Air Asia SWOT & PESTLE Analysis

Strength

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Weakness

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Opportunity

1. Growing aviation market in Thailand: The aviation market in Thailand has been growing exponentially in recent years, the number of departure seats crossing 100 million to end 2018 at 103.1 million seats. This is a 152% increase from 10 years ago. During 2009-2018, the domestic capacity increased from 17 million to 49.5 million whereas the international capacity increased from 23.9 million to 53.6 million. The main drivers of the industry growth are low cost carriers. The number of low-cost carrier seats (52.6 million) is more than that of full-service carriers (50.6 million) for the first time in 2018. In 2009, there were less than 8 million seats in low cost carriers, which makes this growth a phenomenal achievement for the low-cost carriers. Thai Air Asia is the top player by domestic departure seats with a 31.2% capacity share. Thai Air Asia is the second largest player by international seats, with a 9.1% share that equals 4.87 million seats.

2. Ancillary source of revenues in the airline industry: Ancillary revenues mean revenues earned by airlines on services like food, extra leg room and check in bags. The ancillary revenues are estimated to be $50-55 billion per year, which exceeds the airline industry’s 10-year average annual operating profit of $31 billion. Thus, absence of ancillary revenues would mean no profit for the industry. Air Asia is the top airline in Asia and South Pacific in ancillary sales, which comprise 29% of the company’s revenues. The ancillary revenue earned per passenger for Air Asia is $34.38.

3. Growing airline retailing market providing new opportunities: The airline retailing market worldwide was $ 7.25 billion in 2018 and is expected to grow at 16.4% CAGR during 2019-2027, reaching $ 27.66 billion in 2027. The rising fuel costs and other operational costs have been affecting airline profitability; hence airlines have started selling merchandise in the air and on the ground. Air Asia is one of the established players in airline retail. They have launched an inflight e-marketplace Ourshop with an airport partner Plaza Bali Duty & Tax Free, Jakarta. The marketplace has been started with deep customer insights and logistics capabilities that have been enabled by the airline’s vast network and premium products. The marketplace connects 80 million customers of the airline to multiple airport, high street and local specialist retailers, enabling customers to buy at competitive prices.

Threat

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Political

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Economic

1. Fuel price fluctuations impacting aviation market: Fuel price fluctuations are affecting the airline industry by causing an increase in the operational costs. But to increase the margins, the airlines are unable to raise the prices because of competition based on price. Air Asia is prepared for the slowdown. Jet fuel is the biggest cost component of the industry. Despite claims of fuel efficiency, fuel hedging and capacity utilization by carriers, the rising fuel prices have impacted airlines significantly. Air Asia CEO says that the airline will continue hedging the booking curve and might tinker with fares to make up the difference. High fuel prices have especially affected the Air Asia X business unit, which had a loss of 57.5 million ringgit in Q2, 2018.

2. Slowdown in China impacting tourism sector in South-East Asia: There is slowdown in the South-East Asian aviation market, as trade tensions, rising fuel prices create headwinds for the sector. Trade war has caused a slowdown in overall Chinese economy which has led to a slowdown in Chinese tourist arrivals in South Asia. Deprecation in the Chinese Rimini has further aggregated the slowdown. Chinese tourists made up more than a quarter of the 38 million foreign visitors to Thailand in 2018 and the number has seen a significant drop in 2019. The same is true for other tourist destinations in Malaysia and Indonesia. The slowdown in tourism will impact Air Asia’s business, however Air Asia being a low-cost carrier (LCC) it will be more resilient in the slowdown as tourists take shorter trips and choose to fly on LCC’s.

Social

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Technological

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Legal

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Environmental

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