cost airline segment by targeting the 3 billions people who are still under-served with the poor connectivity & facing the high fares. AirAsia managements key strategies on cost reduction are including (a) high point concentration on Passenger Safety and maintenance of its fleet to be in best of the condition as per the set standards of regulators and it’s partners; (b) to achieve High Aircraft Utilization by trying to get the quick turnaround by 25 minutes and by increasing staff productivity; (c) Low fare, no Frills like added facilities of baggage transfer, preference on meals and seat arrangement etc. which adds to the customer satisfaction; (c) Streamline Operations by working with single aircraft fleet to reduce manpower and stocking of maintenance parts; (d) Using Latest Lean Distribution System to reduce labour and material utilization like usage of E-ticket.

4.2.1.2 Point to point network.

In sum, low cost airlines have the following broad set of features: First, they do not provide the range of services that legacy carriers normally offer, or at least not in the base fare. There is an effective unbundling of services; food and drinks often have to be bought on board, the free baggage allowance in small, no sky-bridges are offered to the plane, the airports served are second tier, there are no-reclining seats, and so on; Second, they maximize the use of their factors of production, there are no seat-back pockets to be emptied, less congested airports are favored, planes are only cleaned once a day, there are no on-line passengers to worry about, etc. In terms of crew, these are often based at ‘home’ to service radial routes that that makes their scheduling easier, and they also often perform a number of functions in the provision of the services; Third, they keep overheads down by using common fleets of aircraft that are cheaper to maintain and crew. Fourthly, they seek to maximize complementary revenues from sales of refreshments and for baggage; Fifth, low cost carriers drive hard bargains with their supplies including aircraft manufacturers, because they tend to use common fleets, and airports, because they can offer significant business for otherwise under-utilized car parking and concessions; Sixth, they only offer a single class of service that simplifies booking and passenger handling; Finally, bookings are often exclusively carried out electronically.

4.2.2 COMPETITIVE ADVANTAGES

With the Low Cost Carrier business model, AirAsia has the following competitive advantages over the competitors in the airline industry, which can be summarized in the following diagram.

4.2.3 IT Implementation and Strategic Alignment

In todays globalize economy, information technology has driven fundamental changes in the nature and application of technology in business. The implementation of information technology in its value chain provides powerful strategic and tactical tools for AirAsia, which if properly applied and used, could bring great advantages in promoting and strengthening the competitive advantages.

4.2.3.1 Current Strategic IT Implementation

AirAsia has currently adopted information technologies strategically to integrate the operations and coordinate all the business and management functions. The followings are few system implementations that AirAsia has done in its marketing and sales activities as well as operation activity in the value chain.

4.2.3.1.1 Yield Management System (YMS)

Anticipates and reacts to the behavior of customers to maximize the revenue – taking into account the operating cost and aids AirAsia to optimize prices and allocate capacity to maximize the expected revenues by 2 levels: (a) Seat – Seats are available at various prices in different points of time. A reservation done at a later date will be charged more than the one done earlier for the same seat (b) Route – By adjusting prices for routes/ destinations that have a higher demand when compared to others. These strategies lead to increased revenue (3-4%) by taking advantage of the forecast of the high / low demand patterns, lower prices as YMS has aided AirAsia to increase the revenue by offering higher discounts, and more frequently during off-peak times while raising prices only marginally for peak times.

4.2.3.1.2 Computer Reservation System (CRS)

An integrated web-enabled reservation and inventory system suite powered by Navitaire’s Open Skies technology that includes Internet, call center, and airport departure control functionality.

•€ Satisfy the unique needs of AirAsia implementing a low-cost business model to transform the business

process to efficiently streamline operations.

•€ Helps AirAsia to grow at a dramatic pace in the past few years as stated below:

“Navitaire’s Open Skies technology has truly enabled AirAsia’s growth from 2 million passengers to 7.7 million

passengers in less than two years. Open Skies scaled easily to accommodate our growth.” – Tony Fernandes,

CEO, AirAsia

Enterprise Resource Planning System (ERP)

•€ An integrated ERP solution powered by Microsoft Business Solutions (MBS) on Microsoft technology

platform which is implemented by Avanade consultants in Ma 2005.

•€ With the robust ERP technology platform, AirAsia is able to successfully maintain process integrity, reduce

financial month-end closing processing time, speeds up reporting and data retrieval process.

4.2.4 SWOT ANALYSIS

SWOT analysis is a strategic planning method used to evaluate the Strength, Weakness, Opportunities, and Threats involved in a business venture. SWOT analysis points to the Internal (strength and weakness) and External (opportunities and threats) factors that would affect in the growth and sustainability of a business venture in our case Airasia to sustain it’s top position in the low cost carrier segment.