Executive Summary
Airline operations constitute an important element of globalization through facilitating international movement and contact among international communities. As AirAsia expands to the Indian aviation market, it should spot and tackle the underlying challenges to realize competitive advantage in the market and for long-term survival and growth. I have been hired as an advisor by the AirAsia’s board of director. This report explains my advice to the directors on the approaches of venturing into the Indian market and competing productively with the other competitors. The airline should begin by first concentrating majorly on the small and undeserved cities in India before proceeding to routes from India’s biggest city, Delhi. I advice the board of directors to choose joint venture as it is a safe approach; the airline ought to join with Tata Group and Hindustan Aviation. The intended venture will operate from Chennai and offer domestic travels to Tier-II cities in the first couple of years (2015 and 2016) and Tier-III cities in the other three years (2017 to 2019). As the joint venture changes and develops, the companies may want to modify their strategies regularly to suit the unstable requirements of the Indian market and achieve competitive benefit.
AirAsia
Introduction
Airline operations play a significant role in the global economy where the airlines transport millions of people through millions of air miles across the globe, in effect enabling international contact and exchanges. Frequently, nevertheless, the airlines fail to attain unending success. Airlines normally concentrate on safety, expertise, speed, labor concerns, unique regulatory limitations, and unpredictable conditions such as the ones involving weather (Castro & Oliveira, 2011). In the same way, concerns such as route formations, overload, pricing, and yield issues compete with processes for the consideration of the airline. As AirAsia seeks to venture in the Indian aviation market, it ought to identify and address the underlying challenges to realize competitive benefit in the market and for lasting survival and development. In this regard, the airline ought to consider suitable aspects of entry and work through the challenges to realize low prices, enhanced quality, and satisfied clients. I have, in May 2014, been hired as a consultant by the AirAsia’s board of director. This report discusses my advice to the directors on the strategies of venturing into the Indian market and competing successfully with the other rivals.
Objectives
The contemporary business demands expansion of profits and sales for the realization of persistently rising earnings (Ingre et al., 2014). This has created the requirement for AirAsia to venture into the Indian market to search for available opportunities of boosting their market share and expanding to new markets. With the saturation of the home market, the directors of AirAsia are inclined to seek potential new markets, and in this case, they want to venture into the Indian market. The objective of this entry is to employ aggressive pricing approaches to revolutionize air travel in the Indian market and attain competitive benefit through greatly competitive functional goals. The Indian market will provide the ability of AirAsia enhancing its revenue and lowering its prices thus boosting the profits. Venturing into the Indian market might as well permit the airline to follow its clients, fight its global competitors in their home market, ensure constant supply, obtain expertise and inventiveness, realize geographical diversification, and gratify the expansion aims of the shareholders.
Strategic Analysis
In its consideration of venturing in the Indian market, the low-cost and fast developing Malaysian airline, AirAsia has perceived the entry as an ideal approach. Nevertheless, one of the challenges that lie ahead for AirAsia in the Indian market is the presence of many existing and aspiring competitors with some of them just having a few flights each day. With some airlines charging one-way airfares as little as $20, the airline will have to put great efforts to obtain a vast portion of tourists and travelers, in addition to holiday traffic. If not well addressed this challenge could pose great difficulties for AirAsia’s operations in India. Though it could benefit from the recent loosening of limitations on foreign venture in the airline sector, AirAsia will have to face the challenge of formalities and rules for fresh entry that may lead to enormous outlays and intricacies to its operation in India. With the competition proving fierce, the unrelenting battles will have the probability of cutting intensely into the profits (Powell, Spencer, & Petrie, 2011).
As a means of seeking its triumph in the Indian market, when it embarks on its operations, AirAsia should enhance its efforts to take a huge percentage of the nation’s internal passenger market and continually revise its strategies. The airline should start by first concentrating majorly on the small and undeserved cities in India prior to operating in routes from India’s biggest city, Delhi. The board of directors ought to realize that the airline ought to become greatly visible to succeed; such visibility ought to be both to the potential customers and stakeholders. For instance, the flights to and from small cities, as well as Delhi will play a vital role in giving a huge number of people the opportunity to experience its product and services. In this manner, AirAsia will be following the trend it has pursued in other nations and succeeded (Powell et al., 2011).
From the period it encountered a redevelopment in 2001, AirAsia has greatly centered on maintaining outlays low and squeezing out extra expenses through employing additional services such as in-flight foodstuff and entertainment, in addition to the money gained from the checking of bags or seats that have additional legroom. The airline should also export the representation from its abode in Malaysia to India with the aim of endeavoring to take advantage of the fast-developing economy in the region (Merkert & Hensher, 2011). To carry on its speedy development, AirAsia should seek to expand its portfolio with joint ventures if the Indian market turns challenging as the airline will not have the first-mover benefit. The company should learn from its failures in Japan last year where it hit a stalemate over policy with its joint venture collaborator, All Nippon Airways.
Most importantly, AirAsia should avoid clambering outgrowths that could prompt concerns as such occurrences could instigate a great decrease in the airline’s stock. In its place, AirAsia should lay out strategies of raising capital and injecting funds into its associated airways in other nations. Such strategies will go a long way in developing marked zeal for swinging about any chances of failure (Powell et al., 2011). Taking advantage of the habits of the already successful airlines in the market, the board of directors should send representatives to take time observing the manner in which such companies work and interact with the engineers and other personnel with the purpose of getting flavor of the airways. Moreover, the board of directors ought to send other representatives in other markets to find the expertise that does not exist in India and that they could reap from. The directors of the airline should also avoid seeking the service of professional consultants and embark on studying a vast number of airlines, the ones that have succeeded, those that failed, and the companies it will be competing against. This will make sure that the directors comprehend the industry and the Indian market as a way of comprehending the pricing and other regulatory measures in depth.
It is advisable for the airline to implement the bare-bones structure, close to the one used in the Malaysian market to enable it maintain the airfares as low as practically achievable (Merkert & Hensher, 2011). As earlier mentioned, the airline ought to avoid the big cities such as Mumbai and Delhi initially as they mainly charge high prices and their routes are greatly flooded. The board of directors should be wary of notions that could misjudge the market’s regulatory setting, which is exclusively rigorous for airways. Another challenge is that the taxation on aviation turbines is high in the Indian markets when judged against any other place across the globe. All the airways in the market, with the inclusion of the ones with a few airplanes, are necessitated to fly frequently to remote areas, where the majority of flights could go half full thus resulting in the losses (Archana & Subha, 2012). To avoid the escalation of such losses, as a new entrant in the Indian market, the airline should avoid taking lucrative global routes up to a period that it will have operated in the market for not less than five years. However, it is beneficial for an airline to build conviction in free marketplaces and open skies, a study of the extant strategies demonstrate that it is had to attain such in the Indian market.
AirAsia will have to triumph over the tough competition from IndiGo, one of the initial budget airways in the market that has a strong reputation for timekeeping and comfort, to realize competitive advantage after its entry (Merkert & Hensher, 2011). The realization of competitive benefit in the market will be a difficult task as IndiGo currently enjoys nearly forty percent of the entire market and is amid the Indian companies that have been unwaveringly profitable. On every new route that the airline could choose to take, IndiGo could easily set out a price battle. With the increase in such price battles in the market, AirAsia could seek to tackle the challenge by making rounds in government departments in the country to facilitate the push for transformations that could assist the airline reduce costs, for instance, a reduction in the taxation of aviation turbines, fuel, and other products. Every state in India regulates its taxation of fuel, which is usually maintained as high as 30% whereas over fifty percent of AirAsia’s functioning expenditures are associated with fuel.
High taxation could also be attributed to the maintenance of the airplanes and AirAsia could opt to take the planes to be maintained in a nearby nation to avoid the escalating costs in India (Merkert & Hensher, 2011). For instance, the airline could be taking the airplanes for maintenance in Singapore or Malaysia after every two years of operation. The directors of AirAsia could hold discussions with the government officials and stakeholders in an attempt to persuade them to assist ease operations in the market and create room for growth. Nonetheless, it could prove very hard to make them comprehend that a reduction of the taxes could most likely boost the economy of the country. In most cases, the government official could fail to cooperate with one another as they could just be harboring selfish interests (Archana & Subha, 2012).
It is the old-fashioned, oligopolistic regulations like the ones existing in India that make it hard to succeed in business in the nation (Archana & Subha, 2012). Nonetheless, AirAsia could enhance its efforts to push for changes in the laws while also seeking to boost its visibility in the market. In this regard, the airline should enhance its advertisements through billboards in major cities such as Delhi and the media. When the first AirAsia’s airplane lands in India, the airline ought to make sure that it is parked directly amid the ones of IndiGo airways with the intention of making the other passengers take notice. Venturing in the Indian market will be similar to taking on a big dog as it is Indigo’s stronghold.
Strategic Choices
Prior to gaining entry into the Indian market, AirAsia will have to seek the official endorsement of the Indian Foreign Investment Promotion Board (Castro & Oliveira, 2011). Following the endorsement, AirAsia will then initiate an agreement with the shareholders. The monetary influence is anticipated to be negligible because the airline has a high probability of making losses from the joint venture. Some of the expected benefits of AirAsia venturing into the Indian market will be the enhanced growth of its immense population and quickly expanding economy. The new market will develop the airlines level of connectivity further to the west that increasing its profitability (Archana & Subha, 2012).
It is advisable that AirAsia operate in multiple domestic routes after its initial entry in the Indian market to achieve rich experience and understanding of the numerous business needs in the market prior to embarking on international flight from and to Delhi. Such experience and understanding will enrich the airline with valuable realization concerning the manner in which it is expected to operate in the market and what it is required to do for its enhanced success. The majority of new entrants operate on a limited cash flow, and AirAsia will be no exception (Archana & Subha, 2012). Most of the money that the airline will generate from the market in its initial operations will be used in research and development endeavors and marketing practices. In this case, the airline will have little or no profits in its early times of operation in the market and could be compelled to offer moderate remuneration packages to its personnel when judged against the other well established airlines in the Indian market. Although the salaries for the staff will not be competitive in the early years of operation in the Indian market, the moment the airline succeeds; it will certainly offer higher remuneration and benefits to its personnel. When AirAsia’s operations in the market bear fruits, it will enjoy an unsurpassed sense of triumph and pride (Stockport, 2012). It will esteem the long working hours, as well as other means of toil it will have to endure at first.
Nevertheless, the disadvantages of entry into the Indian market include the fact that the market is recognized for its competitiveness because of the vast number of internal airlines, intricate laws, escalating cost formations, and little domestic income intensity. Most of the airlines in the Indian market have been generating losses in the course of the recent past with some of them being in the point of bankruptcy. Since some airlines have not survived in the market, there is a great risk with respect to whether AirAsia will take off profitably or fail (Stockport, 2012). Therefore, it could be expected that AirAsia will encounter severe competition and make losses in the initial years of operation in the Indian market (the same way as all the other joint ventures in the market). Moreover, some of the risks that AirAsia will encounter in the Indian market are warfare, outbreak of epidemics, terrorism, escalating fuel prices, and the establishment of high-speed train that could ruin the airline sector. Nonetheless, the airline could successfully rise above the competition and losses by making efforts to reap from its strong reputation, restricted cost formations, huge network connectivity, skilled management, and powerful brand name.
Plan of Action
Before venturing in the market, AirAsia will have to develop a plan of action, a strategy that will assist the airline identify vital strides towards the realization of its objectives. The plan of action will take into consideration the steps of entry into the market as agreed by the board of directors and its manner of operation in the Indian market. This will act as a means of the airline’s accountability. For AirAsia, it should venture in the market and embark on its operations in the domestic routes within Indian as it studies the viability of the market (Stockport, 2012). The airline should then develop the plan of action after one year of operation in the Indian market. The board of directors will first establish the mission, vision, aims, and strategies of the airline before developing the plan of action.
After one year of operation in the Indian market, AirAsia will choose the best means of stay in the market. As the consultant, I advice them to choose joint venture as it is a safe approach (Nielsen & Nielsen, 2011). The airline should join with Tata Group and Hindustan Aviation, operating in the Indian market, and agree on the formation of a joint venture. The first six months will entail the discussions of the joint venture and seeking the necessary approval from the government. Being successful in other markets, AirAsia should seek a 49% stake in the venture with the other two companies. If their proposal is endorsed by the Foreign Investment Promotion Board, the operators of the three companies will then proceed to the Director General of Civil Aviation to obtain a permit and then kick off their operations. In the joint venture, Tata Sons could take 30% and have no functioning roles in the operations. While AirAsia will hold 49% stake in the venture, Hindustan Aviation will take the least, 21%.
The joint venture will also result in the return of Tata Group to the airline industry. The government-owned Air India had risen from the Tata Airways that started its operations in 1930s (Schuster & Holtbrügge, 2012). It was around 1995 that the Tata Group sought to work in collaboration with Singapore Airways and join with Air India but this never succeeded. The intended joint venture will take place from Chennai and concentrate on the provision of domestic connectivity to Tier-II cities in the first two years (2015 and 2016) and Tier-III cities in the other three years (2017 to 2019). According to the present regulations, an airline has to operate for a minimum of five years in the domestic routes before being approved to begin flights out of the country.
The three companies should sign the partnership agreements and hand their documents to the relevant Indian authorities. In their proposal, the three companies will have assessed carefully the progress in India over recent years and be strongly convinced that the present setting is perfect for the introduction of AirAsia’s policy of low airfares, which inspire travel and nurture the market’s expansion. The joint venture will offer the confidence of their replication of the unparalleled success of AirAsia in other markets such as Malaysia and Indonesia (Schuster & Holtbrügge, 2012). Particularly, the joint venture should place their success in ensuring that people fly through advanced function experiences through emphasizing a consistent and closely monitored cost structure that will lead to immensely benefiting the Indian customers. It is crucial to take into consideration that though a plan of action is a work in progress, as the joint venture changes and develops, they may want to regularly (normally monthly) modify their strategies to suit the varying requirements of the Indian market and attain competitive benefit.
Conclusion
As AirAsia seeks to enter the Indian aviation market, it ought to discover and address the fundamental challenges to grasp competitive benefit in the market and for lasting survival and progress. On this note, it ought to mull over appropriate aspects of entry and work through the difficulties to attain low prices, improved quality, and pleased clients. The present-day business demands the growth of profits and sales for the realization of steadily rising earnings. This has shaped the objective of AirAsia to venture into the Indian market to explore the available opportunities of enhancing their market share and growing to new markets. The purpose of this entry is to utilize aggressive pricing approaches to transform air travel in the Indian market and achieve competitive benefit through greatly aggressive functional goals. AirAsia should form a joint venture with Tata Group and Hindustan Aviation. The planned joint venture will operate from Chennai and concentrate on the provision of domestic travels to Tier-II cities in the first two years and Tier-III cities in the other three years.
References
Archana, R., & Subha, M. V. (2012). A study on service quality and passenger satisfaction on Indian airlines. International Journal of Multidisciplinary Research, 2(2), 50-63.
Castro, A. J., & Oliveira, E. (2011). A new concept for disruption management in airline operations control. Proceedings of the Institution of Mechanical Engineers, Part G: Journal of Aerospace Engineering, 225(3), 269-290.
Center for Aviation 2015, viewed 21 December 2015, <http://centreforaviation.com/analysis/airasia-nears-50-million-annual-passenger200-aircraft-milestones-having-transformed-asian-aviation-203232>.
Ingre, M., van Leeuwen, W., Klemets, T., Ullvetter, C., Hough, S., Kecklund, G., & Åkerstedt, T. (2014). Validating and extending the three process model (TPM) of alertness in airline operations. Journal of Sleep Research, 23(1), 264-264.
Merkert, R., & Hensher, D. A. (2011). The impact of strategic management and fleet planning on airline efficiency–A random effects Tobit model based on DEA efficiency scores. Transportation Research Part A: Policy and Practice, 45(7), 686-695.
Nielsen, B. B., & Nielsen, S. (2011). The role of top management team international orientation in international strategic decision-making: The choice of foreign entry mode. Journal of World Business, 46(2), 185-193.
Powell, D., Spencer, M. B., & Petrie, K. J. (2011). Automated collection of fatigue ratings at the top of descent: A practical commercial airline tool. Aviation, space, and environmental medicine, 82(11), 1037-1041.
Schuster, T., & Holtbrügge, D. (2012). Market entry of multinational companies in markets at the bottom of the pyramid: A learning perspective. International Business Review, 21(5), 817-830.
Stockport, G. J. (2012). AirAsia–flying high. International Journal of Globalization and Small Business, 4(3-4), 324-333.
Appendices
Appendix 1: AirAsia passenger (in millions) from 2002 to 2014
| AirAsia | AirAsia X | Total AirAsia | |
| 2002 | 1.041 | 1.041 | |
| 2003 | 2.094 | 2.094 | |
| 2004 | 4.868 | 4.868 | |
| 2005 | 7.370 | 7.370 | |
| 2006 | 12.107 | 12.107 | |
| 2007 | 15.335 | 0.015 | 15.350 |
| 2008 | 18.349 | 0.270 | 18.619 |
| 2009 | 22.703 | 1.034 | 23.737 |
| 2010 | 25,681 | 1.921 | 27.602 |
| 2011 | 29.860 | 2.526 | 32.386 |
| 2012 | 34.138 | 2.581 | 36.719 |
| 2013 | 42.614 | 3.161 | 45.775 |
| 9M2014 | 33.509 | 3.235 | 36.744 |
| TOTAL at 30-Sep-2014 | 249.669 | 14.743 | 264.412 |
| TOTAL | 250.619 | 14.743 | 265.362 |
| Estimate for 4Q2014 | 12.1 | 1.2 | 13.3 |
| Estimated TOTAL
as of 31-Dec-2014 |
262.7 | 15.9 | 278.7 |
Source: (Centre for Aviation, 2015)