Low Distribution Costs: Utilization of Information Technology (IT)
Strengths
Being the first airline in Southeast Asia to utilize e-ticketing and bypass traditional travel agents, AirAsia saved on the cost of issuing physical ticket at US$10 per ticket, eliminating the need for large and expensive booking/reservation systems, and agents’ commissions. In 2004, AirAsia’s website was voted the most popular site for online shopping in Malaysia, internet bookings increased from 5% of all bookings in 2002, to approximately 50% in 2004. AirAsia subsequently made its tickets available via post offices and designated bank teller (ATM) machines, increasing accessibility to consumers while having lower distribution costs, gaining more market share in the process.
Weaknesses
With its reliance on IT, there is a risk of system disruption due to AirAsia’s heavily reliance on online sales: any flight delays or calling their customer line to confirm bookings would indicate that AirAsia’s system is not robust enough to handle booking efficiently. This would result in the loss of customers, as confidence and satisfaction levels drop, affecting profitability. Hence, AirAsia would have to constantly invest in technological equipment's, and connections to sustain and serve its huge network of company subsidiaries and affiliates where appropriate incurring the high costs.
Flat organizational structure and effective staff policies
Strengths
A high portion of AirAsia costs was the salaries and benefits for its employees. Hence, the airline implemented flexible work rules, streamlining administrative functions which allowed employees to perform multiple roles within a simple and flat organizational structure. In AirAsia’s case, a flatter hierarchy improved communication, resulting in an effective and focused workforce.
AirAsia’s rumination policy focused on maximizing efficiency and productivity, whilst keeping staff costs at levels consistent with low-cost carrier industry standards. Although salaries offered to employees were below that of rivals, all employees were offered a wide range of incentives such as productivity and performance-based bonuses, share offers, and stock options. This motivated employees, giving them a sense of ownership.
Weaknesses
However, although AirAsia streamlined administrative functions allowed employees to perform multiple roles within a simple and flat organizational structure, it may compromise AirAsia’s productivity in the future. For example, in order to upkeep the constant implementation of Internet bookings and distributors, AirAsia would require a substantial number of specialized technical professionals. Performing multiple roles may lower the efficiency and effectiveness of such employees. Also, as AirAsia expands, its simple and flat organizational structure could result shallow decision-making; affecting the airline’s productivity.
Therefore, this capability is a short-term sustainable competitive advantage as AirAsia expands, with overdependence on key staff and possible shallow decision-making. To maintain this competitive advantage, AirAsia would have to constantly improves and restructure itself to stay competitive and relevant.
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