Business and Entrepreneurship in Asia

AirAsia strategy for doing business

in Indonesia

Business and Entrepreneurship in Asia

AZMI MUHAROM

3/21/2016

Socioeconomic and Political Development of Modern Asia

National Research University Higher School of Economics

Moscow 2016

1

I.INTRODUCTION

I.1. AirAsia

In 2011, AirAsia get the Best Low Cost Carrier Skytrax version and for 3 consecutive

years the airline retains this award. AirAsia is known in Indonesia through the business

model of the low-cost-carrier (LCC). They are able to provide lower rates to its customers

while maintaining service quality, safety (safety and security), on-time-performance and

profitability.1

Table I.12

The airline was established by a Malaysian conglomerate in 1993 and commenced

operations in 1996. In December 2001, with the airline heavily in debt, AirAsia was

purchased by Tony Fernandes of Tune Air Sdn. Bhd. for the price of RM1. As part of the

purchase, Tony also took up the RM40million debt.

1 accessed on March 21, 2016, from

http://www.worldairlineawards.com/Awards/worlds_best_lowcost_airlines.html

2 Laikar, Aziz, 2014. Preliminary Operating Statistic AirAsia, Communication Department 2014, AirAsia,

page.6

Malaysia Indonesia Thailand Philipine India

21.853.036

7.853.375 10.500.381

2.224.283 -

22.138.796

7.850.065

12.213.697

3.030.602 345.298

AirAsia User by Country (2013-2014)

2013 2014

2

Under the leadership of Tony Fernandes, the airline was flying high in 2002 and launched

its new route that year. In 2003, a second hub was opened in Senai International Airport,

Johor Bahru, as well as the airline ‟s maiden international flight to Bangkok. After that the

only place AirAsia was heading for is up, as the Thai and Indonesian subsidiaries were set

up as well as the commencement of flights to Indonesia, Macau, China, Philippines,

Vietnam and Cambodia in 2005. AirAsia now flies to all ASEAN countries, a great portion

of Asian countries that include India, Iran, Sri Lanka and Bangladesh; as well as to the

United Kingdom, France, Japan, Korea and Australia via AirAsiaX. In 2011, AirAsia

setting up another AirAsia hub in the Philippines and are well on the way in setting up

other similar operations elsewhere in the region soon after.3

In 2015, AirAsia Group Chief Executive Officer (CEO), Tan Sri Tony Fernandes, said he

met Russian Federation Council Chairman, Valentina Matvienko, at an interactive meeting

and business luncheon here.

In his Twitter account, this aviation tycoon said: “Now meeting Russia Number 2 strong

lady. Airasia X will be flying to Russia soon.” On the timeline, Fernandes, in a short text

message, replied: "Wait and see".

The meeting today was organized by Asian Strategy & Leadership Institute (ASLI),

Russian Embassy in Malaysia and Business Council For Cooperation with Malaysia.4

AirAsia mission is to attain the lowest cost so that everyone can fly with AirAsia and

maintain the highest quality product, embracing technology to reduce cost and enhance

service levels. AirAsia now covers approximately 100 destinations across more than 15

countries, although many of these flights are serviced by associates and subsidiaries that

use the company's brand name. 5

In Indonesia, Indonesia AirAsia is 49% owned by the main company, but has a separate

chief executive, Sunu Widyatmoko. The rest of the firm is owned by Indonesian

3 Adzhar, 2012. Jumpstart Malaysia, People Department 2012, AirAsia, page.5

4 accessed on March 21, 2016, from

http://www.bernama.com/bernama/v8/bu/newsbusiness.php?id=1225172

5 accessed on March 21, 2016, from http://www.airasia.com/la/en/about-us/corporate-profile.page

3

shareholders. Indonesia's government prohibits foreign companies from owning the

majority of any civil aviation firms.6

I.2. AirAsia Indonesia

AirAsia Indonesia is a low-cost airline based in Jakarta, Indonesia and is an Indonesian

subsidiary carrier within the AirAsia Group. The airline is listed in Category 1 by the

Indonesian government for airline safety quality.

The airline was established under AWAIR (Air Wagon International) in 1999 and

commenced operations on 22 June 1999 with Airbus 300/310; however in March 2002, all

flights were suspended.7

Table I.28

2015 Aircraft Allocation and Movement

2014 Fleetmovement 2015

Malaysia 81 •-3 (move older aircraft to TAA) •-2 (sale of aircraft) •-3 (move older aircraft to India) •+1 (from PAA)

75

Thailand 40 •+3 (from MAA) 45

Indonesia 29 - 29

Philippine 18 •-1 (sale of aircraft) •-2 (retirement) •-1 (move to MAA)

14

India 3 •+3 (from MAA) 6

Japan 0 - 2

In December 2004, with the new management team, AWAIR has been reshaped to follow

the low-cost airline business model and relaunched as a low-cost airline and at no

6 Loc. Cit

7Adzhar, 2012. Jumpstart Malaysia, People Department 2012, AirAsia, page.9

8 Laikar, Aziz, 2014. AIRASIA BERHAD, 4Q14 AND FY2014 EARNINGS BRIEFING, Communication Department

2014, AirAsia, page.15

4

additional cost to serve domestic routes in Indonesia. Then on December 1, 2005, PT.

AWAIR International change the company name into PT. AirAsia Indonesia

From December 2005, with the name to AirAsia Indonesia, the AirAsia Indonesia fleet has

ten Airbus A320-200 and five Boeing 737-300. The Boeings are gradually being phased

out and we will soon be a 100% Airbus fleet once all of our destinations are fully upgraded

to handle Airbuses. It operates from Jakarta (Soekarno Hatta International Airport),

,Balikpapan, Solo, Banda Acheh, Yogyakarta, Padang, Pekanbaru, Medan, Surabaya,

Makassar and Bali.9

AirAsia Indonesia (Airline code: QZ) is a profitable airline, with a strong international

network, and is being prepared to be listed in the Indonesian bourse soon.10

II.Research Methods

This coursework will use the Library Studies methods. Materials for writing are taken

from the Journal, the News and the center of the article.

Picture II.1. AirAsia Brand

9 accessed on March 21, 2016, from https://www.academia.edu/3655030/Article_Airasia_

10 Adzhar, 2012. Jumpstart Malaysia, People Department 2012, AirAsia, page.9

5

III.Research Question

In this coursework, discussion coursework is related to subjects 'Entrepreneurship and

Business in Asia'.

The writer takes the theme of the AirAsia as one of the Malaysian company in the field of

Airlines- Domestic & international airlines that analyzes the company's strategy in doing

business in Indonesia.

The research question of this coursework is:

‘How is AirAsia Indonesia strategy to doing business in Indonesia?’

IV.Results and Discussion

A. SWOT Analysis for AirAsia

AirAsia CEO Tony Fernandez express goals companies as follows:

“Aviation is for the common man. My goal is to enable everyone to

fly. It shouldn't be only for the rich”.11

The writer uses SWOT analysis to analyze its objectives. This is a strategic planning tool

developed by Albert Humphrey, leader of a research project at Stanford University in the

1960s and 1970s when the use of data companies from the Fortune 500 to research.12

SWOT is an analysis method of strategic planning (strategic planning) in order to know

the map of factors external and internal environment of a company or business unit so as to

produce conclusions that are useful to provide input to decision making strategies and

provide input priority strategies against what should be done first by decision maker.13

SWOT is the first stage of planning and looks at the Strengths, Weaknesses, Opportunities

and Threats Involved in a project or business venture. Strengths and weaknesses are

11

accessed on December 15, 2015, from

http://www.brainyquote.com/quotes/authors/t/tony_fernandes.html

12 Arief Maulana, Buku Kuliah Manajemen Strategi. Universitas Widyatama, Jakarta, 2011, page 1.

13 Loc. Cit page 2.

6

internal aspects. This means that they are within the control of the business. They may

refer to aspects of marketing, finance, manufacturing or organization. Opportunities and

threats are external factors. This means that they are outside the control of the

business. Reviews to this term may include the environment, the economic situation, social

changes or technological advances, such as the internet.14

Based on the analysis mbaskool.com AirAsia global corporation in the world as follows: 15

Table IV.A.1

AirAsia in Global SWOT Analysis

SWOT Analysis

Strength 1. Strong Promoter 2. Well established LCC operating out of South East Asia 4. It has subsidiaries in Indonesia, Thai, Philippines, Japan 5.It has a fleet size of nearly 300 aircrafts

Weakness 1. AirAsia Crash Tragedy 2.Not on too many routes as compared to market leaders 3.Stiff competition in its sector 4. Heavy dependent on Contracts and outsourcing

Opportunity 1. The increasing traffic from India and Indians prefer budget airlines as they are cost conscious 2. Has Positioned itself as the major LCC in SE Asia

Threats 1. Rising Fuel Costs 2. Rising Labor Costs 3. Rise of Other LCCs in Market

In the table above it can be concluded that (1) AirAsia despite facing threats, but it still has

the power internally with Product and market diversification strategy.(2) AirAsia has the

opportunity to address the threat and minimize weaknesses.

14

The Times 100, SWOT analysis and sustainable business planning. MBA Publishing Ltd, London, 2009,

page 1.

15 accessed on December 15, 2015, from http://www.mbaskool.com/brandguide/airlines/531-air-asia.html

7

According to this SWOT analysis, we can reference for AirAsia in Indonesia, because it all

indicators mentioned in Global, have the relevant circumstances such as in

Indonesia. Then how is AirAsia strategy to doing business in Indonesia?

B. AirAsia strategy to doing business in Indonesia

Re-look at the goals of the company, how the development AirAsia in Indonesia and a

strategy for doing business in Indonesia?

Let's look at this AirAsia marketing strategy, they can gain the sympathy of potential users

and retain their users. Not only that, AirAsia-also managed to obtain a profit, even instead

of advertising.

1. AirAsia Brand Image

AirAsia's brand image is closely tied with its chief executive, Malaysian entrepreneur

Tony Fernandes, who took over operations in 2001. Almost always in jeans and an

AirAsia cap when interviewed, Mr Fernandes was seen as Malaysia's answer to Richard

Branson.

In the same way that Mr Branson took on the dominance of British Airways in the 1980s,

Mr Fernandes wanted to compete with established long-haul carriers in the region - like

Malaysia's own flag carrier, Malaysian Airlines.

8

He's listed as one of the richest men in Malaysia and has always been adept at spinning his

marketing message out to the media. With this plane's disappearance, he's wasted no time

in tweeting out messages of support to the family and has already arrived in Surabaya

along with members of the Indonesian affiliate of AirAsia.16

As soon as AirAsia Indonesia confirmed that Flight QZ 8501 Surabaya, Indonesia-

Singapore, Singapore had been lost in December 2014, the company’s CEO Tony

Fernandes took to Twitter to express his dismay.17

With his airline plane missing over the Java Sea, Fernandes will bring his public leadership

style to the search more than 160 missing people who were flying his airline. On Friday,

the CEO left for the Eastern Java city where the missing flight began.18

2. Strengthen the fleet and flight service

Until now, the fleet owned by AirasiaIndonesia is still less than Lion Air Indonesia. But

the Malaysian airline did not hesitate to buy new aircraft. Indonesia AirAsia will bring in

16

accessed on March 21, 2016, from http://www.bbc.com/news/business-30615449

17accessed on March 21, 2016, from http://time.com/3648012/tony-fernandes-airasia/

18 Loc. Cit

9

seven planes of type Airbus A320 aircraft in 2014. The addition is made to connect the hub

of AirAsia in Indonesia. Currently AirAsia has six hubs including Medan, Surabaya,

Jakarta, Denpasar and more.19

In buying new aircraft AirAsia also do the following things:

1) Defer Airbus A320 CEOs to later dates to take advantage of new NEOs (16% more

fuel efficient)

2) Selling of older aircraft to ensure a young and efficient fleet

3) To manage growth, ensuring all country operations focus on maximising profits

from current routes

4) Allowing operations in Indonesia and Philippines to execute turnaround plan

5) Growth to be given to new markets like Japan and India, and high-growth market

like Thailand

In addition to bringing new aircraft to strengthen its fleet, another strategy is to increase

the local and international flights. Chief Operation Officer of AirAsia Indonesia Ridzki

Kramadibrata said it would add a route to connect the air hub that currently exist in six

regions of Indonesia.20

AirAsia currently has hubs in Surabaya, Makassar, Bandung, Denpasar, Jakarta, Medan

"The new route we will try to develop a plan of hub that we had the example of Medan and

Surabaya. Connect the hub of all, and then open the hub of international routes from

Medan-Jakarta not connect, "said Ridzki.21

3. LCC with Ancillary Income

19

accessed on December 15, 2015, from http://suarapengusaha.com/2013/04/23/ini-dia-strategi-airasia-

singkirkan-lion-air-dan-kuasai-langit-indonesia/

20 Loc. Cit

21 accessed on March 21, 2016, from http://economy.okezone.com/read/2012/11/28/320/724406/airasia-

tunjuk-direktur-operasional-baru

10

The best way to describe the standard of AirAsia is that it is similar to the likes of Easy Jet

and Jetstar. The airline has a reasonable sized fleet of modern aircraft, fitted out to put

bums on seats with no extra frills.

When a passenger using airasia then have to do is sit comfortably and find that the leg

room is adequate for short haul flights. However as LCC everything else comes at an

expense. From food, entertainment, blankets and seat selection, you will need to pre-order

or pay on board (higher price) for everything. Passengers will be aware that for most

destinations out of Cities. They won’t require many of these extras as you’re only in the air

for a few hours.22

In this case, the income earned airline to charge more by doing the following:

1) On-board Wi-Fi

Commercially Launched in October '14. With this service, passengers can enjoy the Instant

messaging - LINE, Whatsapp and WeChat. First 2 weeks in the procurement program, has

sold 400 tokens. Top performing route for this service is KUL - Kunming. Initially the

service is only available on four aircraft, but is now increasingly being extended and can

do video streaming, email and streaming content since 2015.

Picture IV.2. on-board wifi

2) Premium Flex

With this service, the passengers get the ease of Baggage, free flight change, priority

seating and boarding. Passengers also get a Special check-in counters for premium flex

users. In this regard has supported 14% growth in premium revenue Flex. In the future

22

accessed on March 21, 2016, from http://travelproject.com.au/who-is-air-asia/

11

passengers will also receive priority baggage drop, pick-up and exploring the express

security and immigration checks.

3) Inflight Meals Redbox

These services contribute about RM74mil in 2014 in January 2015, revenue growth

derived from pre-book in inflight hot meals and snacks. Passengers can also choose combo

meals, which have contributed to the overall increase is in F & B revenue, revamp of menu

and include the kids' meal. This method is effective for services to produce only about

5.6% Wastage

In 2015, AirAsia has also issued a Barista services in the Skies. AirAsia is First airline to

have freshly brewed premium coffees served by trained baristas onboard, to be done in

phases.23

4. Human Resource

In terms of Human Resources, Corporate Communications Manager of Indonesia AirAsia

Audrey Progastama Petriny revealed, AirAsia has 180 pilots. Of these, about 4 percent, or

about 7 people are foreign pilots. "Not everyone needs pilot could be met local pilots,

inevitably we have to use foreign workers." To meet the energy pilot, AirAsia taking on

graduates STPI Curug, Indonesia and AirAsia also took the Bali International Flight

Academy (BIFA). Some students are given an employment contract in order when you

graduate from BIFA they immediately joined the airline. In the contract, AirAsia willing to

23

Laikar, Aziz, 2014. AIRASIA BERHAD, 4Q14 AND FY2014 EARNINGS BRIEFING, Communication Department

2014, AirAsia, page.15

12

pay half the cost of education until they graduate pilots. Pilots have to refund half the cost

of education in installments from their salaries in AirAsia.24

In 2012. BIFA re-implement the graduation class VIII in 2012, which graduated 21 pilots

after completing the education and training flights for one year. Education and training for

one year to achieve certification Private Pilot License (PPL), Commercial Pilot License

(CPL), and instrument rating, as a sign of the graduates are ready to become a professional

pilot.25

During the ceremony, Robby Djohan, BIFA chairman said:

“21 pilot generation VIII is composed of 20 pilots who will be working directly on

AirAsia Indonesia and the pilots are candidates for the Flight Instructor prepared by BIFA

in the technology transfer process and provide an opportunity for instructors Indonesia to

develop and share their knowledge with the pilots Indonesia”26

What about the need for flight attendants and stewards? in fact many airlines that use the

services of an outsourcing company or the employment agency in the recruitment of flight

attendants and stewards including airline AirAsia, wage system that is making profits for

the company but slightly less favorable for the workers, this is because the system existing

payroll based on each working hours. This resulted in many negative issues affecting the

24

accessed on March 21, 2016, from https://www.academia.edu/3655030/Article_Airasia_

25 accessed on March 21, 2016, from http://www.tribunnews.com/bisnis/2012/08/15/21-calon-pilot-

airasia-diwisuda-bifa

26 accessed on March 21, 2016 http://www.beritasatu.com/berita-utama/66384-airasia-serap-20-pilot-

lulusan-bifa.html

13

flight attendants, but it is different from those in the airline AirAsia which, although

AirAsia famous with the airline low cost career but when discussing welfare for workers

AirAsia are superior to the other airlines in the region Southeast Asia.27

V.Conclusion

AirAsia in Indonesia, since 2005 when entry to Indonesia was able to prove global market

as dominant Malaysian companies. With his network pattern, although despite facing

threats, but AirAsia Indonesia still has the power internally to Dominating in Indonesia

with product and market in LCC operating. In addition, AirAsia has the opportunity to

address the threat and minimize weaknesses.

By Good promotion and Campaign, AirAsia brand image, Strengthen the fleet and flight

service, LCC with Ancillary Income and Human Resource, AirAsia Indonesia is able to

become one of the global companies that can be accepted in Indonesia. Currently AirAsia

Indonesia has developed bargaining power with supplier, with buyer and passenger also

strengthen his position in Asia Pacific as domestic and international airlines in Indonesia,

it is not impossible AirAsia Indonesia will become increasingly popular.

27

accessed on March 21, 2016, from https://www.academia.edu/3655030/Article_Airasia_

14

Bibliography

Adzhar, 2012. Jumpstart Malaysia, People Department 2012, AirAsia

Arief Maulana, Buku Kuliah Manajemen Strategi. Universitas Widyatama, Jakarta, 2011

http://economy.okezone.com/read/2012/11/28/320/724406/airasia-tunjuk-direktur-

operasional-baru

http://suarapengusaha.com/2013/04/23/ini-dia-strategi-airasia-singkirkan-lion-air-dan-

kuasai-langit-indonesia/

http://time.com/3648012/tony-fernandes-airasia/

http://travelproject.com.au/who-is-air-asia/

http://www.airasia.com/la/en/about-us/corporate-profile.page

http://www.bbc.com/news/business-30615449

http://www.beritasatu.com/berita-utama/66384-airasia-serap-20-pilot-lulusan-bifa.html

http://www.bernama.com/bernama/v8/bu/newsbusiness.php?id=1225172

http://www.brainyquote.com/quotes/authors/t/tony_fernandes.html

http://www.mbaskool.com/brandguide/airlines/531-air-asia.html

http://www.tribunnews.com/bisnis/2012/08/15/21-calon-pilot-airasia-diwisuda-bifa

http://www.worldairlineawards.com/Awards/worlds_best_lowcost_airlines.html

https://www.academia.edu/3655030/Article_Airasia_

Laikar, Aziz, 2014. AIRASIA BERHAD, 4Q14 AND FY2014 EARNINGS BRIEFING,

Communication Department 2014, AirAsia, page.15

Laikar, Aziz, 2014. Preliminary Operating Statistic AirAsia, Communication Department

2014, AirAsia, page.6

The Times 100, SWOT analysis and sustainable business planning. MBA Publishing Ltd,

London, 2009