Porter's five forces and value chain model AirAsia
Named after Michael E Porter
This model identifies and analyzes 5 competitive
forces that shape every industry and help
determines an industry’s weakness and strengths
1. Rivalry among existing competitors
2. threats of substitutes
3. Power of buyer
4. Power of supplier
5. Threat of entrants
is a Malaysian low-cost airline headquartered in
Kuala Lumpur. It has been named as the world's
best low-cost airline, and a pioneer of low-cost
travel in Asia. AirAsia group operates scheduled
domestic and international flights to 78 destinations
spanning 25 countries.
In these day and in every industry there is some
negative and positive trends, airline industry
has limited customer so growth rate is not too
high, so AirAsia has to try to be winner between
AirAsia offers flights with lower price that other
companies, but there are some companies
that also offer service by the same price such
as Tiger Airways and Firefly and also these
companies provide service with the same level
of AirAsia so, in this case rivalry among existing
competitor is quit high to AirAsia
We can define substitutes as a product or service
that can be replaced with original product and
give more satisfaction to customers. In airline
industry these substitutes exist, For example if
someone wants to go to Singapore from Kuala
Lumpur can choose bus or train. As we know the
bus is the cheapest transportation so customer
prefers bus. But if we assume that customer
wants to go to Australia airline is a good choice
and by access internet customers will compar
prices and chooses the more reasonable for
themselves in such a case threat of substitutes is
moderate to AirAsia
Success of industry can influenced by buyer so,
those companies offer better service to their
customers are winner of competition. AirAsia has
lower price with better services than others so it
can be a good choice for customer. Power of
buyer is a quite high to AirAisa.
Every industry has some suppliers these
suppliers have their own effect on the industry
for airlines. There are only tow options Boing
and Airbus. All airline company have the same
situation. Both of them provide almost same
standards aircraft and hence switching to
AirAsia is low. Moreover AirAsia place order
form Airbus to expend its routs to international
routes so power of supplier may be reduced as
Airbus's profit may be influenced by AirAsia
(Royl. Simerly). Generally power of supplier is a
quit moderate to AirAsia
Setting up airline industry needs a high capital so it has
high barriers, for example purchase aircraft, set up
services, hire staff and….
It is not quiet enough, most of time customer choose
the product or industry which they are really trust. New
entrants have to create brand loyalty by making huge
investment to establish reputation.
government legislation is one of the barriers for entering
to this industry because it is too difficult getting a new
flight route from government. Profit of Asia Air is related
to extend their network for example MAS has been
protected by Malaysia government on the route to
Sydney and Seoul Incheon hence situation for AirAsia
getting difficult to find a new route and it influence Air
In another way AirAsia is closed to
government in south Asia this helps Ari
Asia to open up and capture a sizable
market in south Asian countries.
Government policy has limited new
entrant so AirAsia is already settled on
If companies are to deliver value to their
customers they must understand where
value is created and where value
potentially lose. Value chain put forward
by Michael E. Porter is help managers
identify activities which especially import
for competitiveness and for attainment
of company overall strategy this activity
categorize in tow main activities:
i. Primary activity
ii. Supportive activity
1. Inbound logistic: Refers to goods being obtained from the
organization's suppliers and to be used for producing the end product
2. Operation :Raw materials and goods are manufactured into the final
product. Value is added to the product at this stage as it moves through the production
3. Outbound logistic: Once the products have been manufactured
they are ready to be distributed to distribution centers, wholesalers, retailers or
customers. Distribution of finished goods is known as outbound logistics.
4. Marketing and sale: Marketing must make sure that the product is
targeted towards the correct customer group. The marketing mix is used to establish an
effective strategy, any competitive advantage is clearly communicated to the target
group through the promotional mix.
5. Service: After the product/service has been sold what support services does the
organization offer customers?. This may come in the form of after sales training,
guarantees and warranties.
1. Procurement: This department must source raw materials for the
business and obtain the best price for doing so. The challenge for procurement is to
obtain the best possible quality available (on the market) for their budget.
2. Technology development: The use of technology to obtain
a competitive advantage is very important in today’s technological driven environment.
Technology can be used in many ways including production to reduce cost thus add value,
research and development to develop new products and the internet so customers have 24/7
access to the firm.
3. Human resource management: The organization will
have to recruit, train and develop the correct people for the organization to be successful.
Staff will have to be motivated and paid the ‘market rate’ if they are to stay with the
organization and add value.
4. Firm infrastructure: Every organizations needs to ensure that their
finances, legal structure and management structure work efficiently and helps drive the
organization forward. Inefficient infrastructure is waste resources, could affect the firm's
reputation and even leave it open to fines and sanctions.
Inbound logistic :
In Airline industry it is really important to have enough and
accurate information about other competitor such as their
strategy, finding the shortest way, how the other company
manage their industry with fuel efficiency, how they cut off
Ticket booking in Air Asia is online. Customers can easily book
themselves. They can easily print their boarding card.
Sales and marketing:
nowadays advertisement is one of important issue in business
hence AirAsia sponsors some sport team.
In every industry there are different options for
customers, so each industry try to provide
Special services , more facility to retain their
customers. Air Asia also has some , for
example customer can pre-booked checked
baggage for lower rate or they can online
book hotel or rent taxi and also AirAsia have
voucher for flight delay.
Air Asia focuses on their goal, they provides the lowest
price for customers. They expand service to different
Human resource management:
Hiring expert personnel is a important issue and it
decreases cost for industry.so AirAsia hires multiple skill
personnel. This policy will increase the quality and
efficiency and decrease cost for company.
Air Asia to reduce cost uses different efficient
1. Air Asia uses yield management system (YMS)
which takes into account the operating cost
and expected revenues.
2. Computer reservation system (CRS) as web-
base for reservation.
3. Enterprise resource planning system (ERP) to
speed up reporting and data retrieval process