7EC502 International Business: Theory and Strategy of AirAsia Company

7EC502 International Business: Theory and Strategy

Tutor Name: GOSH DASTGAR, WAHEED (HASSAM).

Assessment Type: Individual report

Word Count 2500

Assessment weighting: 40%

Student ID Number:100687288

@SayantanGhoshDastidar

@HassamWaheed, PhD’s Post

Introduction

This report examines AirAsia, an internationally recognized low-cost airline from Malaysia, based on the Uppsala model describing this company's internationalization activities. The report will give reasons behind AirAsia’s internationalization, a particular part of the business that took part in internationalization, and provide an analysis of its internationalization process with a case study of its entry into Cambodia. AirAsia (the airline founded in 1993 and started operation in 1996) has scaled up to become one of the dominant low-cost carriers in Asia. The total number of employees of the AirAsia group of airlines ran up to about 16,150 people in 2022, which was higher than in 2021 with the number of 14,780 people. Last year, the AirAsia low-cost airline group maintained a fleet of 209 airplanes, smaller compared to the previous year’s fleet size. The airline operates in 25 different countries particularly international flights but also in Asian regions such as Indonesia, Thailand, India, and the Philippines (Statista, 2018).

In the past few years, AirAsia has put a great emphasis on building a larger fleet to fulfill the needs for services and the evident heightening demand for its services. The Cambodian, AirAsia, venture is part of the process of strengthening its presence in Southeast Asia. The developing economy and the tourism industry with ever-expanding potential in Cambodia are the ones that can become the source of great new opportunities for AirAsia to invoke its operations and hit new customer brackets (AirAsia, 2023).

AirAsia Internationalization Activities

Why

AirAsia's choice of internationalization was on the combination of inner and outer elements which had difficulties and took chances in further developments. This placement was vital in the way AirAsia grew from a small regional airline to a major low-cost airline in Asia. The internationalization of the company has similar motivations to those of the Uppsala approach in that it follows a path that is step-by-step and focuses on education.

Dr. Johanson and Vahlne provided the Uppsala model in the 1970s, which explains how firms follow experiential learning and the incremental commitment process of international involvement. This strategy development can also be reflected in the internationalization model which was implemented at AirAsia by entering the markets that are close geographically and culturally like Cambodia first before venturing into distant areas. In applying the Uppsala model, Air Asia started with markets that were similar to the home market in Malaysia. This enabled the airline to familiarize itself with other markets and learn and model over a period. The phased methodology applied by AirAsia lowered the risks as well as the uncertainties that were inherent to entering new markets and gave the company time to build the required ability (Vahlne, 2020).

AirAsia’s internationalization of its business was motivated by two reasons: the growth of revenue streams and the decrease in dependency on the local market of Malaysia (Albers, Heuermann, and Koch, 2010). With this foresighted decision, AirAsia opened itself up to multiple market exposure, thus undermining the challenges of operating in one market. Furthermore, international expansion allowed AirAsia to take advantage of economies both of scale and scope which produced cost efficiencies and, ultimately, a competitive edge. AirAsia decided to internationalize one of the key factors was an attempt to diversify the airline as a source of income and to lessen the reliance on the Malaysian market. The presence of a single market often gave rise to the airline's economic risks like recession periods, legislative alterations, and competition. AirAsia achieved diversification of risk by vertically spreading the risks across various countries, and in this way, it could maintain its profitability despite the market-specific problems (Zhang et al., 2008).

International expansion became the potential of AirAsia to capitalize on the economies of scale and scope. Through its multiple market operations, AirAsia shares maintenance and staff charges of its aircraft among more flights and passenger count. It was this that brought about efficiency that in turn made it possible for AirAsia to achieve lower fares than its rivals. As a result, the company gained a head start in the market which it used to propel itself to the top. AirAsia's international ambitions focused on creating a brand as well as a reputable image in new markets as well. Air Asia’s decision to internationalize there is a strategic objective to diversify its revenue streams, benefit as a result of economies of scale and scope, and also build on and use its brand fame in new markets. For example, AirAsia’s entry into the Indian market in 2014 was a strategic acquisition of one of the fastest-growing airline markets in the world Despite facing stiff competition from the established players, AirAsia leveraged its brand reputation and cost-effective business model to gain a foothold among Indian domestic market players, demonstrating the effectiveness of its international network (McDougall and Oviatt, 1996).

What

AirAsia's internationalization plan includes fleet expansion with more aircraft to meet its growing demand. Via this tactical move, AirAsia can boost its market share, expand its reach across various routes, and satisfy the growing need for air travel in the Asia-Pacific region. Through a clever fleet expansion and network expansion strategy, AirAsia is poised to achieve its internationalization goals and maintain its position as the leading low-cost airline in Asia (Fu et al., 2015).

The extension of AirAsia’s fleet is primarily driven by its internationalization strategy, which clearly shows its growth both gradually and constantly concerning the Uppsala model. Through the process of increasing its fleet size from 190 to 209 aircraft by 2022, AirAsia has been able to complement its capacity and reach out to more routes, thus adding up skills in the low-cost carrier market. This expansion strategy allowed AirAsia to fill the demand for cheap air transportation in the APAC region, which is experiencing economic growth just as urbanization whereby people have the disposable income for air travel. The carrier's fleet enlargement has allowed the airline to be able to provide low-cost options for travel, hence propelling the demand further in these markets. AirAsia has positioned itself as one of the Asia-Pacific aviation market’s key players by spending strategically on its fleet expansion. Through expanding in this particular market AirAsia has captured significant market share and continues to keep up with its competitors (Liang and James, 2009).

Sticking to the Uppsala model, the strategic expansion of AirAsia's aircraft fleet which was a move towards incremental commitment and learning was AirAsia's internationalization strategy. This strategic move was taken to privilege the airline in customer segmentation, serve more routes, and cater to the growing Asia Pacific region's demand for affordable air travel. At the end of 2022, low-cost airline bog AirAsia’s fleet size totaled 209 airplanes and AirAsia will keep making further expansion of its aircraft market. The move is directed at increasing AirAsia’s capacity and flights to a huge number of destinations, enabling it to become more competitive in the low-cost carrier market. Through the expansion of its capacity, AirAsia aims to serve the growing market for air travel in the Asia–Pacific territories. This region has experienced fast economic development and urbanization that have seen a rise in several people with ready money for air travel and an increase in the demand for air travel. AirAsia, which realized this trend at a very early stage of the market development, deliberately extended its fleet and created low-cost traveling options (B and Z.C, 2015).

Where

AirAsia's internationalization steps have been led by the Uppsala model which is more about exposure and experiential outcomes rather than a sudden geographical expansion. The trade expansion model that the airline has chosen in Cambodia is very relevant since this country is close geographically and culturally to the market and this makes the airline able to make some incremental and step-by-step decisions. AirAsia opting for Cambodia as a venue in which it extends its trade activities exhibits Uppsala model implementation at strategic levels. AirAsia has entered a geographically and culturally close market, and with the adaptability and experience gained from there, AirAsia has been successful in establishing its presence in Cambodia and getting stronger in the Southeast Asian aviation market. Many factors made Cambodia an ideal place to be considered for the French Indochina. To begin with, the economy of Cambodia was growing rapidly and the tourism industry was blooming as well, which was meant to be of high interest to AirAsia for business expansion. AirAsia came into the market of this country because of the increasing GDP growth rate and disposable incomes indicating that the people were becoming increasingly affluent, so they could afford to travel by air. This was an available ground for AirAsia company to enter the market (Walsh and Sentell, 2008).

The airline internationalization of the University of Uppsala model is consistent with the theory of gradual internationalization accompanied by experiential learning. AirAsia gets a very strategic destination to expand its business, being between the existing markets geographically and culturally, affiliates AirAsia to learn from progressive decisions and get much experience. Cambodia’s booming local economy, and the advent of a growing tourism industry, made AirAsia a preferred choice to expand the company (Aaron O'Neill, 2023). The GDP growth and an increase in disposable income among the population significantly increased the demand for air travel, making the air travel market propitious for AirAsia to open up the market. The market allowed AirAsia to expand its operations in the region by attracting and improving the competitiveness together with the growth of the Uppsala model was negative the first entry into geographical and cultural markets. Moreover, due to its strategic positioning in Southeast Asia, the location of Cambodia was the best asset for AirAsia's wider operations in the region. AirAsia was able to provide a hub for the other key markets from within the region, which are made up of Thailand, Vietnam, and Laos. By connecting these markets, the company was able to expand its reach and improve its competitiveness regionally. It is consistent with the fact that the Uppsala Model goes with the idea of beginning with entering geometrically proximate and culturally similar markets and then graduating to more remote and culturally distant markets. Along with AirAsia’s entry into the Cambodian market, the Uppsala model advocates a phased approach in commitment so that the place can be equipped with sufficient staff and infrastructure. The airline started the business with a few flights and very limited routes. The airline operated more flights and routes after which it became more familiar with the market. This approach enabled AirAsia to reduce the risk and uncertainty associated with entering new markets and to learn and adapt to local market conditions (Shuk-Ching Poon and Waring, 2010).

How

AirAsia's internationalization strategy stood for a mixture of the FDI and NFDI modes, according to the Uppsala model that emphasized slow and experiential internationalization. Air Asia, whenever it is combined with these modes of transport, has subsequently, managed to enlarge its operations and have an extensive presence in the Asia-Pacific region (Akamavi, Ibrahim and Swaray, 2022).

The internationalization activities of AirAsia combine both foreign direct investment (FDI) and a non-FDI mode following the Uppsala model that comprises a sequential process of incremental commitment and learning. With the airline’s internationalization getting more professional the internationalization strategy of the airline has experience and knowledge about international markets. AirAsia's subsidiaries and joint ventures were one of the key FDI activities that helped to expand in the international markets. This could be seen when, for example, AirAsia Thailand was established as a subsidiary in Thailand, permitting the airline to carry out both domestic and international flights into Thailand. Thus, this FDI enabled AirAsia to penetrate the Thai market broadening its regional reach.

AirAsia’s internationalization strategy consists of a mix of foreign direct investment (FDI) and non-foreign investment strategies, consistent with the principles of gradual exposure to internationalization in the Uppsala model This strategy enables AirAsia to expand operations and establish a strong position in Asia Pacific. One of the key FDI activities of AirAsia was the establishment of subsidiaries and joint ventures in foreign markets. For example, AirAsia Thailand was established as a subsidiary in Thailand, enabling the airline to operate domestic and international flights This FDI activity enabled AirAsia to enter the Thai market and expand its geographic reach there (Rajiani and Buyong, 2013).

?FDI, AirAsia has also used non-FDI strategies for internationalization, such as exporting its services to overseas markets. Since the airline initially operated flights from its Malaysian base to destinations in the Asia-Pacific region, this FDI-free approach to delivering its services to these markets allowed AirAsia to test the waters look at foreign markets, and gain valuable experience before making large investments. In addition, AirAsia has used franchise and licensing agreements to enter new markets, partner with local businesses to establish its brand presence, and offer its services to a wider customer base.

On the other hand, besides FDI, AirAsia has also adopted various other modes of internationalization, including providing its services outside of the home market. Airline which introduced its service from its base in Malaysia to diverse destinations within the Asia-Pacific region has just started the exportation of its services to that market. AirAsia not having invested in the conventional FDI way enabled it to go for trials in foreign markets and gain experience before committing to more substantial investments. Other than that, AirAsia has made use of the agreements of franchising and licensing to go into foreign markets. Through collaborations with local enterprises, AirAsia has managed to have its brand incorporated in new locations and made its services available to a broader range of customers. Such a tactic enabled AirAsia to enter new markets with modest investment and risk since its associates carried most of the local knowledge and experience (Murakami, 2011).

Internationalization Initiative

AirAsia should consider expanding its operations in India for its new international network. India presents an attractive market due to AirAsia’s population, increasing disposable income, and growing middle class, all contributing to increased demand for air travel so India will be the third largest airline market India’s domestic air passenger traffic is expected to double in the next six years to 300 million by the end of 2030 and 2019, respectively. AirAsia can leverage its experience and success in other markets to establish a strong presence in India. To cater to the price-sensitive Indian market, the airline can offer its signature low-cost brands that have been well-received in other countries. By offering low-cost flights, AirAsia will be able to tap into the growing demand for air travel among Indian customers.

AirAsia can capitalize on the Government of India’s aviation enhancement programs such as the Regional Connectivity Scheme (RCS) and the UDAN project amongst others designed to provide more regional air connections and make it easy and affordable for the citizenry to use air travel. By swarming in these programs, AirAsia can access the underserved locations in India and improve its place in the market to continually gain economies of scale in such locations (Man and Justine, 2011).

Conclusion

In conclusion, AirAsia’s international travel could be better structured using the Uppsala model framework, a commitment to learning at the highest level. The airline’s strategic move into doubling its fleet, establishment of new routes, and a combination of the domestic and international direct routes have been fundamental aspects of its international growth. Remaining faithful to its strategic strategy and adapting to the Asian-Pacific countries' growth market allows AirAsia to secure its position as the leading low-cost airline in the region.

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