internal environment

| December 3, 2015

internal environment
Order Description
Focusing on the internal environment, in which of the case organisation’s principal functions and activities do the organisation’s main competitive advantages lie? Identify the distinctive resources and capabilities in each of these functions/activities. To what extent is case organisation’s competitive advantage sustainable?
By 2009, AirAsia had established itself as Asia ’s most successful low-cost airline.
Between January 2002 and March 2009, AirAsia had expanded from two aircraft and
200,000 passenger journeys to 79 aircraft and 11.8 million passenger journeys. Its
route network had grown beyond Malaysia to cover 10 Southeast Asian countries.
In addition to its hub in Kuala Lumpur (KL), Malaysia, it had replicated its system by
establishing associated airlines in Thailand and Indonesia.
By 2007, UBS research showed that AirAsia was the world ’s lowest-cost airline
with costs per available seat kilometer (ASK) signifi cantly below those of Southwest,
Jet Blue, Ryanair, or Virgin Blue (Figure 1 ). It was also one of the world ’s most profitable
airlines. In 2008, when very few of the world ’s airlines made any profi t at all,
AirAsia earned a return on assets of 4%. 1 In 2009, it won the Skytrax Award as “The
World ’s Best Low Cost Airline.”
AirAsia had built its business on the low-cost carrier (LCC) model created by
Southwest Airlines in the US and replicated throughout the world by a host of imitators.
AirAsia had adapted the basic LCC model to the market, geographical, and
institutional features of Southeast Asia while preserving the principal operational
A irAsia: The World’ s
Lowest-cost Airline
700
$0.10
$0.09
$0.08
$0.07
$0.06
$0.05
$0.04
$0.03
900 1,100
AirAsia
1,300 1,500
Average Trip Length Operating costs per ASK
1,700 1,900 2,100 2,300
airberlin
Virgin Blue
SkyEurope
SpiceJet
easyJet
WestJet
GOL
Air Arabia
JetBlue
Ryanair
Veuling
Southwest
FIGURE 1 Costs in US cents per available seat kilometer for different low-cost
airlines
Source: AirAsia Presentation, CLSA Forum, Hong Kong, September 2007.
Written by Robert M. Grant. The case draws upon a report written by Sara Buchholz, Nadia
Fabio, Andrés Ileyassoff, Laurent Mang, and Daniele Visentin: AirAsia: Tales from a Long-haul
Low Cost Carrier, Bocconi University (2009), and from an earlier case by Thomas Lawton and
Jonathan Doh: The Ascendance of AirAsia: Building a Successful Budget Airline in Asia (Ivey
School of Business, Case No. 9B08M054 2008). Used by permission of the authors. © 2012,
Robert M. Grant.
CAIRASIA: THE WORLD’S LOWEST-COST AIRLINE
features of the strategy. However, in 2007, AirAsia embarked upon a major departure
from the LCC model: expansion into long-haul fl ights by inaugurating routes to
Australia and China and then, in 2009, to India and the UK. The conventional wisdom
was that the effi ciency of the LCC model was dependent upon short and mediumdistance
fl ights with a single type of aircraft and minimal customer amenities—intercontinental
fl ights required contravening these basic conditions. Very few LCCs had
ventured into long-haul; even fewer had made a success of it.
To evaluate AirAsia ’s potential to expand from being a regional carrier to an
international airline would require a careful analysis of the basis of its existing cost
advantage and an evaluation of the transferability of these cost advantages to the
long-haul market.
The History of AirAsia
The growth of AirAsia is closely associated with the entrepreneurial effort of Tony
Fernandes. Son of a Malaysian doctor, Fernandes was sent to boarding school in
Britain with a view to following his father ’s footsteps into the medical profession.
Tony had other ideas and, after an accounting degree at the London School of
Economics, he went into music publishing, fi rst with Virgin, then Time Warner. He
describes his decision to start an airline as follows:
I was watching the telly in a pub and I saw Stelios [Haji-Ioannou] on air talking
about easyJet and running down the national carrier, British Airways. (Sound
familiar? Hahaha.) I was intrigued as I didn ’t know what a low cost carrier was but
I always wanted to start an airline that fl ew long haul with low fares.
So I went to Luton and spent a whole day there. I was amazed how people were
fl ying to Barcelona and Paris for less than 10 pounds. Everything was organized
and everyone had a positive attitude. It was then at that point in Luton airport that
I decided to start a low cost airline. 2
He subsequently met with Conor McCarthy, former operations director of Ryanair.
The two developed a plan to form a budget airline serving the Southeast Asia market.
Seeking the support of the Malaysian government, Fernandes was encouraged
by Prime Minister Mahathir Mohammad to acquire a struggling government-owned
airline, AirAsia. With their own capital and support from a group of investors, they
acquired AirAsia for one Malaysian ringgit (RM)—and assumed debts of RM40 million
(about $11 million). In January 2002, AirAsia was relaunched with just three
planes and a business model that McCarthy described as: “a Ryanair operational
strategy, a Southwest people strategy, and an easyJet branding strategy.” 3
Fueled by rising prosperity in Malaysia and its large potential market for leisure
and business travelers seeking inexpensive domestic transportation, AirAsia ’s
domestic business expanded rapidly. In January 2004, AirAsia began its fi rst international
service from KL to Phuket in Thailand; in February 2004, it sought to tap
the Singapore market by offering fl ights from Johor Bahru, just across the border
from Singapore, and in 2005 it began fl ights to Indonesia.
International expansion was fi nanced by its initial public offering (IPO) in
October 2004, which raised RM717 million. Airline deregulation across Southeast
Asia greatly facilitated international expansion. To exploit the market for budget
travel in Thailand and Indonesia, AirAsia adopted the novel strategy of establishing
joint-venture companies in Thailand (Thai AirAsia) and Indonesia (Indonesia
AirAsia) to create new hubs in Bangkok and Jakarta. In both cases, the operations of
these companies were contracted out to AirAsia, which received a monthly fee from
these associate companies.
From the beginning, Fernandes had set his sights on long-haul travel, guided
by the example of his hero, Freddie Laker, the pioneer of low-cost transatlantic
air travel. However, this risked his good relations with the Malaysian government
because it put AirAsia into direct competition with the national airline, Malaysia
Airlines. Hence, Fernandes established a separate company, AirAsia X to develop its
long-haul business. AirAsia X is owned 16% by AirAsia (with an option to increase
to 30%), 48% by Aero Ventures (co-founded by Tony Fernandes), 16% by Richard
Branson ’s Virgin Group, with the remaining 20% owned by Bahrain-based Manara
Consortium and Japan-based Orix Corporation. Operationally, AirAsia and AirAsia X
are closely linked.
In 2007, fl ights began to Australia, followed by China. By July 2009, AirAsia X had
fl ights from KL to the Gold Coast, Melbourne, and Perth in Australia; Tianjin and
Hangzhou in China; and Taipei and London using fi ve Airbus A340s, with three more
to be delivered by year-end. Planned future routes included Abu Dhabi (October
2009), India (2010), and later Sydney, Seoul, and New York. At Abu Dhabi, AirAsia
X planned to have a hub that would serve Frankfurt, Cairo, and possibly East Africa
too: “You just can ’t get to East Africa from Asia,” observed Fernandes. 4 To support its
expansion, AirAsia X ordered 10 Airbus A350s for delivery in 2016.
AirAsia ’s Strategy and Culture
Strategy
AirAsia described its strategy as follows:
? Safety fi rst: partnering with the world ’s most renowned maintenance providers
and complying with world airline regulations.
? High aircraft utilization: implementing the region ’s fastest turnaround time at
only 25 minutes, assuring lower costs and higher productivity.
? Low fare, no frills: providing guests with the choice of customizing services
without compromising on quality and services.
? Streamline operations: making sure that processes are as simple as possible.
? Lean distribution system: offering a wide and innovative range of distribution
channels to make booking and traveling easier.
? Point-to-point network: applying the point-to-point network keeps operations
simple and costs low. 5
Prior to its expansion into long-haul, AirAsia identifi ed its geographical coverage
as encompassing three-and-a-half hours ’ fl ying time from its hubs. Fernandes ’
confi dence in his growth strategy rested on the fact that “This area encompasses
a population of about 500 million people. Only a small proportion of this market
regularly travels by air. AirAsia believes that certain segments of this market have
AIRASIA: THE WORLD’S LOWEST-COST AIRLINE
been under-served historically and that the Group ’s low fares stimulate travel within
these market segments.” 6 Its slogan “Now Everyone Can Fly!” encapsulated AirAsia ’s
goal of expanding the market for air travel in Southeast Asia.
To penetrate its target market, AirAsia placed a big emphasis on marketing and
brand development. “The brand is positioned to project an image of a safe, reliable
low-cost airline that places a high emphasis on customer service while providing an
enjoyable fl ying experience.” For an LCC, AirAsia had comparatively large expenditures
on TV, print, and internet advertising. AirAsia used its advertising expenditures
counter-cyclically: during the SARS outbreak and after the Bali bombings, AirAsia
boosted its spending on advertising and marketing. In addition, it sought to maximize
the amount of press coverage that it received. AirAsia also built its image
through co-branding and sponsorship relationships. A sponsorship deal with the
AT&T Williams Formula 1 race car team resulted in AirAsia painting one of its A320s
in the livery of a Williams race car. Its sponsorship of Manchester United encouraged
it to paint its planes with the portraits of Manchester United players. It also
sponsored referees in the English Premier League. A cooperative advertising deal
with Time magazine resulted in an AirAsia plane being painted with the Time logo.
Its internet advertising included banner ads on the Yahoo mobile homepage and
a Facebook application for the Citibank–AirAsia credit card. The overall goals were
increasing visibility, encouraging interaction, and allowing users to immerse themselves
in the AirAsia brand.
This heavy emphasis on brand building provided AirAsia with a platform for
offering services that met a range of traveler needs. AirAsia offered an AA express
shuttle bus connecting airports to city centers with seats bookable simultaneously
with online booking of plane tickets. Fernandes also founded Tune Hotels, a chain
of no-frills hotels co-branded with AirAsia. Tune Money offered online fi nancial
services—again co-branded with AirAsia.
Culture and Management Style
AirAsia ’s corporate culture and management style refl ected Tony Fernandes ’ own
personality: informal, friendly, and cheerful. In the same way that culture and brand
identity of Southwest Airlines and the Virgin airlines (Virgin Atlantic, Virgin Blue,
and Virgin America) refl ect the personalities of founders Herb Kelleher and Richard
Branson, respectively, Fernandes has used his personality and personal style to create
a distinct identity for AirAsia. His usual dress of jeans, open-neck shirt, and baseball
cap provide a clear communication of AirAsia ’s unstuffy, open culture. Its team
spirit, commitment to job fl exibility, and lack of hierarchy were reinforced from the
top: Fernandes worked one day a month as a baggage handler, one day every two
months as cabin crew, and one day every three months as a check-in clerk.
The share offer prospectus described AirAsia ’s culture as follows:
The Group prides itself on building a strong, team-orientated corporate culture. The
Group ’s employees understand and subscribe to the Group ’s core strategy and
actively focus on maintaining low costs and high productivity. AirAsia motivates
its employees by awarding bonuses based upon each employee ’s contribution to
AirAsia ’s productivity, and expects to increase loyalty through its ESOS [employee
share ownership scheme] which will be available to all employees. The Group ’s
management encourages open communication which creates a dynamic working
environment, and meets all its employees on a quarterly basis to review
AirAsia ’s results and generate new ways to lower costs and increase productivity.
Employees . . . frequently communicate directly with AirAsia ’s senior management
and offer suggestions on how AirAsia can increase its effi ciency or productivity . . .
In addition to the above, AirAsia:
? inculcates enthusiasm and commitment among staff by sponsoring numerous
social events and providing a vibrant and friendly working environment
? strives to be honest and transparent in its relations with third parties . . .
? fosters a non-discriminatory, meritocratic environment where employees are
offered opportunities for advancement, regardless of their education, race, gender,
religion, nationality or age, and
? emphasizes maintaining a constant quality of service throughout all of AirAsia ’s
operation through bringing together to work on a regular basis employees
based in different locations. 7
AirAsia ’s Operations
AirAsia ’s operations strategy comprised the following elements:
? Aircraft : In common with other LCCs, AirAsia operated a single type
of aircraft, the Airbus A320. (It switched from Boeing 737s in 2005.) A single
aircraft type offered economies in purchasing, maintenance, pilot training,
and aircraft utilization.
? No-frills fl ights : AirAsia offered a single class, which allowed more seats
per plane. For example, when it was operating its Boeing 737s, these
were equipped with 148 seats, compared to 132 for a typical two-class
confi guration. Customer services were minimal: complimentary meals and
drinks were not served on board—but snacks and beverages could be
purchased, passengers paid for baggage beyond a low threshold, and there
was no baggage transfer between fl ights. AirAsia did not use aerobridges
for boarding and disembarking passengers, which was another cost-saving
measure. Flights were ticketless and there was no assigned seating. Such
simplicity allowed quick turnaround of planes, which permitted better
utilization of planes and crews.
? Sales and marketing : AirAsia engaged in direct sales through its website and
call center. As a result, it avoided paying commission to travel agents.
? Outsourcing : AirAsia achieved simplicity and cost economies by
outsourcing those activities that could be undertaken more effectively and
effi ciently by third parties. Thus, most aircraft maintenance was outsourced
to third parties, contracts being awarded on the basis of competitive
bidding. Most of AirAsia ’s information technology requirements were also
outsourced.
AIRASIA: THE WORLD’S LOWEST-COST AIRLINE
? Information technology : AirAsia used Navitair ’s Open Skies computer reservations
system (CRS), which linked Web-based sales and inventory system,
which also linked with AirAsia ’s call center. The CRS was integrated with
AirAsia ’s yield management system (YMS) that priced seats on every fl ight
according to demand. The CRS also allowed passengers to print their own
boarding passes. In 2006, AirAsia implemented a wireless delivery system
which enabled customers to book seats, check fl ight schedules, and obtain
real-time updates on AirAsia ’s promotions via their mobile phones—an
TABLE 1 Comparing operational and fi nancial performance between AirAsia
and Malaysia Airlines
AirAsia Malaysia Airlines
Operating data
Passengers carried (millions) 11.81 13.76
Available seat kilometers (billions) 18.72 53.38
Revenue passenger kilometers (billions) 13.49 36.18
Seat load factor (%) 75.0 67.8
Cost per available seat kilometers (sen a ) 11.66 22.80
Revenue per available seat kilometers (sen) 14.11 20.60
Number of aircraft in fl eet December 31, 2008 78.0 109.0
Number of employees 3,799 19,094
Aircraft utilization (hours per day) 11.8 11.1
Financial data (RM, millions) a
Revenue 2,635 15,035
Other operating income 301.8 466.0
Total operating expense 2,966.0 15,198.3
of which:
—Staff costs 236.8 2,179.9
—Depreciation 347.0 327.9
—Fuel costs 1,389.8 6,531.6
—Maintenance and overall 345.1 1,146.4
—Loss on unwinding derivatives 830.2 —
—Other operating expenses b 139.2 5,020.0
Operating profi t (351.7) 305.5
Finance cost (net) 517.5 60.8
Pre-tax profi t (869.2) 264.7
After-tax profi t (496.6) 245.6
Total assets 9,520.0 10,071.6
of which:
—Aircraft, property, plant and equipment 6,594.3 2,464.8
—Inventories 20.7 379.7
—Cash 153.8 3,571.7
—Receivables 694.4 2,020.1
Debt 6,690.8 433.4
Shareholders ’ equity 1,605.5 4,197.0
Notes:
Figures in parentheses denote a loss.
a RM: Malaysian ringgit; 1 ringgit: 100 sen (cents). During 2008/9 the average exchange rate was US$1 5 RM3.43.
b For AirAsia the main components were aircraft lease expenses and loss on foreign exchange. For Malaysia
Airlines the main components were hire of aircraft, sales commissions, landing fees, and rent of buildings.
important facility in the Asia-Pacifi c region because of the extensive use of
mobile phones. The YMS helped AirAsia to maximize revenue by providing
trend analysis and optimize pricing; it also gave information on future
passenger numbers that was used by AirAsia ’s Advanced Planning and
Scheduling (APS) system to minimize operational costs by optimizing supply
chain and facilities management. These two IT systems allowed AirAsia to
reduce costs in logistics and inbound activities. During 2005, AirAsia adopted
an ERP (enterprise resource planning) system to support its processes, facilitate
month-end fi nancial closing, and speed up reporting and data retrieval. 8
This was superseded by an advanced planning and scheduling system, which
optimized AirAsia ’s supply chain management and forecasted future resource
requirements.
? Human resource management : Human resource management had been
a priority for AirAsia since its relaunch under Tony Fernandes. A heavy
emphasis was given to selecting applicants on the basis of their aptitudes,
then creating an environment and a system which developed employees
and retained them. AirAsia ’s retention rates were exceptionally high, which
it regarded, fi rst, as an indicator of motivation and job satisfaction and as a
cost-saving measure—because employees were multi-skilled, AirAsia ’s training
costs per employee tended to be high. Job fl exibility at all levels of the
company, including administration, was a major source of productivity for
AirAsia.
AirAsia: Cost Information
To offer a comparative view of AirAsia ’s operational effi ciency and cost position,
Table 1 provides operating and fi nancial information on Malaysia ’s two leading airlines:
Malaysia Airlines and AirAsia. Although Malaysia Airlines ’ route network was
very different from that of AirAsia ’s (Malaysia Airlines had a larger proportion of
long-haul routes), it was subject to similar cost conditions as AirAsia.
For the fi rst time since its relaunch in 2002, AirAsia made a loss in 2008. This was
the result of Fernandes ’ decision to unwind AirAsia ’s futures contracts for jet fuel
purchased. When crude oil prices started to tumble during the latter half of 2008,
Fernandes believed that AirAsia would be better off taking a loss on its existing contracts
in order to benefi t from lower fuel prices.
Going Long-haul
Fernandes was aware that expanding from short-haul fl ights in Southeast Asia
to fl ights of more than four hours to China, Australia, Europe, and the Middle
East required major changes in operating practices and major new investments,
primarily in bigger planes. The creation of AirAsia X was intended to facilitate a
measure of operational independence for the long-haul fl ights while also spreading
the risks of this venture among several investors. The investors in AirAsia X
also contributed valuable expertise: Virgin Group had experience in establishing
and operating four airlines (Virgin Atlantic, Virgin Express, Virgin Blue, and Virgin
AIRASIA: THE WORLD’S LOWEST-COST AIRLINE
USA), and the chairman of Air Ventures was Robert Milton, the former CEO of Air
Canada.
Table 2 shows the principal differences in AirAsia and AirAsia X ’s operations and
services.
Kuala Lumpur to London: Price and Cost Comparisons
A comparison of prices and costs allows a clearer picture of AirAsia ’s ability to
compete in the long-haul market—a market in which AirAsia had to establish itself
against some of the world ’s major airlines. Between KL and London, AirAsia was
in competition with at least six international airlines, the closest of which were
Malaysia Airlines, Emirates, and British Airways.
A comparison of economy, round-trip airfares between the two cities is shown
in Table 3 . As Table 4 shows, these fare differentials refl ected differences in cost
between AirAsia and its long-haul competitors. These cost differences do not take
account of differences in load factors, which can have a major effect on the average
cost per passenger. AirAsia reported that its KL–London fl ights had a load factor in
excess of 90%. For the airlines as a whole, Table 5 shows load factors.
TABLE 2 Comparing AirAsia and AirAsia X
AirAsia AirAsia X
Concept Low cost short-haul, no-frills Low cost long-haul, no frills
Flying range Within four hours ’ fl ying time
from departing city
More than four hours ’ fl ying time from departing
city
Aircraft Airbus A320 with 180 seats Airbus A330 with more than 330 seats
Cabin
confi guration
Single class Economy and Premium (previously known as XL)
Seat option Unassigned seating, plus
Xpress Boarding option
Assigned seating with seat request option
In-fl ight dining Range of light meals and
snacks available for purchase
onboard
Pre-ordered full meals available including Asian,
Western, vegetarian, and kids ’ meal; light snacks
also available for purchase onboard
TABLE 3 Fare comparisons: AirAsia and its competitors between Kuala Lumpur
and London
AirAsia X a (US$)
Cheapest other
airline b (US$)
AirAsia price
advantage (%)
Cheapest other
airlines
KL–London round trip 433.96 c 683.68 36.5 1. Gulf Air
2. Qatar Air
3. Emirates
London–KL round trip 433.96 c 530.35 18.2 1. Emirates
2. Etihad
3. Gulf Air
Notes:
a Average fare between September 1 and October 1, 2009.
b Average of lowest airline fare on each day between September 1 and October 1, 2009.
c Average outbound fare: $187.87; average inbound fare: $209.48; meals and baggage charges: $36.61.
The Outlook for Long-haul
There can be little doubt that AirAsia had been remarkably successful in building
a budget airline in Southeast Asia. Its cost effi ciency, growth rate, brand awareness,
and awards for customer service, airline management, and entrepreneurship
all pointed to outstanding achievement, not simply in replicating the LCC business
model pioneered by Southwest Airlines but in adapting that model and augmenting
it with innovation, dynamism, and marketing fl air that derived from Tony Fernandes ’
personality and leadership style.
However, its AirAsia X venture presented a whole set of new challenges. AirAsia
had successfully transferred several of its competitive advantages from AirAsia to
AirAsia X. The low costs associated with fuel-effi cient new planes, secondary airports,
and human resources practices had allowed AirAsia X to become the low-cost
TABLE 4 Flight operating cost comparison: Kuala Lumpur to London (in US$)
AirAsia British Airways Malaysia Airlines Emirates
Aircraft type Airbus 340-300 Boeing 747-400 Boeing 747-400 Boeing 777-300
Routea KUL–STN KUL–LHR KUL–LHR KUL–DXB–LHR
Maximum passenger capacity 286 337 359 360
KUL–DXB DXB–LHR
Flight fuel cost 79,299 159,522 159,522 77,525 80,822
Leasing costs 5,952 0 0 0 0
En route navigation charges 7,949 12,294 12,294 1,435 6,613
Terminal navigation arrival
charges
419 645 645 0 645
Landing/parking 1,100 2,200 2,200 2,200 2,200
Departure handling 6,000 12,000 12,000 12,000 12,000
Arrival handling 6,000 12,000 12,000 12,000 12,000
Segment totals 105,160 114,280
Total cost per fl ight b 106,719 198,661 198,661 219,440
Average cost per passenger b 373.14 589.50 553.37 609.56
Notes:
a KUL 5 Kuala Lumpur, STN 5 London Stansted, LHR 5 London Heathrow, DXB 5 Dubai.
b E xcluding maintenance, depreciation, meal services, and crew salaries.
Source: S. Buchholz, N. Fabio, A. Ileyassoff , L. Mang, and D. Visentin, AirAsia: Tales from a Long-haul Low Cost Carrier (Bocconi University,
2009). Data based on NewPacs Aviation Tool Software. Used by permission of the authors.
TABLE 5 Difference between airlines in load factors (%)
2004 2005 2006 2007 2008
AirAsia 77.0 75.0 78.0 80.0 75.5
Emirates 73.4 74.6 75.9 76.2 79.8
British Airways 67.6 69.7 70.0 70.4 71.2
Malaysia Airlines 69.0 71.5 69.8 71.4 67.8
Source: S. Buchholz, N. Fabio, A. Ileyassoff , L. Mang, and D. Visentin, “AirAsia: Tales from a Long-haul Low Cost
Carrier,” (case report, Bocconi University, 2009). Used by permission of the authors.
AIRASIA: THE WORLD’S LOWEST-COST AIRLINE
operator on most of its routes. The AirAsia brand and corporate reputation provided
AirAsia X with credibility on each new route it inaugurated. By sharing web-based
and telephone fl ight booking systems along with administrative and operational
services between the two airlines, AirAsia X was able to secure cost effi ciencies that
would not be possible for an independent start-up.
Nevertheless, doubts remained over AirAsia X ’s ability to compete with established
international airlines. Unlike AirAsia, which was attracting a whole new market
for domestic and regional air travel, AirAsia X would have to take business away
from the established international airlines whose business models offered some
key competitive advantages over that of long-haul LCCs. In particular, the dense
domestic and regional route networks of the established carriers offered feeds for
their intercontinental fl ights. These complementarities were supported by throughticketing,
baggage transfer, and frequent-fl yer schemes. Their sources of profi t were
very different from the LCCs: most of their profi t was earned from fi rst- and business-
class travelers, which permitted subsidization of economy-class fares.
These challenges pointed to the advantages of closer integration of AirAsia X with
AirAsia. AirAsia X ’s CEO, Azran Osman-Rani, had argued for the operational and
fi nancial rationale of merging AirAsia X into AirAsia: “It would be diffi cult for AirAsia
in the future if it did not have trunk routes as [this] is where the traffi c volumes come
from, so AirAsia needs growth from AirAsia X and the merger allows it to tap growth
opportunities in the long-haul markets.” Responding to allegations that the real rationale
for the merger was to allow AirAsia to fi nance AirAsia X ’s losses, Azran said:
“Rubbish, we can clearly dispute that. For the fi rst quarter ended March 31, 2009 our
net profi t was RM 18 million and we are net cash fl ow positive. We even had a little
cash at RM 3 million. We are in a very good position and on a much fi rmer footing
and now is an interesting time to talk about a merger.” 9
Notes
1. Operating profi t before depreciation, amortization, and
interest as a percentage of average total assets.
2. See www.tonyfernandesblog.com, accessed June 3,
2009.
3. Quoted by T. Lawton and J. Doh, The Ascendance of
AirAsia: Building a Successful Budget Airline in Asia
(Ivey School of Business, Case No. 9B08M054, 2008).
4 “ AirAsia X to Hub in Abu Dhabi: AirAsia CEO ,” Khaleej
Times , August 5, 2009.
5 “Corporate Profi le,” http://www.airasia.com/ot/en/
corporate/corporateprofi le.page?, asccessed September
27, 2012.
6 “AirAsia Berhad,” Offering Circular , October 29, 2004,
p. 3.
7 “AirAsia Berhad,” Offering Circular , October 29, 2004,
p. 5.
8 C. Cho, S. Hoffman Arian, C. Tjitrahardja, and R.
Narayanaswamy, AirAsia: Strategic IT Initiative (student
report, Faculty of Economics and Commerce, University
of Melbourne, 2005).
9 “ AirAsia X CEO backs Merger with AirAsia Bhd ,” The
Star Online , July 23, 2009, http://biz.thestar.com.my/
news/story.asp?fi le5/2009/7/23/business/4369512&sec5
business.

Assessment
As this module encourages students to engage critically and in some depth with a wide range of literature, and to assess the implications of this literature for application within an organisation, assessment is intended to develop and assess these approaches to learning and its implementation. All assessment requires students to review theory and knowledge in the context of case-study based analysis, whether in the form of written cases or students’ own employing organisation.
Coursework Essay
The essay will be associated with a particular issue relating to the internal environment of the firm. For the essay you are expected to demonstrate ‘wide reading and research’. Over-dependence on a single reference source is poor academic practice and will be marked down. You must recognise the limitations and validity of web sources (e.g. Wikipedia). Accordingly, you are strongly encouraged to focus on recognised sources (e.g. academic books and journal articles listed in this module outline).
The aim of the essay is to help you gain experience of applying the concepts, tools and techniques that have been introduced in the module to an organisation.
For the coursework essay, using the case organisation selected by your tutors for this assessment, address the following questions:

Focusing on the internal environment, in which of the case organisation’s principal functions and activities do the organisation’s main competitive advantages lie? Identify the distinctive resources and capabilities in each of these functions/activities. To what extent is case organisation’s competitive advantage sustainable?

The case study will be made available on Blackboard.

Marking Criteria

The assignment requires students to demonstrate factual knowledge and analytical skills through evaluation as well as appropriate referencing throughout the paper. In assessment of the assignment points that will be credited include:

– ability to answer the question in an analytical approach
– understanding the key issues and apply these accordingly
– evidence of research/reading pertinent the questions
– effective use of English throughout the answer
– clarity of expression and consistently in approach
– appropriate referencing of source material and a reference/bibliography section, using Harvard format
– use of suitable diagrams, mathematical equations, statistical data, where relevant.internal environment

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