This is an honor and great opportunity for our team to take further study about Sun Tzu Art of War as it has been an intelligent influence on Western and also Eastern military practices, business strategy, internal/external management and beyond for decades. Sun Tzu Art of War had held in high esteem by our team, we respect the concept of Art of War and it is such a great learning experience for our team by discussing how Sun Tzu Art of War has implemented into the Malaysia Airline giant AirAsia.
Chapter one of Sun Tzu Art of War describe that conducting a business is just like starting a war, there shall be many factors to be considered up from the uncontrollable dusk or dawn to the deep down feeling of individual before starting a war/business. It also mention that conducting a war is so important which will determine the survival or death of a country. War not only brings death to the soldier but also risking the life of innocent people of both countries, thus it must be well planned, studied and examined thoroughly before starting a war with enemy. A country with thorough and detailed planned consider itself have the chance to win the war, but if a country starting a war without/with less thorough and detailed planned, he shall not win the war according to Sun Tzu Art of War. Market observation and analysis is vital important, if a business/market’s stock has reach the peak without any further growth, investor should not start/invest in that particular business. In other words, if a business/market’s stock has plenty of room leave to be developed and growth, investor should start/invest as early as possible in that business.
In the wisdom of Sun Tzu Art of War, foreknowledge or intelligence shall not be obtained from the spirit nor gods. It should not be predicted by comparing similar past event or experiences, but all the intelligence must be obtained by man that have knowledge about the enemy situation.
Referring to Sun Tzu (6th century B.C./1983), “the art of war is governed by five constant factors, all of which need to be taken into account. They are the Moral Law, Weather, Terrain, the Commander, and Method and Discipline” (p. 9). The five factors can also be categorized into internal and external factor. These five constant factors should always be planned and considered in order to achieve greater advantage from competitors in the battle field.
2.1 Background of the company
AirAsia Berhad is a Malaysia low fare airline company and had the largest low fare, no-frills airline and a discoverer of low cost travel in Asia. AirAsia group was operated through domestic and also international flights to over 400 destinations and connecting to 25 countries in worldwide. AirAsia Berhad mainly emphasizes on the low fare air ticket, on the other hand customer can enjoy with high quality of services and technology. Its main center is the Low-Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA), had been commenced on 23th March 2006. LCCT can carried estimated around 10 million passenger per year. While the secondary hub located at Senai International Airport, Kota Kinabalu International Airport, and also Penang International Airport.
AirAsia has three of the affiliates airlines in Asia countries are as following:
• Thai AirAsia (Suvarnabhumi Airport)
• Philippines AirAsia (Clark International Airport)
• Indonesia AirAsia (Soekarno-Hatta International Airport)
AirAsia established in year 1993, but the group had just commenced their business’s operations on 18 October 1996. AirAsia was originally discovered by a government-owned combination, HI COM Holdings Berhad (now DRB-HICOM Berhad), but the group was suffering in heavy debt since year 1997 until year 2000 with about USD 11 million, around RM 40 million.
On 2nd December 2001, Dato’ Sri Dr. Tony Fernandes (Tune Air Sdn Bhd) and partners bought over AirAsia. They take on the losses, heavy debt of AirAsia for a token sum of RM1. The enterprising group quickly made decisions and settled the airline’s debts and set about relaunching and rebranding AirAsia as a low-fare carrier.
From 27 October 2008, the company had increased the new 108 routes into its current list of 50. On 2nd of April, year 2012, Air Asia had their first flight from Kuala Lumpur to Australia (Sydney). AirAsia Berhad did not publicly disclosed the exact number of old routes which had been discontinued. In August 2011, AirAsia agreed to build up an alliance with the Malaysian Airlines by using the method of share swap.
AirAsia Berhad had implemented three systems in order to increase the efficiency and effectiveness of the company which included the yield management system (YMS), computer reservation system (CRS) and enterprise resource planning system (ERP). YMS is also known as the revenue management system and basically react to the customer behaviour and maximizes the wealth or revenue of the company. By using this system, it also can optimize the pricing and also manage the operating costs together in the most effective way. Moreover, the CRS included the internet, call centre and airport departure control functionality. The centralized customer data is used to follow the schedule and booking flight with real-time, while for the ERP system, it helps AirAsia to stable the process honesty, closing processing time, speeds up reporting and also data retrieval process.
Last but not least we would like to discuss about the Airline reservation system (ARS), also known as manufacturing management process. It needs helps from ERP system about the information of the planning and scheduling operations. However, while the ERP system did not had a better supply chain management system and therefore AirAsia used ARS system to improves the performance of the company and provide a better service for customer. For example, it can provide customer a faster way to check the availability of the air flight. After that, the ARS system had been improved to computer reservation system (CRS) and then to global distribution system (GDS), which provides travel agencies and other channels in making reservations for the air flights in a single system.
2.2 Explanation of theories
There is a theory in Chapter 1 name as Five Factor Theory. In this theory, we choose only 4 factors in this assignment. There are generalship of commander, moral influence, weather, and terrain.
The first factor is generalship of commander. This factor is refer to the commander stands for the virtues of wisdom, sincerity, benevolence, courage and strictness. In business field, commander can consider as the management to analysis the business opportunity and threat (Taovalue, 2017). Commander is the head of the military mean commander is same as the management which is the head of the company. So, management consider the leader in the company. A good commander need have a good experience, predictable about the opportunity and threat in the business field, have the plan about the company way to success and able to maintain discipline of the employee in the company. Integrity of company is important because it indicated the trust of employee and public toward the company. Besides that, determination also important because the management must have determination to develop or give up for the product or the procedure in the project. The transparency also important because the high transparency able to attract more investor to invest to the company.
The second factor is moral influence. This factor is refer to the measure and policies that adjust the people with the sovereign to have the complete common agreement and maintain harmony with each other (Taovalue, 2017). The moral influence can make the employee in the company have the common mission and purpose. With this, the employee knows the requirement of the company and try to achieve it. Besides that, the business that conduct must be moral and not breach the law. By this, employee will more hardworking because they know that company is a conscientiousness organization and proud in work in the company. It also need to ensure all the parties that have relationship with the business such as supplier, employee and society is having the benefit from the business and ensure will not harm the society.
The third factor is weather. The weather is indicated the important factor that not in company control (Taovalue, 2017). The important factor can be the new market that want to enter, the trend in the industry and the competition in the industry. The new market that want to enter consider the uncontrol factor because the company do not know the need or want of the market and may lead to fail if handle in the wrong way. The trend of the industry may change very fast because of the technology advance and the competition within the industry is a difficult for the company because the competitor can be experienced and adoptable to the difficult environment.
The last factor is terrain. The terrain is the factor that control by the company. The factor can be the financial strength of the company, the profitability of the company and the ability of the company face the crisis (Taovalue, 2017). Those factors are control by the company because the factors are control by the company management to face the external threat in the business field. The financial strength is important to the company because the project that undergoing need the huge investment and most of the investment is long term need to wait a certain period to get back the profit. The profitability of the company is control by the company because the company is deciding the portion of profit need to earn from the customer. Lastly is ability to face crisis, the company have the contingency plan to handle the crisis and prevent the company to enter the crisis.
2.3 Implementation in business practice
First of the theory that will practiced by AirAsia is generalship of commander. The AirAsia group as we known that this group is facing the financial problem and profit less is making before Tan Sri Tony Fernandes. In year 2001, Tony bought AirAsia from Malaysia owner named DRB-Hicom by the value of a token of Rm 1 and they agreed to take over the huge debt of the entire company which is Rm 40million. AirAsia is potential company that able to earn the huge profit. The fact of AirAsia is a lose making company because the company is lack of the leader which is generalship of commander to manage the company. A good company need a good leader to lead the company to the success future. For a bad leader, how was good of the company is will also be face loss because of the lack of ability of the leader to manage the company.
In September 2001, Tony and his partner were managed AirAsia in the extremely challenging environment because AirAsia is the company that almost want to close down. Tony need to make AirAsia to become settle the debt of RM40 million and make the profit the future. With the good leadership of Tony and his partner, RM40 million debt is pay in less than 2 years after take over the company. Tony and his partner are fully utilized the asset that available that time which are two Boeing 737, one destination which is Langkawi and 250 staff. Now, AirAsia become the company that pay an interim dividend of 12sen a share (Star, 2018). The statement indicated that AirAsia is earning profit and giving the dividend to the shareholder.
For second theory which is moral influence. AirAsia practiced the theory of moral influence by Tony and his partner make the vision to democratize the air travel and free it from the clutches of the elite by offering the low fares and high quality of service from AirAsia. The vision that set by Tony and partner let the employee who work in AirAsia know requirement or the standard that company want to achieve. So, the employee will have common interest while working which is ensure the low cost of the air travel. The employee will do the action that to help the company accomplish the vision.
AirAsia doing charity also as the moral influence in the company. The employees knows that company they work in are doing the charity instead of keep earn profit to achieve the entire profit level. In 2016, AirAsia is having a campaign for the Cancer Charity. AirAsia is give the 10% of every flight booking from 15 August to 16 September to National Cancer Council of Malaysia (MAKNA). For this event, AirAsia is raised RM350,000 for the MAKNA. Besides that, AirAsia also create the new platform for Asean Social Enterprise. AirAsia is launch the pop-up shop in KLIA2 that are selling Asean social enterprises product. AirAsia is creating market for the social enterprise. AirAsia also help the Asean social enterprise to promote their product by introduce four GOOD boxes filled with the goodies with large of gift item which selling at RM100 per box.
Next, we would like to discuss about the theory of weather used in business practice by Air Asia Berhad. Initially the confidence in global air traffic industry had been severely destroyed after the activity of 911 terrorism. This could be the terrific news for all the airline companies. But then, the founder of Air Asia, Tony Fernandes believed that the discounted operation will change the air traffic industry into a new era through Southeast Asia. Therefore, he bought over the company which is in heavily indebted by using 1 ringgit in year 2001. Anywhere would also be very high restrictive market for Air Asia when first bought but after that, the revolution stated above had a little success due to the operations with India, Indonesia, Thailand and Philippines through joint ventures. The marketing of Air Asia is good and therefore those countries had confidence in Air Asia and Tony Fernandes had the business opportunities to cooperate with the local business partners and slowly expand the company as well. Air Asia also believes that the strengthening of the joint ventures operations would also benefit to the company too.
In year 2007, Air Asia also found that their company needs long-haul airline to bring them further in future. In other words, it also means that market restriction in long-haul flight is strong for Air Asia. Therefore, Air Asia built up its sister company named AirAsia ‘X’, which provides long-haul flights for their customers. In this way, Air Asia can serves customers who needs long distance flight in cheaper way. This is also mean that Air Asia had penetrate into a new market to go further in future. The booking system for both Air Asia and Air Asia ‘X is also updated and very convenient for customers to book air flight online like others airline company.
As we can see that Air Asia had implemented the theory of weather into their practice. Although there are some factors that is not under control by Air Asia, they tried to fix out the problem to prevent being eliminated and create new opportunities for themselves. Until year 2017, Air Asia Berhad had grown into success and now is ranked number 26 in the world.
In addition, we would like to discuss about the next theory which is terrain theory. Terrain theory basically means that the factors that can be controlled by the company. Based on the annual report of Air Asia Berhad in year 2006, Air Asia Berhad had disclosed his highest profit in this year which is amounted to RM 2 billion. Based on the statistic, the cost per available seat kilometer (CASK), with excluding fuel, is actually increased from year 2013 until year 2016. The stress in CASK actually determined the ability of Air Asia Berhad to handle this problem.
Because it is under stress condition, Air Asia Berhad tried to improve it by increase the utilization. For example, the fleets flew average 12 hours per day had increased into 14 hours per day in order to reach more utilization on the cost. Moreover, the old aircraft had been replaced with the new aircraft as well. This is because the new aircraft, A321s had additional 6 seats in capacity and also the fuel efficiency had been increased by 15% compare to old aircraft. This would be quite an amount for Air Asia to save. In addition, digitalization had been implemented in the company in order to provide greater efficiency and reduce cost as well. Last but not least, the associated companies with Air Asia will share their great and better practices with Air Asia in order to work together in one line to improve efficiency and cost saving as well.
3.0 Discussion and Recommendation
3.1 Advantages and Disadvantages of Business Practice
Based on the theory generalship of commander, Tan Sri Tony Fernandes is forming a management team in the company in order to settle down the debt and eventually become a profit earning company. One of the advantages is the clarify level in the decision making process. (Anatasia, 2018) This system sets out a benchmark of which action to be carry and measure of. While the leader have the plan and vision on the company direction, he or she can guide the employees to move together toward the goal. With the cooperation between the employees under the leader, it can remove or least limits the possibility that the organisation have internal conflict. The 250 staffs during 2001 need to work together under Tony lead in order to get out from the difficult situation. Besides that, the leader can also create plan that have a clear objectives and tasks. (Anatasia, 2018) This plan can measure the performance and the progress of the work, then they can understand whether they are doing it in the right way or not. They can also understand the limitation and then improve it. Furthermore, according to Jan Sauermann (2016) study, measuring performance can also improve the productivity then not measure performance. Air Asia can understand the customers’ feedback towards the company performance such like the services and the choice of flights frequency in order to further improve their services and then the competitive ability in the industry.
Besides on the advantages, they may also be some error in this generalship of commander system which is rely on predicting future in order to create a plan. (Anatasia, 2018) The leader will try to evaluate what might happen in the future, which is very difficult because the possibility of the future is varied. Besides that, the leader also need to consider different elements in the company to evaluate the plan in the future which have the ability to fulfill it has increase the difficulty to develop an effective plan. Next, the leadership system may also be inflexible. (Anatasia, 2018) As the plan is usually have established routines which can lead to the slow responses of the organisation to the changes. The set vision and strategy could also limit the potential of new opportunities which because of non-suitable under the vision of the company.
The second theory is moral influence adopt by AirAsia which is form a new culture in the company and the industry and also fulfilling corporate social responsibility (CSR) to the society. AirAsia is trying to provide low cost fly which can be affordable by most of the consumers. This cost leadership strategy helps the company to producing the airline services in a lowest cost possible. One of the advantages by this strategy is higher profitability which is because the cost is lower, the company can get a higher profit margin than other companies. (Hassan, 2015). Another advantage of this strategy is they have more capital in the growth of the company. (Hassan, 2015) The company have save the cost in the production which can allow them to use the fund to invest in other aspect such as improve the product or service quality. Brand differentiation can be one of the benefits for company to adopt CSR. (Forbes, 2012). Doing CSR program can first allow the consumers to have a different opinion about the company itself. As the AirAsia is carry out the charity event which can be used to improve the society.
The disadvantages of the cost leadership strategy is that the company may have a lower quality in customer service to save cost. (Hassan, 2015). This can reduce the number of customers which are more emphasize on good customer service quality. In Dec 2017, one of the complaint by the customers is that the customers keep on getting error pops up while he try to book the ticket online. He also cannot get help from the customer service hotline regarding the problem he faced. Another drawbacks which is lack of potential innovation. (Hassan, 2015). This is because research and development of new product and service need a huge amount of cost which is conflict with the strategy of the company that operate in a lowest cost possible.
The third theory adopted by AirAsia is theory of weather. For this theory, Tony Fernades has use the discount strategy to improve the airline industry in the Southeast Asia region. The advantages of discount is increasing sales in short term. (Miksen, 2018). This is because the discount will attract more customers to the product and services, eventually will buy it because of the lower price. Besides of increase sale, it also lead to meet the sale goals in a short term period. AirAsia also adopt the joint venture strategy to operate the business in other countries such as Indonesia and Thailand. Joint venture can bring benefits such as the both parties can share the resources, risks and costs together in order to success in the corporation. (Moroney, 2016).
The disadvantages for discount strategy is that the focus is shifting to price aspect. (Lee, 2016). Discount will made the customers to focus on the price of different similar product regardless of the quality. The product with the lowest price will tend to be buy by customers. The second disadvantages is that reduce in the profit because the selling price decrease will cut down the profit that can be earn for the particular product. According to Kokemuller (2017), the disadvantages of joint venture strategy can be the different of culture between the two different companies. Both of the AirAsia and the local company need to solve the difference in the management culture as well as the country culture in order to success in the corporation.
The last theory adopted by AirAsia is the terrain theory. Some of the application is that the AirAsia allow customers to online buy tickets to increase the efficiency and save time. The technology used by them can help the customers to buy the ticket at anytime and anywhere with the support of online services. They can also save the time for them to buy the ticket in the airport physically.
The drawbacks of the terrain theory is that they need to use a huge amount of costs when they adopt the digitalisation. They need the capital to research and develop the system that allow the customers to use it. After that, they need to open it for trial and error before they introduce it officially.
According to Amiruddin (2013), Air Asia’s customer service is still considered as low and unpleasing. In recent years, Air Asia has expanded their electronic online reservation system into different payment systems such as computer reservation system and billing and settlement plan channels rather than just using the direct sales channel. These systems have eased the customers in their reservation process. However, Hassan (2015) has reported that Air Asia’s customers have been facing problems recently during the online booking process. Errors were kept popping up and customers could not reach the customer service hotline (Hassan, 2015). Thus, the failure of the service had lead Air Asia into undesirable consequences like customer anger, dissatisfaction, complain intention and etc. (Hanum, 2018). The arising of the issues was due to the lacking of focus on the enhancement of customer service by Air Asia. In order to maintain in a cost leadership position, Air Asia had been overlooked the quality of their customer service.
To overcome this issue, Air Asia might improve on their e-service facilities and web-based Customer Relationship Management. An IT professional crew may be recruited by Air Asia in order to superintend their e-commerce system and enhance the design of the web-based. This IT professional crew will be responsible for reviewing and examining on the Air Asia’s e-commerce system and then identifies the issues and seek out for solutions and recommendations for the particular issue faced. A user-friendly interface and fast website speed were considered as the determinants that facilitate the booking of air ticket and results in customer satisfaction, favorable airline image in consumer’s mind and improve the customer relationship management. Consequently, offering superior service might enable Air Asia in gaining a competitive advantage over its competitors and also attains loyalty customers (Kalaiarasan et al., 2015)
Furthermore, Air Asia may continue offering aggressive promotional campaigns or loyalty programs. Today, social media has become an integral part of our life and society and the popular use of social media are still upsurge continually. Thus, social media may act as a tool for Air Asia to enhance the recognition and awareness of the campaigns and programs in the public. Based on the past research studies, researchers have found that organizations that involve social media in their business claim that they have an increase in their profit while other companies have revealed that there is an increasing rate of their market exposure. Besides, Air Asia can introduce loyalty programs such as lifestyle memberships, a rewards program for frequent flyers, offering smart card which is compatible with the existing ticketless booking. These loyalty programs may help Air Asia in reducing the cost of capturing customers’ attention and increase the brand loyalty among the customers.