AirAsia and the Tune Group: diversifying across industries

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PART 1: Introduction

In essence, strategic management has been the leading cause of business success even in unprecedented and highly competitive industries such as the airline industry. In fact, the company that Air Asia has become in modern times alongside the Tune umbrella that consists of a rich portfolio of businesses has witnessed success due to diversification as a strategy for the group at large and thoughtful business strategies that have seen Air Asia grow to the biggest and most successful low cost carrier in the world. The company has highly grown and developed and cannot be compared to the failing organization that it was in 2001 at the time it was purchased by Tony fernandes and Dato Kamarudin. At the time, they began a company with just two aircrafts and huge debts to what has become a leading airline brand in Asia and gained worldwide recognition (Hill & Jones, 2010). The critical analysis in this paper will also highlight on the modern diversification witnessed in the company, whereby high risks are guaranteed with lower risks all around.

Air Asia, since it was bought and revived in 2001, has managed to grow and develop to expand operations in more than ten countries. Together with an associated company, Asia X, the company managed to launch a low –cost air services in a long haul from Malaysia to areas such as Australia and eve to the United Kingdom. This paper will therefore undertake a strategic management analysis on the company Air Asia as well as on diversification of the Tune Group on grounds such as analysis matrix and BCG analysis among other parameters upon which performance of the business will be assessed like porters five market forces to assess how the company has been able to perform so exemplary in the highly competitive market. In addition, the paper will make conclusions and recommendations on the relevant strategies that the company can adopt for greater profitability and growth moving forward. The critical theory as mentioned will be sued in assessing the modern diversification at Tune Group and Air Asia. This case study discussion will mainly focus on three strategic issues that have been identified. These areas are growth, low costs, and diversification: these are the major underpinnings of the strategy at Air Asia and Tune Group in all areas of its business portfolio.

PART 2: Discussion

Essentially, high competition has been witnessed in the airline industry with market forces such as barriers to entry and high capital costs among other factors that make survival difficult due to intense competition. Airlines often employ even cut-throat strategies in competing with each other for a substantial part of the available market share. Just like most companies need to identify and implement the best strategies for survival in this volatile industry, Air Asia has not been an exemption in the strategy war and it is safe to say that they have won (Warren, 2008).

Immediately Tony took over management of the company upon acquisition, he made a complete turnaround in which he opted to develop a low cost carrier as the alternative to most air transport mechanisms and in which he lowered and maintained low costs. He began raising profits for the company through increasing routes that the airline previously took under Malaysian Airline System. As a matter of fact, the current tagline used by the company- “Now Everyone Can Fly”- is a true reflection of the promise that the company gave to its customers in through its vision of becoming the largest low cost airline in the Asian region (Temporal, 2012). The company and airline has since served the needs of billions of people whose needs were previously disregarded or subjected to high plane tickets. Working as a huge family of employees guided by a similar objective and vision, the company has aimed at attaining the lowest ticket prices so that everyone within the region could be able to fly with Air Asia while still maintaining high quality services and embracing technological advancements to provide services on a global standard and create a renowned brand. Having started out with two aircrafts in Malaysia, the company has expanded across the region with various airline affiliates and has now become the best low cost carrier in the world (In Gross & In Lück, 2016).

Strategic Posture

Tony Fernandes reckons that Air Asia only came into the market as an innovator but has since evolved and grown into a leader that sets the benchmark in the industry (Fontaine & Ahmad, 2013). The objective of the company under the new management was to make flying available for everyone even those that could not previously afford to fly. The company operates flights domestically and internationally and has become the cheapest carrier in Asia (In Jeffreys et al, 2015). The company’s mission also enables them in creating value to their customers besides merely cutting down on prices. As derived from their mission, the company seeks to become one of the best companies in which employees can work in first of all as it treats employees as part of a big family. The benefits of this culture and regard for their human resource amount to having a well motivated and inspired workforce that understands the company’s vision and objectives as well as works to promote and protect the brand by serving customers well as if the company was their (employees) own.

Their corporate philosophy states that “Now Everyone Can Fly”. This has guided and led the company in creating a revolution in the airline industry in Asia. This has been seen as more people in the region have opted for Air Asia as their ideal and preferred airline for use (Lim, 2012).

Objectives and Strategies

The objectives of the company (Air Asia) are clearly guided by the corporate mission and vision that emphasizes on customer focus, safety, human capital development, and excellence. The airline has expanded across many Asian countries after having started off in Malaysia, which has been a move aimed at creating customer value in the spirit of customer focus (Albers et al, 2015). The reduction of prices has also been informed by the need for customer focus and orientation. In the spirit of price reduction and customer focus, the company under Tune group went ahead, as shown in the case, to provide points for customers based on their travels over a period of time. The same is the case with the businesses in the portfolio of the Tune group with businesses such as Tune Hotels and Tune Money aimed at creating value for customers by regarding and catering for their needs (Delios & Singh, 2013).

Air Asia has also increased the routes it plied since it was bought by the current owners in 2001 to enhance business in a calculated and prudent manner. The expansion of routes ensures that the company does not lose business. As from 2014, the company had the objective of carrying over 70 million passengers in a year, which was a six-year plan. They also planned on increasing more routes as well as increase the number of trips on the routes previously and regularly used. To be able to achieve the business philosophy that is to ensure that all people have the ability to fly, the company made their low cost carrier terminal at the KL International Airport the regional hub for low cost and low budget transportation (In Hall & In Page, 2017).

Current Strategies

In essence, a strategy is the overall plan of course of action for an organization. The strategic plan adopted by a company dictates the direction of the company as well as how different functions of an organization fit. As seen from the case, Air Asia has different companies, in the offset; the strategy was entry to a market in an aggressive manner as well as building a brand and gaining recognition. The manner in which an entrant comes into any kind of market is essential especially in a highly competitive market such as the airline industry. In this kind of industry, the company came up with a strategy that enabled them to get customers by appealing on low prices and costs coupled with quality and value creation. After entry, the company went ahead to expand and offer services in other countries in Asia and Australia besides Malaysia. Entry and expansion into countries that had potential was a huge step for the company and a development of strategic partnership that gave them mutual benefits and grew their brand and business (Page, 2013; Daft, et al, 2010).

The company was strategic in expansion and stamping of regional dominance as well as optimization of routes as well as development of secondary hubs. The company was able to yield enhancement as a result of the benefits gained due to expansion of routes and networks in the airline industry. Not only did this make it a regional leader, but also the most efficient and best low cost carrier globally. The company further went ahead to adopt a diversification strategy in which it became a specialist as Air Asia through a significant ancillary composition as well as the development of different businesses through Tune Talk, Tune Sports, Tune Money, and Tune Hotels (Hitt et al, 2008).

Low costs have always bent he center of business for Air Asia and the Tune Group. In fact, Air Asia went as far as allowing customers to collect points from ticket purchases so as to redeem those points for free flights. This is not only a measure to provide prices as low as none, but also a strategy to get more people to use Air Asia as frequently as possible to gain more points and accumulate enough for a free flight (Bloch, 2014).

The Tune group did not let turbulent years as witnessed in 2008 shake the business. Instead, this was turned into something positive with the company headed by Fernandes and his co-partners moved to diversify business into many areas. Tune group opened Tune Talk- a mobile phone operator that gave customers the lowest calling rates in Malaysia. The company also ventured into sports through Tune Sports through formula 1 racing and basketball; sponsoring teams in both sports. Tune Studios was also used as a means to promote talent all across Asia and internationally through the use of local concerts, event management, and audio productions.  Air Asia X has since become a separate and independent company (in 2010) from the Tune Group. This ensures that the company can focus on its own in the major business in the airline industry and achieve the objectives set and guided by its philosophy (Sen & 2008). As such, Tune Group can diversify on its own to make profits and reduce risks without involving the airline ancillary as an entity. Low costs are also a priority for the Tune Group with Tune Hotels as an example as it conducts business using a slogan/ philosophy that calls for people to enjoy five star hotels at the price of a one star hotel (Evans, 2015).

BCG Matrix

The BCG matrix normally comprises of Dogs, Question Marks, Stars, and Cash cows. Dogs are normally the low growth areas or no growth at all and those that have a low market share. Often, these are areas in the business that may call for exit as they are of no much benefit.  For the airline carrier, some routes such as that to London is not a profitable route as much as others (Bowen, 2013). In addition, business travelers would opt for full service because they take longer times travelling. Casual travelers on the other hand may opt for economy classes in other areas as they can enjoy excess baggage benefits as well as entertainment and meals. Some routes need to be cancelled. The same is the case with Tune businesses ventures and auxiliaries that do not rake in greater profits even with greater risks. Such entities should be cancelled (Poon et al, 2007).

On the other hand, question marks in the business mode are those that have low markets but with great potential of growth. Some destinations for the airline are promising destinations if explored efficiently. The airline is also a cheaper alternative to long haul flights to Europe. Taxes are lower in some countries and as such offer room for greater cost reduction in pricing and thus eve lower prices as per their mission. The company can thus increase frequency in highly recommended routes and invest in highly profitable businesses merged such as the Tune Hotel and the Tune mobile services operator (Grant, 2016).

Stars are like opposites of dogs in the matrix. These have high market growth and generate profits at maximum. These include domestic routes in Malaysia for the company as they usually have greater sold out rates and give the greatest profit margins. As such, enhancing and improving services rendered in the most profitable routes will be beneficial for the company and increase profitability.

Lastly, cash cows are areas of the business with a high market share but with little growth. They also generate high revenues and often shift the focus of the business into customer satisfaction and growth. As such some routes such as to Singapore from Malaysia have been identified as giving the company a huge market share but with a small growth rate: in fact, the growth rate is stagnant. Profit margins in some of those routes are lower compared to other routes as much as he market share is high. Therefore, promotional activities to increase their market in those areas are required. For the Tune Group, the mobile operator services among others are examples of cash cows.

The Ansoff model/matrix can also be used by the company to gain a strategic advantage in regards to optimizing on existing products and markets as well as in diversification into new markets and development of new products. This applies for Air Asia X in regards to increasing routes and optimizing on the promising ones as well as for Tune Group in diversification of their business portfolio (Paine, 2012).

PART 3: Conclusion/ Recommendations

As seen from the BCG matrix, the company needs to develop and optimize on the existing businesses under Tune portfolio as well as the routes plied by Air Asia that seem to have promise. In addition, the Air Asia can also venture into new routes and Tune Group can also add other businesses into its portfolio and diversify. Tue Group can diversify into other markets and industries that they may identify as fitting into their low cost model with minimal risks as well as develop existing businesses such as Tune Talk and Tune Sports among others. The company already has identified and positioned itself as a low cost company that creates value and regards quality.

Thus, Both Air Asia X and Tune Group need to identify the areas in their businesses that are bringing them profits and have the potential to grow or new ventures that could be profitable and capitalize on them. On the other hand, businesses with no growth and with minimal returns can be done away with as well as routes that cannot impact the business if abandoned to focus on the key areas that enhance profitability. Well, all this must be done in a manner that promotes their basic business philosophy of low costs and providing quality and value creation.