Opportunity and Threat of Airasia free essay sample

Huge Market Potential In a country of a billion people, the Indonesian aviation industry is puny. Indonesia have 12 million people who travel by air every year against 3 million passengers who fly everyday in the US, even though its population is one-fourth that of Indonesia. Even if we assumed that only one-fourth of that large middle-class could afford and would be willing to travel by air, it would call for at least a 5-6-fold increase in capacity. This points to a huge opportunity for AirAsia and the aviation industry in general. However, this large market is recognized by all and is the reason why new players are waiting to enter the Industry to exploit this potential. It is pertinent to note that the number of air travelers in Indonesia has grown during the last there of 2005-08 as compared to the same period last year, as per estimates of Amadeus Worldwide. We will write a custom essay sample on Opportunity and Threat of Airasia or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Product differentiation – At present, AirAsia differentiates its no frills product by offering less features at substantially low fares. However, this strategy will become generic with the entry of low cost carriers waiting in the wings. At that stage, low cost competition will each need to try and â€Å"be different†. Limited product differentiation is an opportunity, but mustbe approached with extreme caution. This has happened in the West and by trying to differentiate; some low-cost airlines also losetheir bearing and begin adding frills like assigned seating, hot meals and in-flight entertainment to attract some of the more comfort-seeking customers. But that leaves themexposed to being undercut by a new competitor who focuses exclusively on price. Anything(like frills) that adds costs and reduces price competitiveness is a bad trade-off. gt;gt; THREAT *Skiller competition *– The Asia Region skies are witnessing a bloody battle for market shares. A much anticipated fare war has broken out across Asia Region skies. AirAsia is still a gowing airline company, but a medium-big player in the Asia Region skies. They are vulnerable to price cuts by large-existing players with deep pockets. Aviation expert s are betting could start a debilitating price war to push the fledgling no frills airlines off the tarmac permanently. Oil price fluctuations – Oil price hikes spare no airline. Aviation turbine fuel (ATF) cost andother operational costs (all government controlled) are the same for all airlines, whether it is alow cost airline or not. This adds significantly to costs of carriers like AirAsia, especially since fuel costs as a percentage of total costs are higher at 26% for low cost airlines, compared to 20% for full service airlines. Overcapacity – Aircraft manufacturers continue to build and deliver new aircraft, adding new capacity. In off peak periods and on certain routes, this leads to overcapacity problems. Overcapacity fuels an imminent price war in the hope of filling empty seats. Worldwide, overcapacity pressures have at times lowered ticket prices to unreasonable levels, erodingbottom lines and acting as a threat. Diminishing yields per passenger Overall, industry-wide demand for air travel in Asia Region has increased, but fares (average per flight) have not. Although more passengers are flying, they are paying less to do so. Not only are full service airlines collecting less fare revenue from the passengers they fly, they are also flying fewer passengers than they used to. Low-cost airlines are flying more passengers at lower prices. Controlling costs and maintaining cost differentiation is absolutely critical to overcome this threat. Open skies policy – The opening up Asia Region skies to foreign carriers is being debated at great length by the Regional Government. Should this happen, there will be an influx of global players in the Regional market. Their long years of experience in markets abroad and financial strength will be a threat to AirAsia. Poor Airport Infrastructure – Airlines like AirAsia can buy more airplanes and put them in the air. But how do they take the aircraft and people through the terminals? There are notenough gates, not enough counter space, not enough parking bays. Lack of secondary airport infrastructure In Europe as well as the US, low-cost airlineshave one more way to shave off costs but one that is a source of cost advantage unavailableto AirAsia or its followers for some time to come. Abroad, low cost airlines avoid flying into mainland airports and, therefore, dont incur high parking and landing fees.