Friday, September 19, 2008

Case: Air Asia

Operational Information Management in Strategy and Operations: A Case of Air Asia to venture into Regional and International Markets

1.0 Introduction


This study was intended to analyze the electronic marketing strategy on a selected budget airline based in Malaysia, Air Asia which aims to identify its potential future market segments. The study also explore on how current information systems strategy adopted by the Air Asia, in which could help the company to strengthen its position as a leading low cost airline and effective new market segment help their mission practically.

Therefore, this consulting study would provide a microscopic analysis on the impact of current electronic marketing strategy development process as desired in the following sections.

The first part of this analysis would distinguish the information systems development in Air Asia to evaluate the changes of its business conduct and ultimately enable this company to identify the strategic opportunities

The second part would blended the value chain SWOT model described the internal and external audit based on the outcomes of value chain levels of the company

The third part of this report would apply Porter’s five forces to outline the nature of the competitive environment that the organization faces currently.

At last, this report would conclude three strategic focuses (cost leadership, focus and differentiation) in pursuing its global strategies while recommendations were made based on the findings.




2.1 An Evaluation of Development of Electronic Commerce in Air Asia

E-Commerce was a general term for the conduct of business with the assistance of telecommunications, and of telecommunications based tools as per illustrated in Figure 2.1 on an E-Commerce model.


Undeniable, the airlines industry was among the most active in the adoption and application of Information Technology. Information Technology usage was expanding very fast, especially with incorporation of computer technology in reservations and ticketing system since the mid 1970’s (Timmer, P., 1999).

Air Asia was the first budget airline company which practiced Business to Commerce (B2C) transaction in the airline industry in Asia. Since Air Asia introduced online booking air ticket through its website in May 2002 and hence used computer network to conduct its business operationally, it had recorded about 40% of the total revenue which were made via Internet transactions.

In the past, E-Commerce has been inhibited by high cost and complex procedures (Lauden and Lauden, 1998). Nevertheless, the concept of E-Commerce strategy defined by Air Asia was significant, the usage of Internet has transformed from an auxiliary communication media for large organizations towards an entrenched communication media, which the always neglected medium and small size organizations become possible in attracting online users, ultimately, businesses were then able to expand while keeping the overhead costs within control (Asian Airlines & Aerospace, 2002a, 2002b). Especially, the World Wide Web has had changed this scenario radically, due to the development of E-Commerce and new Internet technologies emerged, the connectivity over the Internet was cheap, increasingly secure, reliable and built on standards that make communicating with any one a straightforward task (Feldman, J.M. 2001).

The development of E-Commerce strategy in a small airline company, such as Air Asia was not just only happened over night (Miller, M., 2002). The implementation on E-Commerce strategy in this company has been taken at least two and half years since its operations. Until recently, there was evidence that this company has recorded a significant contribution from online businesses, almost 40% of total revenues in the same registered year (Malaysian Business, 2002).

Air Asia enabled to upgrade E-Commerce strategy because of the socio-technological changes. Internet was far beyond the effect of Information Technology, where the connection to the communication technology in mobile has provided Air Asia with a new business activity (Feldman, J.M., 2002). E-Commerce makes use of Information and Communication Technology to transfer information through digital or multi-media networks. The aimed of Air Asia to adopt E-Commerce strategy was to make transactions electronically as to enhance relationship with both existing and potential customers. The Internet combined the networks of information, finance, and logistics to enable Air Asia have a faster flow (Tedeschi, B., 1999a).

In a recent report by Tedeschi, B., (1999b), who described that, ‘An increase in users increases markets, as markets expand, more businesses are attracted, which in turn drives the development of better, more stable and secure technology to facilitate E-Commerce. A stable, secure environment for exchanging mission-critical and monetary information only draws more businesses and consumers to the Internet and ensures the growth pattern continues.’

If what Tedeschi B. said was reasonable, then E-Commerce was the exchange of goods and services for value on the Internet was evolving into a more cost-effective, productive and simple way to do business. The preliminary E-Commerce strategies of Air Asia was found that a modest investment in a simple Web site could develop into a commitment to E-Commerce as a major component of the business plan (Buyck, Cathy, 2002). At the stage of development, E-Commerce defined by Air Asia was much more complicated than any other business model could apply, it was evidenced by the combination of information technology and telecommunication technology with aimed to penetrate every single population living in this country (Thompson, M.J., 1999).

The problem faced in this project was that, Air Asia adopted E-Commerce and new technologies as an effective tool to serve traditional business goals of streamlining services, developing new markets, and thus creating innovative business opportunities to its customers. In addition, Air Asia offered the potential to develop types of services that were innovative and distinct from tradition that it defined the synthesis of traditional business practices with computer, information and communication technologies as below section described. The only question was, can Air Asia made it happened so that to sustain its competitiveness in this industry?


2.2 The Continuum of E-Commerce Development Assessment Framework

The process and development of E-Commerce marketing strategy in Air Asia could be represented as the E-Commerce model as illustrated in Figure 2.2. The details of how business processes reassessment was performed based on five stages to describe through a framework. The framework utilize a continuum to deal with the needs of future enrich on its E-Commerce strategies.



Based on the above E-Commerce development framework, the following descriptions indicated the various levels of the continuum and should serve to clarify to its stakeholders, the intentions of this study was try to illustrate how Air Asia achieves a particular level of E-Commerce development. Nonetheless, Heart Land (2001) suggested that ‘Even if you are on the right track, you will get run over if you just sit there’ which attempted to redefine the levels of technology advancement.

Level One:

At the beginning level of E-Commerce development, Air Asia was poorly utilized computer or communication technology. After 12 December 2001, Tune Air Sdn. Bhd. Acquired 99.25% of Air Asia from DRB-HICOM (Asian Airlines & Aerospace, 2002a), the level was characterized by an internal focus that was not integrated. Customer contact such as telephone contact, mailing and fax was handled by travel agencies. After travel agencies received bookings from customers, the travel agencies staffs have to go to the Air Asia’s main office to get their tickets and hand them over to the customers concerned.

Product and services of Air Asia literature was usually in hard copy only. Information systems to support sales and marketing activity were typically non-existent. Back Office Systems (BOS) such as accounting, production, sales processing, and customer information were not integrated, if they exist at all.

Level Two

At Level Two, Air Asia began to integrate computer and communications technology. The process was still internally focused but began to see the benefit of integrating part or all of their internal systems. At this level, Air Asia became Asia’s first airline to go ticketless. Travel agencies via phone were enhanced through online systems. These online systems were more supportive of critical business process. The integrated systems support order talking, tracking, customer information and more extensive marketing and sales reporting.

Traditional tickets cost a lot of money to print process and deliver to the customers, by saving on these costs it allows Air Asia to pass these savings to customers vice versa. Tickeless was a system, which instead of tickets, Air Asia would provide customer with an itinerary which include customer booking number, payment and travel details upon completion of customer booking. During check-in, customer only need to mention the booking number and must present identification card (IC) or passport of customer for identification purposes.

Level Three

At level Three, Air Asia continued to integrate computer and communications technology. It also began to incorporate an external focus in systems development and customer support. Internal systems become tightly integrated. Tightly integrated systems that were introduced helped to improve the level of customer support by bookings sales and customer information. Externally focused systems were developed. Systems such as Electronic Data Interchange (EDI) information were developed to increase the efficiency. EDI was developed to support B2C activities.

On 1st March 2002, Air Asia became the first airline to enable credit card payments for telephone booking and followed by Internet booking. On 15th April 2002, Air Asia formed strategic partnerships with Alliance Bank Berhad through its Call Center Office, and also payment could be made through Maybank2u.com.

Level Four

At Level Four, Air Asia was characterized by the introduction of the web-based technologies. Web-based systems were primarily used as an information-mart and began to replace hard copy as a means to convey product and service information. It remained a stand-alone system that was not integrated with the organizations internally focused information systems. Air Asia introduced online booking through its website at ww.airasia.com on 10th May 2002 (Asian Airlines & Aerospace, 2002b). Electronic mailing or e-mail was also introduced by Air Asia to improve internal and external communication.

This level continued expansion of externally focused systems via the web. These web based systems increase in capability from being an information-mart to include Air Asia’s bookings air ticket processing. Customers could book their air tickets through its website, and also could read the whole content of the website including latest promotions, news updates and information about the airline. The further development of its website was Air Asia introduced a multi-lingual website with its new Bahasa Malaysia (national language of Malaysia) and Mandarin websites on 15th July 2003 (Asian Airlines & Aerospace, 2002b).

At Level Five, Air Asia has utilized a wide array of computer and communications technology to develop a highly integrated system that encompasses business process requirements for both internal and external information uses. This integrated system was holistic and recognizes the need for internal and external query and reporting requirements. On 19th August 2003, Air Asia was the first airline in the world to practice booking air tickets through short messaging service (SMS). This means that these services allowed the customers to choose their flights, confirm the booking and make payments from the convenience of their mobile phone.

The Air Asia SMS booking was developed through Air Asia’s collaboration with Maxis Communication Berhad (MAXIS) and Getronics. Customer support was improved by permitting customers to access internal information such as booking status, flights information and others customer information. High levels of business process support and high levels of systems integration characteristics at this level.

E-Commence Levels in Air Asia

A summary of continuum E-Commerce development framework for Air Asia’s value chain analysis was presented in Figure 2.3. A framework of this type for defining and describing Air Asia’s E-Commerce processes was essential.

This continuum could benefit to Air Asia, it would provide organizational managers of Air Asia with a method of assessing where their organizations were relative to where they could be in E-Commerce development. The continuum would also provide a tool for assessing an organization’s competitive environment within its industry.

As such, the highest level in this continuum was the hardest among the five, where booking of air tickets through SMS. Many customers were still skeptical over these technological advancements. Nevertheless, the acceptance and adoption of this continuum would allow such level of system integration and process support was appropriate for Air Asia.

A group of researchers including, Ernest, A. Capozzoli, Sheb L., True and Thomas K. Pritchett, (2000) have proposed a framework for defining and describing the degree to which marketing and sales activities and processes were using computer and communications technology along a continuum that places an organization’s level E-Commerce development into one of five levels. This framework would provide important and useful to organizations and individuals that were considering E-Commerce activities in Air Asia. The framework would also assist those organizations who has already involved in E-Commerce by providing a tool to describe and assess the level of current activities.

Porter’s Five Forces on Competitive Environment

As a low cost airline, Air Asia needed to be more creative and entrepreneurial. As every entrepreneur, management of low cost airlines will only be successful if they provide added value to their customers and solve problems for them.

The most significant impact of E-Commerce strategy on airlines industry was from the perspective of B2C and supply chain management. The advent of online booking or online reservation system has changed the balance of power between traditional travel agents and the low cost airlines. Online booking or reservation system was taking over from traditional travel agencies as illustrated in figure 2.5.

The work presents some pertinent strategies for airlines based on Michael Porter’s Five Competitive Force Model. With respect to the typology suggested by Porter, the results indicated that Porter’s model was essential and practical in evaluating the airline industry under both descriptive and elucidative aspects.

According to Porter’s overall approach, it extended and gave a new sense of dynamics in the budget airlines. Figure 2.5 further illustrated the value chain analysis process that was conceptualized as a continuous cycle. In effect, it simply works to develop a temporary understanding, made commitments, and then evaluated the result as it cycled through a subsequent cycle in order to arrive at a new understanding.

3.0 Conclusion

To succeed in the increasing competitive marketplace, Air Asia needed necessary to be reached out globally by looking into three factors, namely cost leadership, focus, and differentiation, and marketing positioning in making towards develop a new marketing mix strategy.

a. Cost Leadership

Air Asia generates significant cost savings by sending information via Internet, rather than by post or fax. It could use its Web site to publish in a cost-effective way, which public domain information such as product brochures, vacant seats, contact details and other important information. The company saves on the cost of running ‘bricks and mortar’ outlets and could reach national markets without having to develop a physical distribution network. Most important was the company could save on customer service costs by enabling customers to serve themselves.

b. Focus

Air Asia successfully adopted focus strategies by having developed a very efficient and fully computerized system for its customers to book the air tickets through its website. The E-Commerce infrastructure developed by the company allowed collection and central storage of sales and marketing data. Air Asia used these data to enable collection to drive decision support tools for planning and marketing.

c. Differentiation

E-ticketing or online booking was the issue of a booking code at the conclusion online transition that replaced the traditional airline ticket. E-ticketing seemed to be a ‘win’ solution for Air Asia. It offered the company a chance to make considerable savings in both trade terms as well as in invoicing and internal accountancy procedures. Secondly, it was very attractive to customers, who may benefit from a service offer both technologically advanced and of high intrinsic value.

As far as the company could emphasize on these three problems, the E-Commerce development and systems integration could eventually help Air Asia to overcome the present difficulties on each E-Commerce level that they implemented.













Bibliographies

1. Banfe, C, 1992, ‘Airline Management’, Englewood Cliffs, Prentice Hall, New Jersey

2. Elias, E., 1999, ‘Internet Commerce: Transforming The Travel Industry’, SRI Consulting

3. Kotler, P., and Armstrong, G., 2001, ‘Principles of Marketing’, 9th Edition, Prentice Hall, New Jersey

4. Lauden and Lauden, 1998, ‘Management Information System’, 5th edition, Prentice Hall, New Jersey

5. Purba, S., 2002, ‘New Directions in Internet Management’, Auerbach Publication, London

6. Timmers, P., 1999, ‘Electronic Commerce Strategies and Models for Business-to-Business Trading’, Chichester, John Wiley and Sons

7. Turban E., Lee, K., King., D & Chung, H., M, 2002, ‘Electronic Commerce: A Managerial Perspective’, Prentice Hall, New York

Magazines

1. ‘Air Asia, The New Kid in the Skies’, Asian Airlines & Aerospace, Vol. 10, No. 3, March 2002

2. ‘A Flying Star’, Malaysian Business, 16th July 2002

3. ‘Continuous Growth of Air Asia’, Asian Airlines & Aerospace, Vol. 10, No. 8, Aug 2002

Internet

1. http://www.airasia.com (Air Asia Corporate Website)
2. http://www.statistics.gov.my (Department of Statistics, Malaysia)
3. http://www.singstat.gov.my (Singapore Statistics Department)

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