Paper Example on Southeast Asia Aviation Industry: The Impact of Market Liberalization

Introduction

The market liberalization, as well as the introduction of the low-fare airlines, revolutionized the Southeast Asia aviation industry. The macro-environment of the Southeast Asian region entails stiff competition in budget traveler as the deregulation practice opened the market for the international players. The liberalization of the Southeast Asia region led to a significant increase in the number of carriers in the industry. Besides liberalization, government involvement in the Southeast Asian area in terms of infrastructure development as in the case of Malaysia, increasing the chances of new budget airlines entering the market as well as providing essential operation grounds. A large number of new entrants and players saturated the market and increased the competition. The Asia-Pacific market has a tradition and preference for the full-service airlines as opposed to the budget airlines. The survival and continued operation of the budget airlines, therefore, depended on their ability to compete with the full-service airlines.

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The Association of Southeast Asian Nations (ASEAN) offers an opportunity for new entrants budget airlines in the Asia-Pacific region. Its action towards the full liberalization of the Asia-Pacific region creates a conducive environment for incumbent players in the industry. However, its operation of opening the sector to any player in the industry results in the saturation of the market, which enhances stiff competition among the players. Therefore, the main challenges associated with the environment are stiff competition, high cost of fuel, as well as consumer preferences. The formation of trade alliances between the market giants such as that of the AirAsia and Jetstar of 2010 enhances stiff competition in the market as these players dominate the market through cost-sharing in terms of the purchase of new airplanes and sharing fuel costs. Therefore, they have a leg-up over incumbent budget planes. They thus pose the most significant challenge in the market.

The Disparity in Demand for Low-Fare Services in the Asia-pacific Region and North America and Europe

Price acts as the primary competitive element in the low-fare services. The reaction of the market to the changes in cost through the demand for the budget airlines determines the difference in the need for the services. According to the remarks of the Asia Pacific Airline Association of 2003, the budget airlines offered no significant threat to the changes in the market. Asia's market demonstrated that it valued the quality of service as opposed to the price suggested. There is a likelihood that, unlike the United States, where the price is a factor of consideration, it did not have much effect on the Asia-Pacific region. However, the situation changed when the budget airlines offered competitive rates that would even compete with road transport.

The trend in the Asia-Pacific region is that the low-fare airlines do not have the same competitive ground with the full carrier or expensive provider airlines for the same market. They only tend to attract a group of people who cannot travel by air was it not for the low-fare airlines. Social class in airline travel is a significant factor in the Asia-Pacific region while it is less significant in the United States and Europe. Therefore, it contributes significantly to the differences in demand for budget airlines in the areas.

The disparity in the income levels in the Asia-Pacific and that of North America and Europe is an essential factor contributing to the difference in demand for the budget airlines. The low levels of income are an indication that the population will prefer low-fare airlines to the regular full carriers. Therefore, it creates a substantially higher demand and increased opportunities for low-fare airlines as compared to the markets in Europe and North America. The low-fare airlines, especially in Malaysia, went so low to the point that the airlines were competing with cars and bus transport. The competitive advantage led to the rise in demand for budget airlines. Unlike North America and Europe, where alternative transportation modes such as fast rail services connecting different countries, the Asia-Pacific region lacked such alternative ways. The lack of alternative methods played a significant role in enhancing the demand for low-fare airlines.

Additionally, there are relatively fewer consumers with the ability to afford expensive airlines in the Asia-Pacific region. The cumulative effect of the demand for budget airlines in the Asia-Pacific region is as a result of sensitivity to fares due to income levels, the different traditional approaches to changes in price, and lack of the high-speed rail connecting countries. These factors do not affect the markets in Europe and North America very much. Therefore, the demand for low-fare airlines in the Asia-Pacific region may be higher in comparison to that in North America and Europe.

Other factors that might trigger disparity in the market situation for low-fare airlines in the regions include the impact of internet resources in flight bookings. The Asia-Pacific region relied heavily on the travel agents while North America and Europe depended on online booking. Therefore, the demand in North America's market might have been slightly higher than that in the Asia-Pacific as a result of technological application. The situation has since changed with the changes in the operating frameworks of the AirAsia airlines. Additionally, the Asia-Pacific budget airlines tend to dominate a relatively smaller market share in the region in comparison to that in the Western markets.

A Comparison of the AirAsia's Generic Strategy with those of Incumbent Carriers, Southwest and Ryanair

A critical analysis of the operations of AirAsia and the Southwest airlines reveals numerous similarities in their modes of operation and business strategies. The tempo with which AirAsia entered the airline company after Fernande's take over was a super blend of the Ryanair, Southwest, and easyJet. The company borrowed the operational strategy of Ryanair, the people strategy from the Southwest airlines, and the branding strategy from the easyJet. Therefore, it is evident that the company will bear several similarities with these companies. Some of the areas that demonstrate similarities in the operational strategies between AirAsia and the Southwest and Ryanair airlines include the operating short-hauls, running non-stop flights that operated from point to point network, and the low-fares services.

Both the AirAsia and the Ryanair airlines were companies registering consistent losses. However, a change in the management and organizational strategies resulted in a difference in the situation. The two airlines gained development mileage in terms of rising from money-losing airlines to low-cost, and adequate budget airlines. The primary area of focus in the operational strategies for the two is employing a business-oriented mechanism that tends to focus much on the people's experience.

Both AirAsia and Southwest airlines employ people-oriented strategies in their operations. The two airlines use business models that offer efficient operations to their clients. They offer low-pricing costs in their operations to attract clients and maintain profit margins. AirAsia has similar management strategies to the Southwest and Ryanair airlines. It imitates the strong management team in its services. The management operations in the two companies show similarities in the implementation of policies in the company. In addition to that, AirAsia and incumbent carriers demonstrate similarities in the branding approaches. There are close relations between the branding methods of AirAsia and those of incumbent carriers.

Some of the primary differences in the AirAsia's strategies and those of the incumbent, Southwest and Ryanair airlines include the imitation of business models that proved the significant potential for success in other companies and industries and implementing the strategies in their operation. For example, the company started operating the international low-fare modal on the long-haul services. Southwest airline deemed the approach inefficient, but AirAsia proves that it was a viable opportunity. AirAsia's operations through the formation of an alliance with the Jetstar seems to be different from those of the incumbent, Ryanair, and the Southwest airlines.

Fernandes' Approach towards the Range of Political, Economic and Operational Uncertainties and Risks during the Takeover of AirAsia

The case study portrays Fernandes as a risk-taker. His takeover in AirAsia was a result of his ambition and self-motivation towards owning an airline company. The struggling position of the AirAsia at the time when he took over the company served as an opportunity for him to fulfill his dream He had all the information about the risks involved in the industry and the nature of the company since he had worked in the field for an extended period. Fernandes, to some point, weighed the economic and operational uncertainties involved in the field. His interaction with McCarthy before and after the takeover indicates that he was making calculated risks in the economic uncertainties. However, he ignored some generalizations in the industry, such as operating the long-haul in an international realm. His action is an indication that he overlooked the political risks and uncertainties involved in the industry.

The macro-political environment is a vital factor for consideration in the aviation industry. It is critically essential, especially for a company operating in the Asia-Pacific region, an area with a history of political instability. Most of the success that Fernandes acquired in the takeover of the AirAsia was primarily as a result of luck. His entrepreneurial actions seem to focus on economic and operational success and overlooked political uncertainties. There are no areas in the case study that focus on the activities that Fernandes took concerning the political instability, currency difference, and fluctuations, racial and ethnic discrimination issues when expanding to international markets, as well as the challenging environment of the spillover effects.

Fernandes's Entrepreneurial Strategies

Fernandes is a risk-taker, has an immense entrepreneurial spirit, focus on his goals amidst opposition, and has the determination to see that whatever he has in mind works out. Fernandes identified an opportunity for entrance into the airline industry and took advantage of the chance without blinking. He took over AirAsia amidst several losses and business failures. His primary drive was to revolutionize the company and the entire aviation industry. Fernandes critically analyzed the situation in the industry and determined that a blend of the strategies used by successful players in the industry would revive AirAsia. He pursued that course, and it eventually paid. He registered successful outcomes in the industry but did not relax. He continued putting more effort into the business, making necessary entrepreneurial decisions that involved lots of risks and continued to acquire economic mileage. Some of his most exceptional entrepreneurial traits include responsive to change, taking calculated risks, high-level flexibility, and research and analytical skills. In addition to that, luck played a significant role in the success of his operations. He utilized all his resources and extended to borrow and acquire leases to take advantage of the situations regardless of the outcomes of the case.

AirAsia's Response to the Challenges of New Low-Fare Carriers in the Asian Marketplace

AirAsia h...