Strategic Analysis on Air Asia
BUS 488 STRATEGY
Assignment 3 – Individual Assignment 2 Jul 2010 Semester 2010
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Completed By Woo Gim Chuan Marcus (J0704245)
Name of Tutor (T01) XXX
BUS 488 Strategy - T01
Question 1 AirAsia, which is one of the earliest low cost carriers (LCC) in Asia, has become a LCC since 2001. So far, it has expanded its network from Malaysia to Thailand to Singapore, Macau and even the Mainland China in 2006. In short, AirAsia “jumped out” from an intra-Malaysia and Thailand market to a “real AirAsia” in the continent. Thus, what are the possible core competencies to ensure that there is quantum leap to success? The internal analysis on the company below will answer the question. Resources, Capabilities & Core Competencies Analysis a) Accounting Ratio Analysis In 2004, AirAsia’s earnings margin before interest and taxes (16.8), return on capital employed (14.6) and return on equity (37.7) accounting ratios were above the industry average – 14.5 is the industry average for earnings margin, 11.6 for return on capital employed and 21.2 for return on equity. This above average results indicates that the company has been managed well and thus is able to achieve high above-average returns. The increase in current ratio from 1.24 (US$49. 206 million / US$39.643 million) to 5.60 (US$230.024 million / US$41.099 million) also serves as a confident booster to investors and shareholders in that AirAsia’s solvency had strengthened and thus is able to fulfill its debt obligations. In fact, the debt-to-asset ratio1 in the last 5 years was low and decreasing too. As a matter of fact, in 2005, it was merely 0.14, which was comparatively lower than many low cost carriers. b) Finance Resources AirAsia’s net profit ending Jun 2005 was reported US$29.2 million, a 126% increase year-on-year. The end of June 2005 financial summary showed that AirAsia, the leading low cost airline in Asia, had a huge reserve (bank and
Assignment 3 – Individual Assignment 2 Jul 2010 Semester 2010
____________________________________________________________
____
Completed By Woo Gim Chuan Marcus (J0704245)
Name of Tutor (T01) XXX
BUS 488 Strategy - T01
Question 1 AirAsia, which is one of the earliest low cost carriers (LCC) in Asia, has become a LCC since 2001. So far, it has expanded its network from Malaysia to Thailand to Singapore, Macau and even the Mainland China in 2006. In short, AirAsia “jumped out” from an intra-Malaysia and Thailand market to a “real AirAsia” in the continent. Thus, what are the possible core competencies to ensure that there is quantum leap to success? The internal analysis on the company below will answer the question. Resources, Capabilities & Core Competencies Analysis a) Accounting Ratio Analysis In 2004, AirAsia’s earnings margin before interest and taxes (16.8), return on capital employed (14.6) and return on equity (37.7) accounting ratios were above the industry average – 14.5 is the industry average for earnings margin, 11.6 for return on capital employed and 21.2 for return on equity. This above average results indicates that the company has been managed well and thus is able to achieve high above-average returns. The increase in current ratio from 1.24 (US$49. 206 million / US$39.643 million) to 5.60 (US$230.024 million / US$41.099 million) also serves as a confident booster to investors and shareholders in that AirAsia’s solvency had strengthened and thus is able to fulfill its debt obligations. In fact, the debt-to-asset ratio1 in the last 5 years was low and decreasing too. As a matter of fact, in 2005, it was merely 0.14, which was comparatively lower than many low cost carriers. b) Finance Resources AirAsia’s net profit ending Jun 2005 was reported US$29.2 million, a 126% increase year-on-year. The end of June 2005 financial summary showed that AirAsia, the leading low cost airline in Asia, had a huge reserve (bank and
References: 1) R. Duane Ireland, Robert E. Hoskisson, and Michael A. Hitt – The Management of Strategy (Concepts) 8th Edition 2) Kulwant Sing, Nitin Pangarkar, Loizos Heracleous – Business Strategy in Asia: A Casebook, 3rd Edition Individual Assignment 2 Page 31 of 31