Chapter 5 : Generic Strategic

Salam .

For this chapter, I have learned on the topic of Generic Strategic. Generally, this topic discussing on how a firm able to maintain a strategic planned in order to compete with other rivals and improve their competitive performance. Learning objective are to gain command of the major avenues for achieving a competitive advantage based on lower costs.Under this topic, there are five categories where they are:

1) Low-cost provider
2) Broad differentiation
3) Focused low-cost
4) Focused differentiation
5) Best-cost provider 

Those categories have their own way that can be used by the firm to compete and keep sustain with their rivals. I will choose AirAsia as my example for low- cost provider. 

As we know, Air Asia, as the second Malaysian National Airline, provides a totally different type of service in line with the nation's aspirations to benefit all citizens and worldwide travellers.  Such service takes the form of a no frills - low airfares flight offering, 40%-60% lower than what is currently offered in this part of Asia.  Their vision is "Now Everyone Can Fly" and their mission is to provide 'Affordable Airfares' without any compromise to Flight Safety Standards.

Low cost airlines strive to achieve the lowest possible price for their products and services. Low prices cannot sustain unless the company maximizes its operational efficiency

The success factors of Asian low cost airlines in reducing their operational cost include:

1.      Service savings (no frills cabin service and extensive use of outsourcing)

NO-frills include:

NO drinks, NO food, NO headphones, NO newspapers, NO movies, NO VIP lounges, NO expensive offices, NO mileage programs, NO seat allocation, NO children’s fares, NO paper tickets (Electronic tickets only), NO connecting flights (All flight-legs must be booked independently)

2.      Operational savings (point-to-point services and uniform fleet)

3.      Overhead savings (internet sales and streamlined bureaucracy)

We can compare the operational cost in terms of costs per available seat kilometer (ASK), a measure of the running cost of the airline. For instance, Ryanair in Europe is almost half of the ASK price comparing with the full services airline. The average fare offered by Air Asia in Malaysia is 40-60 % lower than its full-service competitor.

Success factors in AirAsia

Absolute Cost Advantage

1.    Low cost per average seat kilometer

AirAsia focused on ensuring a competitive cost structure as its main business strategy. It has been able to achieve a cost per average seat kilometer (ASK) of 2.5 cents, half that of Malaysia Airlines and Ryanair and a third that of EasyJet. AirAsia can lease the B737-300s aircraft at a very competitive market rates due to the harsh global market conditions for the second-hand aircrafts because of the September 11^th event in 2001. On the other hand, the operating cost of the company is also dropped drastically.

2.    Low distribution cost

AirAsia focus on Internet bookings and ticketless travel allowed it to lower the distribution cost.

3.    Attractive ticket price

With the average fare being 40-60 % lower than its full-service competitor, AirAsia has been able to achieve strong market stimulation in the domestic Malaysian air market (Thomas 2003). For instance, the fare for the trip from Kuala Lumpur to Penang on AirAsia starts from 39 ringgit. Comparing to trip by bus charge 40 ringgit and 80 ringgit by car. The effect of attractive low fare is more travelers switching from bus to air, similar case as Ryanair in Europe.

Good Management Team

AirAsia value proposition is more sophisticated than Ryanair placing equal emphasis on brand reputation and customer service/people management, by a senior advisor to AisAsia’s top management team. AirAsia pursue a Ryanair operational strategy, Southwest people strategy and an Easyjet branding strategy.

Weakness

Fair availability

The availability of AirAsia is not good as traditional airline as it only provide unique aircraft. However, it cannot be the cost leader if it offers customized features or comprehensive support which will result in increasing operational cost.