Strategic Management

Charting a Companys Direction

Vision, and Mission, Objectives , and Strategy

Group 2

Muhammad Gagas Y - 320294

Adhitya Wicaksono - 344154
Muhammad Fauqi - 349383
Albert Jeffersson C - 14/365444/EK/19951
Narendra Pradipta -
Cynthia N. Adianti - 14/361197/EK/19718
Thanatat Lapsiriwatkul - MEB2546
Kerstin Heinz - MEB2454
Introduction

What is AirAsia? AirAsia Berhad (Malaysian index: 5099) is a low-cost

Malaysian-based airline headquartered near Kuala Lumpur, Malaysia. It is the largest airline
in Malaysia by both fleet size and destinations, and right now is Asia's largest low-cost airline
by passengers carried and jet fleet. AirAsia Group operates scheduled domestic and
international flights towards 120 destinations spanning roughly at 24 countries. Its main hub
is klia2, the low-cost carrier terminal at Kuala Lumpur International Airport (KLIA) in
Sepang, Selangor, Malaysia. Affiliated airlines are Thai AirAsia, Indonesia AirAsia,
Philippines AirAsia, and AirAsia India have hubs in Don Mueang International Airport,
SoekarnoHatta International Airport, Ninoy Aquino International Airport, and Kempegowda
International Airport respectively, while its sister airline, AirAsia X, focuses on long-haul
routes.
AirAsia's registered office is located in Petaling Jaya, Selangor; while its head office
is at Kuala Lumpur International Airport. AirAsia Berhad is engaged in the provision of air
transportation services. The Company's segments include Malaysia, Thailand, Indonesia,
Philippines, India and Japan and they all operate under AirAsia brand. The Company's
subsidiaries include AirAsia Investment Limited, which is engaged in investment holding;
AirAsia Go Holiday Sdn Bhd, which are engaged in tour operating business; AirAsia
Corporate Services Limited, which facilitates business transaction for AirAsia Group with
non-resident goods and service providers; Ground Team Red Sdn Bhd, which offers special
purpose vehicles for financing arrangements required by AirAsia; AirAsia (Mauritius)
Limited, which provides aircraft leasing facilities to Thai AirAsia Co. Ltd, and AirAsia
Aviation Capital Limited, which provides aircraft leasing services, among others. The
AirAsia Group services the most extensive network across Asia & Australia which comprises
of the following airline affiliates:

AirAsia Berhad (Malaysia) - Airline code: AK

Established in 2001 and listed on the Main Market of Bursa Malaysia Securities Berhad in
November 2004, with hubs in Kuala Lumpur, Kota Kinabalu, Penang, Johor Bahru and
Kuching.
 AirAsia Indonesia - Airline code: QZ

Established on December 8, 2004, through a joint venture between AirAsia International Ltd.
and PT. Awair International, with hubs in Jakarta, Bandung, Bali, Surabaya and Medan.

Thai AirAsia - Airline code: FD

Established in 2003 as a joint venture between Asia Aviation and AirAsia Investment, and
was listed on the Stock Exchange of Thailand in May 2012. Thai AirAsia commenced its
inaugural commercial flight on 4 February 2004 from Bangkok to Hat Yai, and now
operating from hubs in Bangkok, Phuket and Chiang Mai.

Philippines AirAsia - Airline code: Z2

Philippines AirAsia (PAA) is a wholly owned subsidiary of AirAsia Inc., which is a joint
venture company between Filipino investors; Antonio O. Cojuango, former Ambassafor
Alfredo M. Yao, Michael L. Romero, Marianne B. Hontiveros, and Malaysias AirAsia
Berhad. PAA operates domestic and international flights out of Manila, Cebu and Kalibo
(gateway to Boracay).

AirAsia India - Airline code: I5

Established in 2013, AirAsia (India) Limited is a joint venture between Tata Sons Limited &
AirAsia Investment Limited. The airline currently operates flights from its current base in
Bengaluru and Delhi to Chandigarh, Goa, Guwahati, Imphal, Jaipur, Kochi, Pune and
Visakhapatnam.

AirAsia X - Airline code: D7

Established in 2007, it is the long-haul, low-cost affiliate carrier of the AirAsia Group and
currently flies to destinations in the Asia Pacific region. Operates from its hub in Kuala
Lumpur.

Thai AirAsia X - Airline code: XJ

Established in 2014, It is an extension of Asias leading low cost carrier, AirAsia, and seeks
to deliver everyday low fares to travellers seeking to travel to destinations greater than four
hours flight time from its hub, Bangkok Don Mueang International Airport.
 Indonesia AirAsia X - Airline code: XT

Indonesia AirAsia X is Indonesias first long-haul, low-cost carrier and an affiliate of the
AirAsia Group. The airline currently offers direct flight from Denpasar, Bali to Taipei,
Taiwan and Melbourne, Australia.

How was the first idea about AirAsia conceived? How was it established in the first
place? AirAsia was established in 1993 and began operations on 18 November 1996. It was
founded by a government-owned conglomerate, DRB-Hicom. On 2 December 2001, the
heavily-indebted airline was bought by former Time Warner executive, Tony Fernandes'
company Tune Air Sdn Bhd for the token sum of one ringgit (about USD 0.26 at the time)
with USD 11 million (MYR 40 million) worth of debts. Fernandes turned the company
around, producing a profit in 2002 and launching new routes from its hub in Kuala Lumpur,
undercutting former monopoly operator Malaysia Airlines with promotional fares as low as
MYR 1 (US$0.27). In 2003, AirAsia opened a second hub at Senai International Airport in
Johor Bahru near Singapore and launched its first international flight to Bangkok.
Stage 1 : Developing a Strategic Vision and Mission

The first stage of strategic formulation is developing a strategic vision, mission, and core
values. Strategic formulation often defined as the course and direction management has
charted and the companys future product-customer-market-technology focus or shortly its
the statement of where we are going. Air Asias having a vision stated as follow: to be the
largest low cost airline in Asia so that we can provide a low cost service that will allow the
three billion people to fly to more destinations across the region. We aim to be a truly
ASEAN airline corporation as we look out for every countrys best interest. As stated in their
vision, Air Asias direction of the business is becoming the largest low cost airline in Asia.

Vision describe the where answer by potrays a companys future business, mission
describe the who, what, and why of an organization. The missions of Air Asia are:

To be the top company to work in, where employees are treated like family, To create
a globally recognised ASEAN brand
To attain the lowest cost of any airline, so that everyone can fly with us
To maintain the highest quality, to embrace technology, cost reduction, eleviate
service levels and provide our guests with a WOW experience
Air Asias missions above already ideal where it contains the answer of who, what, and why
of the existence of the company.

Companys core values are the belief, traits, and behavioral norms that company personnel
are expected to display in conducting the companys business and pursuing its strategic
vision and mission. Air Asias core values are: safety conscious, caring, passionate, full of
integrity, hardworking, and fun. To achieve the companys vision they are committed to do
their business by conducting these values.
Stage 2 : Setting Objective

The purpose of setting objective is to convert a strategic vision and mission into a specific
performance goals that can be measured and achieved. Moreover, a good objective should
specify a deadline of that objective. For setting objective, there are two main types, which are
financial objectives and strategic objectives. Financial objectives are objectives that are
related to financial performance; for example, annual revenue, earning per share, return on
capital employed (ROCE), shareholder investment (ROE), bond and credit rating, and so on.
Strategic objectives are objectives that are related with companys competitiveness and
marketing standing such as market share, customer satisfaction rate, customer retention rate,
number of new product, number of new customer, and so on. In addition, both financial
objectives and strategic objectives ought be balance in order to get the best outcome.

In the case of AirAsia, one of their objectives in 2014 is to increase the number of passengers
per year to 70 million within 2019 by raising the number of reach. Furthermore, they would
like to change the low cost carrier terminal in Kuala Lumpur International airport into a hub
of the region. Lastly, they planned to improve the quality of their services, introduce new
routes, and increase the frequencies of the routes. (Air Asia Strategic, 2016) According to
the objectives above, everyone can see that these objectives are strategic objectives for the
corporation. However, there are also financial objectives as well. For example, AirAsia aimed
to achieve revenues improvement of 25% - 30% in the first quarter of 2016 from the fourth
quarter of 2014 (Record Performance, 2016).
Stage 3: Crafting a Strategy

Air Asias Strategic Framework consists of three parts , those are:

1. Foundation
Air Asia foundation is to continue to be the lowest cost short-haul airline in every market we
serve, delivering strong organic growth through offering the lowest airfares at a profit.

2. Strategic Principles

Air Asia strategic principles along have become the foundation from which the company
grows and also serve as guidelines for the company in achieving the goals.

Single Class, Low Fares and No Frills

Air Asia adopts a single class and no frills service for its airline services. This means that
unlike global airlines, Air Asia does not provide meals, entertainment or amenities for its
customers. Their sole purpose is charging the customers for the most basic airfreight
experience, with the goal of the destination in mind.

Reduced Fixed Costs

Air Asias strategy is in line with its mission to be the worlds lowest cost airline. The low
cost structure was attributed to the companys good planning of resources such as fuel
consumption and maintenance costs so as to give customers the best yet lowest prices they
can offer.

Efficient Distribution System

Seats are deemed as single class which means that there is only one class seating and it is not
assigned, passengers would seat themselves on a first come first serve basis. This is done so
in fairness and to save the hassle of allocating seats on the companys behalf.

Use of Secondary Airports

AirAsia typically operates from secondary airports which means that they would benefit from
lower parking, landing and ground handling fees. Secondary airports are also less busy than
main airports with most of them having shorter runways, this in turn reduces fuel
consumption during take-off, landing or taxi. Secondary airports are often closer to urban
districts which makes it more appealing to many tourist and hence increases the number of
potential customers for the airline. The use of secondary airports help in boosting sales and
keeping operating costs low.

Point to Point Network

AirAsia adopts a point-to-point network model whereby the flights they embark on are
short-haul ones within four-hour radius or less .Their sister airline, AirAsia X would focus
more on the longer flight routes, hence the point-to-point network is based on the goal of
flying a customer from the origin to the destination.

3. Growth Drivers

Air Asias growth drivers are factors that can help them to ensure the growth and the
prosperity of the company in the future. It focuses on six critical drivers such as :

Leanest Cost Structure

Efficient and simple point to point operations
Attracting and retaining hardworking and smart people
Passion for continuous cost reduction

Maximise Shareholders' Value

Resilient profit growth through our lower cost base
Expansion of the AirAsia network in a prudent and disciplined manner
Invest and enhance the AirAsia brand to increase investors' returns

Safety
Comply with the highest International Aviation Safety Standards and
practices
Keep operations simple and transparent
Ensure the security of our People and Guests

Passion for Guests' Satisfaction

Maintain simplicity in every application
Practice the unique and friendly AirAsia experience at every opportunity
Recognize the linkage between guests' satisfaction and long-term success
 Transparency
Transparency in decision-making and information sharing
Optimum disclosure - higher than industry norms
Timeliness in disclosing information

Human Capital Development

Invest in both hard and soft skills
Recognize all our People as contributors to our success
Reward excellence and individual contributions
Maintaining one brand across the Group
Stage 4: Implementing and Executing the chosen Strategy

Besides general strategies such as special prices on certain occasions, online and email
marketing and others, below are some key strategy implementations from Air Asia that grants
them a position as a top airline company.

1. Implementing E-Commerce and IT Systems

E-Commerce is a staple for every business. It is a platform for not only selling products or
goods, but also a media for advertising and interacting with customers. E-Commerce can
minimize transaction cost and increase efficiency. It is proven that incorporating IT into
business strategy will results in positive growth. To maximize their IT, Air Asia implemented
3 IT systems, they are yield management system (YMS), computer reservation system (CRS),
and enterprise resource planning (ERP) system.

a. Yield Management System (YMS)

Yield Management System (YMS) as revenue management system it understands,
anticipates, and reacts to the behavior of customer to maximize revenues for the organization.
In this system, AirAsia used it to takes into account the operating costs and aids AirAsia to
optimizes price and allocate capacity to maximize expected revenues. The purpose of this
system is so that Air Asia can estimate operating costs and optimizes the price. The system
shows that there are 2 windows to optimize the revenue.
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. Every seat is
considered an opportunity to maximize revenue.
Route
By adjusting prices for routes/destinations that have a higher demand when compared
to others, you can project the maximum expected revenue each season or each quarter. This
projection also helps Air Asia on decision-making process regarding upcoming promotions or
special offers.

The effective method however is to combine these two levels for all flights, all routes so that
both the seat and the route are effectively priced for all the flights, but still valued with a
competitive price in the market.

As a result, by using this system, AirAsia can understands the behavior of their customer and
offering the effectives and efficiency strategy and also can allocate capacity to maximize the
expected revenue. By this system, AirAsia can make efficiency to know their customer using
IT technology with lowest cost.
 b. Computer Reservation System (CRS)

Computer Reservation System (CRS) 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 and the sales commissions that need to be
paid to them. The purpose of this system is to reduce the cost and eliminates the middleman
and the sales commission to pay them. The system is very user-friendly because customer
would always prefer online reservation and with proper execution, this system will increase
customer satisfaction, reducing ticketing paper cost, and effectiveness in terms of time
needed and security. It means the lowest cost can possibly achieve.

c. Enterprise Resource Planning (ERP)

Enterprise Resource Planning (ERP) represents a comprehensive software approach to

support decisions concurrent with planning and controlling the business. By implementing
this system, AirAsia successfully maintains process integrity, reduces financial month-end
closing processing times, and speeds up reporting and data retrieval processes. It also helps
Air Asia on capturing transactions in daily operations and helping AirAsia to save its
operational costs as well as to increase the efficiency and integrity in its operation.

These systems are proven to be a great strategy that grants them a great position in the
market. These systems are not only increasing the overall quality of the services but also
elimination inefficiency in their business operations.

2. Implemented outsourcing in their business

To maintain the image as the lowest carrier in airplane industry, AirAsia also face with
challenged to make a decision in terms of efficiency in their business how it will acquire the
system. In the strategy that AirAsia used and implemented, AirAsia more preferred to used or
implemented outsource system in this strategy. The decision in outsourcing has several
benefits such as cost, competency, control, and also competitive advantage.

By implemented outsourcing in their business strategy will provide:

Cost benefits to AirAsia because it can be eliminated in more resource consumption.

AirAsia competency is not in IT. By implemented outsourcing in the IT field, AirAsia
also can reduce cost in IT system activities which is can make possible more cost in
their business.
AirAsia can easily to control all the system that is outsourced to another vendor or
company. The control in this strategy also gives benefits because AirAsia function
only to be a controlled a system that is AirAsia used.
 AirAsia also can reduce risk, and it can make AirAsia not spend their financial to
cover the risk factor in this strategy.
The implementation of outsourcing also can give competitive advantage in AirAsia
because the strategy can be greater rather than created by AirAsia itself.

Some of outsourced example that AirAsia did are implementing computer reservation system
(CRS) by Navitaire Open Skies Technology Company and implementing enterprise resource
planning (ERP) by Microsoft Corporation. Outsourcing is better than in house operation,
because it can give more lowest cost, reduce risk, more effectively and efficiently, and also
can easily control by AirAsia and than more fast in AirAsia company.

These strategies shows that Air Asia is fully committed to maintain their image as the best
and the pioneer of low-cost airlines company and they are successful at giving their best to
their customers. It shows their dedication on offering the best service of low-cost flight and
encouraging efficiency from the process of reservation to the services during a flight. IT
plays a major role on business strategies and Air Asia proves that maximizing the IT aspect
on your strategy will help a company grow.
Stage 5: Evaluating Performance and Initiating Corrective Adjustments

It is important in deciding whether to continue or change the companys vision, objectives,

strategy, and or strategy execution method. The performance evaluation is needed in strategy
management process. The strategic management becomes important due to the following
reason such as globalization to survival of their business, and than e-commerce become the
critical success to the company nowadays.

A company needs to consider the their ability and how to integrate it with the as well as main
factor in the internal and external factor. As we know that companys vision, objectives,
strategy, or strategy execution are never final. However managing strategy is an ongoing
process. AirAsia has set targets to be pursued in certain year and keeps track on each and
every program that they have initiated before. The first is to identify and analyze the SWOT
analysis, and than to solve the current issues with some strategies such as maximized IT and
implementing E-commerce in AirAsia business, operation effectiveness and outstanding
efficiency, and the last one is implemented outsourcing in the AirAsia business. The
continuity of those programs will be obtained and determined from the performance
evaluation result.

Corporate Governance: The Role Of Board of Directors in The Strategy Formulation,

Strategy Execution Process

In the corporate governance part, in the AirAsia company, the role of the Board of director
are highly required in the companys strategy formulation and its execution. It can be shown
from their lists of task for the BOD that is stated in the report, where the board of directors
are required to review and adopt strategic corporate plans and programs for the Company,
approving the Companys annual budget, including major capital commitments and carries
out periodic review of the achievements. Where then the BOD might keep an eye regarding
the financial performances of the Company. The Board of Directors also responsible for
overseeing and evaluating the conduct of the Companys business, and monitoring and if
necessary approving changes to the management and control structure within the Company
and its subsidiaries, including key policies, delegated authority limits, reviewing succession
planning, therefore from the information we have reached, it shows that the board of
Directors of Air Asia are involved in the strategy formulation and its execution, as the board
of directors have the access to formulate the policies along with the strategic plans and keep
the control of the execution process.
References

"Air Asia Annual Report 2014".

airasia.com.http://www.airasia.com/cdn/docs/common-docs/investor-relations/annual-report-
financials-2014.pdf N.p., 2016. Web. 20 Aug. 2016.

Air Asia Strategic Management:: Business Airline Analysis. (2016). Retrieved August 23,

2016, from http://www.123helpme.com/air-asia-strategic-management-view.asp?id=163631

Record Performance in 4Q15. (2016). Retrieved August 23, 2016, from

http://www.airasia.com/cdn/docs/common-docs/investor-relations/3-airasia-press-release_4q

15_final.pdf

"AirAsia Mission, Vision & Values." AirAsia Mission, Vision & Values. N.p., n.d. Web. 23

Aug. 2016.