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

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

AirAsia User by Country (2013-2014)

2013

2014

22.138.796
21.853.036
12.213.697
7.850.065
7.853.375

10.500.381

3.030.602

345.298

2.224.283

Malaysia

Indonesia

Thailand

Philipine

India

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.

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

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

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

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

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
Malaysia 81
-3 (move older aircraft to TAA)
-2 (sale of aircraft)
-3 (move older aircraft to India)
+1 (from PAA)
Thailand 40
+3 (from MAA)
Indonesia 29
Philippine 18
-1 (sale of aircraft)
-2 (retirement)
-1 (move to MAA)
India
3
+3 (from MAA)
Japan
0
-

2015
75

45
29
14

6
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

Loc. Cit

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

Laikar, Aziz, 2014. AIRASIA BERHAD, 4Q14 AND FY2014 EARNINGS BRIEFING, Communication Department
2014, AirAsia, page.15

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

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

10

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

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.

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

Weakness

Opportunity

Threats

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
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
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
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

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.

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, IndonesiaSingapore, Singapore had been lost in December 2014, the companys 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

17

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

18

Loc. Cit

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-airasiasingkirkan-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/airasiatunjuk-direktur-operasional-baru

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 wont require many of these extras as youre 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/

10

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

11

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 Indonesia26
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-pilotairasia-diwisuda-bifa

26

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

12

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_

13

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-direkturoperasional-baru
http://suarapengusaha.com/2013/04/23/ini-dia-strategi-airasia-singkirkan-lion-air-dankuasai-langit-indonesia/
http://time.com/3648012/tony-fernandes-airasia/
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The Times 100, SWOT analysis and sustainable business planning. MBA Publishing Ltd,
London, 2009
14