On September 2011, Fernandes bought this airline for one ringgit. It is an airline that only owned two ageing Boeing 737 jets, 200 employees and 40 million ringgit in debt. Fernandes who was a former music executive successfully turn the company around. After a year operating, the company broke even then turned it into a profitable airline within two years (The story of Tony Fernandes and AirAsia, 2013). Fernendes reformed this highly indebted airline by introducing short haul low cost carrier.
The first and main base of AirAsia is the Low Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport, while its secondary hubs are at Kota Kinabalu International Airport, Senai International Airport and Penang International Airport. It continues to pave the way for low-cost aviation for international flights and successfully launched the first international flight to Bangkok. In 2007, AirAsia X was established focusing on the low-cost, long-haul segment.
Establishing this sister company is to provide high-frequency and point-to-point networks to the long-haul business. AirAsia X’s cost efficiencies are derived from maintaining a simple aircraft fleet and a route network based on low-cost airports, without complex code-sharing and other legacy overheads that weigh down traditional airlines without compromising on safety.. AirAsia X’s efficient and reliable operations are fully licensed and monitored by Malaysian and international regulators, and adhere to full international standards.
AirAsia X is committed in offering X-citing low fares, X-emplary levels of safety and care, and an X-traordinary in-flight and service experience to all our guests – spreading the amazing AirAsia experience to X-citing destinations in Australia, New Zealand, China, Taiwan, Japan, Korea, India, Middle East and Europe (AirAsia Berhad (“AirAsia”), 2013). Besides AirAsia X, there are few more other subsidiaries which includes Thai AirAsia, Indonesia AirAsia, Philippines AirAsia, AirAsia Japan, AirAsia India, AirAsia Zest.
Furthermore, AirAsia offers other services as well. They offer cargo services, online shopping services, magazines, booking tickets to international line-up events and an online travel portal. AirAsia Cargo is a division under AirAsia which is the offers cargo services up to 18 countries in Asia and Australia. It has also estabalish an online travel portal, AirAsiaGo that helps travelers to choose hotels, activities and travel services to meet their budget and activities with just surfing the internet.
Furthermore, AirAsia has their official inflight magazine, Travel 3sixty that gives their passengers the latest news in travel, arts & culture, lifestyle, sports, photography and the brand AirAsia itself. Magazine are not only found on board but it can be downloaded from their website and enjoy it at home and anywhere else. Not to forget about the most exciting thing for most of us especially ladies, the online one-stop-shop. AirAsiaMegastore aims to enhance the travel experience by offering varieties of friendly travel accessories to every customer on board (AirAsia Berhad (“AirAsia”), 2013).
According to AirAsia official website, they were given the title World’s Best Low Cost Airline in the annual World Airline Survey by Skytrax for five consecutive years (2009 to 2013). In the Asia Pacific Top 1000 Brands 200, AirAsia also ranked as the Top 5 among the most recognized and admired airlines (AirAsia Berhad (“AirAsia”), 2013). Vision, Mission and Values 1. Vision To be the largest low cost airline in Asia and serving the 3 billion people who are currently undeserved with poor connectivity and high fares. 2. Mission
To be the best company to work for whereby employees are treated as part of a big family Create a globally recognized ASEAN brand To attain the lowest cost so that everyone can fly with AirAsia Maintain the highest quality product, embracing technology to reduce cost and enhance service levels 3. Values We make the low fare model possible through the implementation of the following key strategies. Safety First: Partnering with the world most renowned maintenance providers and complying with the world airline operations. Valuing our People:
Committing to our people’s development and well-being and treating them with respect, dignity and fairness. Customer Focused: We care and treat everyone in the same manner that we want to be treated. Integrity: Practicing highest standards of ethical behavior and demonstrate honesty in all our lines of work in order to command trust and mutual respect. Excellence in Performance: Setting goals beyond the best and reinforcing high quality performance standards and achieving excellence through implementing best practices. 4. Code of Conduct
Ensuring we do our business fairly, impartially, ethically, and with the utmost regard to safety. Business Operation and Processes Internet technology is one the most important elements for AirAsia. It has high dependency for the operational and strategic management, and provides an online ticket booking services to traveler online. It is the company key channel of marketing and sales for the company as they are the pioneer airline in Asia that implemented fully ticketless travel and unassigned seats. Customers only need to visit their official website; http://www. airasia.
com and they can book flight tickets to their destination. However, AirAsia still maintain the other channel to book flight tickets. Customer can choose to call to the centre, visit the sales office and airport sales counter, go through authorized travel agents, mobile booking via mobile. airasia. com. AirAsia has a simple business model to run their business. They are using the Low-Cost-Carrier (LCC) Business Model (Refer to Appendix A). There are three main components in this business model which includes:- 1. Simple Product • Catering on demand for extra payment. • Planes with narrow seating and only a single class.
• No seat assignment. • No frequent flyer programmes. 2. Positioning Non-business passengers, especially leisure traffic and price conscious business passengers. Short-haul point to point traffic with high frequencies. Aggressive marketing. Secondary airports. Competition with all transport carriers. 3. Low Operating Costs Low wages. Low airport fees. Low costs for maintenance, cockpit training and standby crews due to homogeneous fleet. High resource productivity. Short ground waits due to simple boarding processes. No air freight, no hub services, short cleaning times, and high percentage of online sales.
IT Implementations The followings are few system implementations that AirAsia have done, Yield Management System (YMS) and Computer Reservation System (CRS) in its marketing and sales activities, Enterprise Resource Planning System (ERS) and Advanced Planning and Scheduling System (APS) in operation activity. Yield Management System (YMS) Since 1990, Yield management has become the mainstream business theory and practices. Yield management is a set of yield, another term of revenue maximization strategies and tactics that is designed to improve the profitability of business.
Due to involving several aspects of management control such as rate management, revenue streams management and distribution channels management, yield management is more complex than other strategy or management plan. It is quoted as highly successful new approach because it blends elements of operations, financial management and marketing. Generally, yield management is the process of understanding, anticipating and influencing consumer behavior in order to maximize revenue. Yield management often used for firms which have limited resources such as hotel, airline, advertising industry, cinema and etc.
the focus of yield management is to sell the product to the consumer at the right timing and for the right price, which may create price discrimination. Price discrimination can be explained as selling the identical or closely identical products in different prices to maximize the total revenue earn by the firm. The idea of yield management originates from airline companies, American Airlines in United State. Before 1978 the airline industry in the United States are very restricted as the fares and the schedules were manipulated by the Civil Aeronautics Board (CAB).
Flying is considered a luxury and the fares were very high during this period. In 1978 when the Congress passed the Airline Deregulation Act, the whole airline industry was shocked and everything changed. In the act, it said that in four years the industry would be completely deregulated, which mean companies were free to decide their domestic routes and their fares. It is a huge change from a totally restricted industry to complete freedom. When the Act is implemented, it lower the barriers for the new entrant to airline business and one of the newcomers was PeopleExpress.
PeopleExpress is a small company with extremely low prices for their tickets, 70% below the bigger airlines. This newcomer has created huge impact for the major airlines as they simply could not compete with such low prices. During this hard time, major airlines like American Airline offering low fares as PeopleExpress will not cover their cost; if they lower their fares will bring the company to bankrupt but kept the higer fares they would lose their passengers. It seems that major airlines could not compete with newcomers as their cost is much lower than them in this new deregulated environment.
But Robert Crandall, former CEO of American Airlines, announced his “Ultimate Super Saver Fares”. Which are American Airlines offering low fares just like PeopleExpress or sometime even lower but with two differences? The first differences is that customer who wanted to enjoy “Ultimate Super Saver” face have to book at least two weeks prior to departure, and stay at his destination over a Saturday night. On the other hand, the company, American Airlines restricts the number of seats that could be sold for discount price to save seats for full fare customers who book just days before departure.
After this is launched, due to most of the customer preferred the major airline’s better service, eventually PeopleExpress was on the edge of bankruptcy. This is the birth of Yield management. Till now, more and more airline companies are applying this and even other industries too, like hotel and car rental companies. This system is also called revenue management, as Yield management is used only by airline companies. Yield management has three levels, which are strategic, tactical and booking control.
Yield management strategic is the level, where market segments and the price, set for that particular segment, are determined. This is usually done annually. Yield management tactics is the process of updating the limit of how much units of the capacity can be sold at lower price and determination of it. This is done very frequently, usually daily for airlines companies. on the other hand, Booking control has to be done in real time. When a reservation request arrives for a flight, the system will decide to accept it, or refuse it and wait for another one that can increase the profit more.
This decision is made with the help of a reservation system to create booking limits for all the fare classes. There are two kinds of booking limits, one is partitioned and another is nested. For partitioned, the partitioned booking limit contains separate blocks, one for each class. For nested booking limit, the available capacity for different classes overlaps in hierarchical order. This booking limit will excludes the opportunity that a unit is unavailable for a high class customer but in the same time it is available for a lower class customer.
Yield management will calculates and updates the booking limits by goes through these four steps, data collection, forecasting and estimation, optimization and control. In data collection, companies store their historical data of customer behavior, demand, prices and other factors in order to make good forecasting and estimation. Data collection is the foundation of all Yield management systems, the more precisely the companies can store the data, the more precise forecast they can make.
On the second step, forecasting and estimation, companies have to estimate the parameters of their model, and make predictions using the parameters. Most of the time companies not only forecase demand, but cancellations and no-shows too. This step is important as without a good prediction of demand we cannot optimize the controls. During the optimization step, companies will have to find the optimal set of controls, such as booking limits, discounts, promotions, prices and more. The final step, control is to control the sale of flights using the previously optimized controls.
After Yield management has been introduced to the public, there are some ethical issues and questions of effectiveness. Some of the ethical issues is that some consumers are concern about the yield management could unethically penalize them for conditions which cannot be help, such as poorer families who stay in the neighborhoods with rich families will be charged as the price for rich families. But this does not happen much in airline companies as the Yield management that airline using are not able to employ this level of price discrimination.
Price discrimination that happens more in airlines are customer who age 30-65 will be charged higher than others, fares right before public holidays are much more expensive than other fares, and etc. These tend to decrease the customer satisfaction and often lead to loss some of the loyalty customer. Overall the performance of Yield management system, in Airasia airline it play an important role as Airasia utilize this system to boost their total revenue Computer Reservation System (CRS) AirAsia’s Computer Reservation System which powered by Navitaire – Open Skies is another reason for its speedy business growth.
“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 (Navitaire FAQ) Navitaire’s Open Skies airline reservation system is an integrated web-based reservation and inventory system which includes Internet, call center, airport departure control and more. Open Skies have been adopted by some 50 airlines around the world, including Air Asia, AirTran Airways, GOL, JetBlue Airways, Jetstar, Ryanair, and SpiceJet.
Introduced in the year 1994, Open Skies are now believed as a leading provider of business solutions to the airline industry and a pioneer in implementing information technology and business process solutions that enable substantial profitability gains for its customers. (MICROSOFT CASE STUDIES) The Open Skies system focus on the main four key areas for Air Asia which is the direct sales, ancillary revenue generation, the use of customer-centric ticketless technology and on demand reporting.
The Open Skies System is also known as the industry’s leading direct sales system. With Open skies, Air Asia may now conveniently provide online ticket reservation to the travelers where it can reduce the staff requirement, avoid costly settlement systems. This may help a lot in cost saving as a budget airline in the market. Thru the innovative online reservation, 99% of the clients are direct sales without involving middleman (travel agency).
Although the system is well known for its direct sales but it also supported the distribution channels such as bi-directional codeshare booking and travel agency bookings where it effectively eliminates the middleman (travel agents) and the sales commissions that need to be paid to them. Thru the Web reservation system, consumer may also able to see the latest promotion as well as the accommodation bundle packages provide by the Air Asia. Among the conveniences to be found in the reservation system are the login systems where it remembers the user’s detail as a traveler and direct it’s bookings without re-entering the details again.
Customer may also give variety choice of payment method including online bank transfer, credit cards or PayPal account payment. The ancillary sales, also known as top-up option sales in the reservation system is one of the first system introduce by Open Skies. Air Asia as a budget airline featured the fully online ancillary revenue generation through seat fees, payment option fees, private lounge option, airport transfer fees, travel insurance sales, baggage allowance fees, food and beverage booking fees and much more.
These services may allow travelers to customize their travel experience to be more luxury or budget. Customer may easily find these options upon in their booking after confirming the date, time and details of the travelers. Some budget traveler may opt to give up all these optional choices, where it may be the lowest airfares around the world. With the affordable air ticket fares, Tony Fernandes introduce the Air Asia airline slogan by “Everyone Can Fly” The Open Skies system use by Air Asia was also the first airline reservation system to use a customer-centric model built on ticketless technology.
Ticketless technology is an advanced, fundamentally different approach to reservations and payment. Its unique customer-centric data management system captures booking and financial information at the customer level, enabling customer self-service reservation changes and refunds. Ticketless system also allows airlines to easily create promotions, credits, service recoveries and more and post these directly to customer profiles. These can all be tailored to apply for selected markets, fare types and sales or travel dates.
Through the ticketless systems, travelers may also login to the website by their encrypted password and username to views on their booking history for the past, current and future online booking. Another conveniences brought by the ticketless system is the Wireless Delivery System (WDS) is introduced by the Open Skies system to expand its reach via mobile phones. With this, potential customers will be able to book tickets via their mobile phones. This is a strategic move for growth as the Asia-Pacific region has a larger population of mobile phone users rather than internet users.
This combined passenger, flight and financial data not only provides greater insights into customer activity, it also supports direct settlement, instant revenue information and reporting, and easy deployment of passenger credits or vouchers. The Forth of the main key features of the Open Skies, the on demand reporting provide a rich customer data base generated by the Open Skies ticketless system, which Air Asia marketers may utilize it for their future promotion. (Navitaire) Besides Open Skies that mainly use by the end user, Air Asia also corporate with Amadeus’s LCC (Low Cost Carrier’s System) since early 2012.
This is an all new system where they mainly provide to the travel agency with the ability to more effectively cross-sell LCC ancillary services with more choice and better visibility with each booking. In other word, it will able to summarize the lowest price fares of the flights and provide easier accessibility to purchase the ticket for the customer. Travel agencies that use Amadeus benefit from superior accuracy, through more real-time availability in every transaction. With the connection that Amadeus has with the low cost carriers, travel agency will get access to the best LCC fares at any given time.
Improving the control over the total booking process and allowing it show the best rates to the customers (Amadeus). Enterprise Resource Planning System (ERP) AirAsia has recently opted for a full fledged Enterprise resource planning system (ERP), which is an integrated solution powered by Microsoft Business solutions (MBS) on Microsoft technology platform which is implemented by Avanade consultants in MA 2005. The ERP system, which is business management software, is a system of integrated applications that manages the business of an organization.
All facets of an operation, including product planning, development, manufacturing processes, sales and marketing can be integrated by the ERP software. The ERP software comprises of individually purchased enterprise software modules that are based upon the specific needs and technical capabilities of the organization. ERP features and functions comprise of integrating management, staff, and equipment, combining all aspects of your business into one system in order to facilitate every constituent of the manufacturing process. Every ERP module is then focused on a single area of business process, such as product development or marketing.
The typically known ERP modules include features and functions for accounting, human resources (HR), manufacturing management, customer relationship management (CRM), and other business functions while ERP systems with manufacturing management functionality include those for product planning, material purchasing, inventory control, distribution, accounting, marketing, finance and human resource. The effectiveness of the ERP system comes from its configuration which uses a common database to store information obtained from a variety of business
functions that user can accessed in one form or another. One of the primary benefits of using an ERP system is the solution’s multi-module application framework can be managed within a common information system. This is a clear benefit over the usage of the “point solutions” which relies on multiple databases that strains IT resources whereas ERP solutions standardize the use of one application to run an entire business. This leads to an increase in efficiencies and the decrease in the overall total cost of ownership (TCO) thus reducing operational costs and improving the company’s profitability.
Aside from that, there are additional benefits to be reaped when implementing an ERP system to an organization. One such benefit would be a tighter control over financial compliance declaration as well as other forms of compliance reporting. Next, ERP has a single data source for product and services information such as information regarding suppliers, vendors, customer orders and products that can drive rapid product development and launch cycles which increases a company’s overall market share.
With such service in place, there will be an increase in valuable corporate data being accessed with the data delivering a clear, global view of the continuous improvements strategies etched out by the business and establishes common performance metrics as well as a measure to gauge the health of the business. In addition to that, the ERP software fosters decision making at critical levels in the development and manufacturing process by effectively managing it holistically. The ERP software also grants support for streamlined sourcing and procurement processes which drives alignment to customer demands.
This support also delivers a centralized buying model to reduce unauthorized and unnecessary expenses. Furthermore, by providing sales and operations planning, it is so much easier to access critical information that can foster “closed loop” processes where customers will not be overpromised or undelivered by the business. Aside from that, the ERP software also integrates in automated business processes within a single system for things such as invoicing and sales as well as purchase orders in order to further improve forecast accuracy and a reduction in efficiencies.
This not only improves forecasting accuracy but it also reduces inefficiencies. Moreover, with the ERP software in place, service levels and customer retention can be improved due to having a single base of information for billing and other customer interactions. Advanced Planning and Scheduling System (APS) Another quintessential component utilized by AirAsia to run their aviation business would be the advanced planning and scheduling (APS) system.
The current condition of the low cost carrier industry is a saturated market with high degree of competition between rivalries as they are all vying for the lowest possible fare in order to win the competition. The implementation of the APS system response well to the current challenges tackled by AirAsia as it offers optimisation capabilities for operational planning and scheduling. This will aid AirAsia in creating new sources of cost advantages. The reason why APS matters is because the system optimises AirAsia’s supply chain management which prepares the supply chain activities in relation to customers and requirements by suppliers.
These activities geared by the APS system are clustering and classifying customer orders, forecast future fulfilment requirements, set order priorities and checks resources availability, Aside from optimising AirAsia’s supply chain, APS system also increases their overall performance in areas such as event management technology, supplier portals, inventory planning, demand forecasting and maintenance management as well as route profitability analysis. For event management technology, the APS system will assist in the assessment of suppliers’ performance and provide the capability to streamline monitoring process.
To circumvent order processing errors from happening, the APS system improves the supplier portals by providing an information hub for airlines and suppliers. Moving on to inventory planning, demand forecasting and maintenance management, the APS system helps the airlines and aircraft manufacturers and other suppliers to have a more efficient collaborative strategy in managing inventory. For the final function, route profitability analysis tools enable airline companies to conduct analysis for planning proficient routes.
The development of APS system was founded as the Invention of Operation Production Technology (OPT) during the 1980s due to the limitation of ERP systems and Manufacturing Resource Planning (MRP) in optimisation capabilities. In present time, the APS system has been developed into more complex software with the emergence of technological advancement. Based on the Gartner Hype Cycle, the APS software has already been classified as being in the fourth stage known as slope enlightenment where the systems are adequate and customers realizing the benefits and risks of implementing the system.
According to a research done, the majority of the aviation companies are expected to save their money on the supply chain optimisation by at least 50%. The combination between market demand and push technology by software vendors signifies the promise of APS being the next source of AirAsia’s cost advantages and given its phase in Gartner Hype Cycle, the risks involved in choosing the wrong vendor is minimized. Furthermore, the implementation of APS system has provided numerous new functions to AirAsia that enables them to increase their performance.
These functions include an event management technology, supplier portals, an inventory planning, demand forecasting plus maintenance management capabilities, and a route profitability analysis. Firstly, the event management technology will help AirAsia smooth the progress of assessing suppliers’ performance along with providing the capability to streamline monitoring process. Secondly, the supplier portal will provide information hub for airlines and their suppliers to prevent errors from happening during operational activities such as processing.
Third functions are inventory planning, demand forecasting, and maintenance management capabilities. These functions enable airlines and aircraft manufacturers and other suppliers to have collaboration approach in maintenance schedule, and design collaboration, managing the inventory for example spare parts. Last but not least, the route profitability analysis tools enable AirAsia to perform an analysis for planning efficient route. There are two beneficial aspects of implementing APS in the low cost carrier industry i.
e. strategic and operational. In terms of APS being strategic, AirAsia will be visible across the whole supply chain as the APS system grants them connectivity in terms of cross-functional scheduling and planning with suppliers and customers whilst warranting that each party works together in integration. The APS system also enables process-centric strategy which is what AirAsia needs to consider as most airlines are making low cost strategy their top priority.
Another strategic benefit is the optimization of profit management by the APS system as it minimises the operational cost of AirAsia by using the information generated by the YMS system to improve planning and scheduling for the facilities needed. The last strategic benefit is the optimisation of the flying route in which the APS system will analyse and identify optimal profits for AirAsia. The other aspect that we are to look into would be the operational benefits of applying APS system to AirAsia.
Firstly, the APS system would grant AirAsia visibility across functional level which is the capability to integrate processes. This will shorten scheduling cycle, maintenance cycle and lead time therefore an increase in efficiency. Secondly, a flexible and faster response during operation processes means airlines will have a better understanding and control of the interrelationship between different variables constituting total performance.
The APS system can be deployed in a proper manner where the complexity of measuring interrelationships can be manipulated. For example, a flight may be due to airport facilities or other variables such as bad weather. The APS system can help by planning in advance on what steps should be taken in order to contain such a situation. Lastly, the APS systems helps in achieving better maintenance management as aircraft maintenance is critical in any airline industry especially AirAsia considering they utilize their aircraft fleet more than standard airlines.
Since APS grants visibility across the value chain, it will be much easier and efficient for AirAsia to collaborate with aircraft manufacturers and supplier. This leads to shorten over-haul time thus enabling AirAsia to improve their fleets’ utilisation. With the usage of APS system, it is cost efficient for AirAsia as they save more when dealing with maintenance cost. Furthermore, the system also helps AirAsia schedule activities associated to its facility in advance.