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Journal of Applied Sciences Research, 9(4): 2505-2512, 2013
ISSN 1819-544X
This is a refereed journal and all articles are professionally screened and reviewed
ORIGINAL ARTICLES
Competitive Market of Air Industry and Competitive Advantages for Customer
Satisfaction through Pricing Strategy of Air-Asia
1
Mohammad SumannSarker and 2Rabiul Islam
1,2
School of Economics, Finance and Banking, UUM College of Business, University Utara Malaysia, 06010
Sintok, Kedah, Malaysia
ABSTRACT
The paper analyzed the competitive market and competitive advantages for customer satisfaction through
pricing strategy of Air-Asia. Data took from literatures on competitive market and customer satisfaction. The
expositions of problems that may impact the customer satisfaction through pricing strategy of Air-Asia form the
conceptual basis for the design of the research instrument used for this study. Therefore, in order to capture the
information relating to research objectivesand ensure that they will propose customers an acceptable value, the
cost leader should not leave the base of differentiation and value to customers who are willing to pay a
premium. The finding of this paper is that the Air Asia is very successful with its outstanding performance by
providing low cost passage through excellent service despite its challenges and competition in the low cost
Airline market.
Key words: Competitive advantage, Air industry, Customer satisfaction, Pricing strategy, Competitive market
Introduction
The first-low cost carrier in this region is Air Asia, and it works in 21 countries and over 75 destinations on
scheduled domestic and international flights such as Air Asia X, Malaysia Air Asia, Thai Air Asia and Indonesia
Air Asia. Air Asia has been engineered (reengineered) and an extraordinaryturnaround in 2002 has become
generally profitable industry. In 2006, the airline was selected among the best three in the category of Best
Regional flights of low cost airlines World Airline Awards by Skytrax. For 2009 and 2010, from the same
organization airline hasgrantedWorld's Best Low Cost Airline.
Airline industry is highly competitive with existing airlines to compete with each other and with new
players from time to time. The Malaysian aviation industriesare controlledthrough Malaysia Airlines and Air
Asia. Through operational effectiveness and efficiency Air Asia successfully has been taken the cost leadership.
Founded on December 12, 2001, Air Asia has become such a huge event in the aviation industry, particularly in
Asia and second national airline in Malaysia. Through the powerful slogan of Air Asia "Now Everyone Can
Fly”, Air Asia placed in customers mind. Air Asia has become the first low cost carrier, ticketless serviceairline
in Asia. Air Asia engages a simple "no frills" service such as meals, frequent flyer miles or airport lounges in
exchange for fares lowerthan those offered by full service airlines.
Airs Wars are hitting-up in the skies over Asia, with some of the world's largest airlines are engaged in
intense competition. The last ten years havewitnessedthe emergence of about twenty low cost carriers in the
Asia Pacific region such as Lion Air and Tiger Airways from Singapore; Air Deccan, Air One, Kingfisher
Airlines, Air India Express, Alliance Air and Spice Jet from India; Adam Air from Indonesia; One-to-go and
Nok Air from Thailand; Ozjet and Virgin Blue from Australia; Viva Macau from Macau and Jeju Air from
South Korea. Arguably, the most successful in the region is Malaysia’s AirAsia.
O'Connell and Williams (2005), there are different customer’s perception on Malaysia Airlines and Air
Asia. So that, it will suggest there are also different customer’s satisfaction on Malaysia Airlines and Air Asia.
Several airlines in Asia operate the low model and more will be launched in the near future. Many Asian carriers
already have established the world's lowest cost units (Doganis, 2002). There are 3.1 million passengers had
flown in 2003 and 98% were on time (Ze and Ng, 2008).To survive in a hostile environment, Air Asia to create
a low-cost carrier terminal (Ze and Ng, 2008) highlighted the low-cost airline to focus on operational
efficiencies.
Low-cost sometimes means the perception of poor quality of services; however, the market infiltration
gives further indication that market has challenged established ideas by developing low-cost that fare and
facilities required to satisfy the customer (Conrad et al., 2004). Low-cost Airlines not only have increased
competition butalso to know how to deal with airport low cost airlines.
Corresponding Author: Mohammad SumannSarker, School of Economics, Finance and Banking, UUM College of
Business, University Utara Malaysia, 06010 Sintok, Kedah, Malaysia.
E-mail: rabiul@uum.edu.my 2506
J. Appl. Sci. Res., 9(4): 2505-2512, 2013
Low cost airlines have increased domestic market share of 7 percent in 1990 to 23.7 percent in 2003 in
United States. World Airport report in 2008 stated the Asian low-cost carriershave beeneffect for sustaining the
growth of airport in Delhi, Mumbai, Sydney and Kuala Lumpur (Buyck, 2008).
2. Business Strategy and Competition in the Airline Industry:
2.1 Competitive Strategies:
For competition Asian flights to provide better service and response by offering their better service, take
advantage and differentiate themselves in their Asian charms and hospitality services by undertaking various
cost cutting measures and lower the price of living competitive. According to Kloppenborg and Gourdin,
(1988); Shostack(1977) Air aviation industry has categorized intangible service industry.
According to Porter (1980) to build four prominent business strategies: cost leadership, differentiation,
focused low-cost and focused differentiation, there are two kinds of competitive advantages that can be
combined with either a board competitive scope or limited competitive scope.
Fig. 1: Competitive Strategies
Attempts to explain and classify competitive strategy that firm uses, Porter (1980) argued to build four
prominent business strategies: cost leadership, differentiation, focused low-cost and focused differentiation,
there are two kinds of competitive advantages that can be combined with either a board competitive scope or
limited competitive scope (figure 1).
To be continued by the company in consumer electronics or compact car industry, cost leadership is one of
the common business strategies. Each of the leaders in the value chain activities to be operated in the most
efficient way to lower price of the new product and service those will generate a profit margin. Instead,
differentiation is the institution's business strategy offering customer service products look as different and
which they are willing to pay higher prices.Choosing the differentiation and characteristics of their products and
services recommended or method in which it is delivered and developing organizational capabilities required to
achieve the fundamental difference is a big challenge for companies.Interestingly, in order to ensure that they
will propose customers an acceptable value, the cost leader should not leave the base of differentiation and value
to customers who are willing to pay a premium.
However, no cost leader must try to offer the features of different products or service process, for fear of
becoming trapped in the middle. In the late 1970s this is exactly what happened to LakerAirways, according to
Porter (1980). British Airline proposed no frill / low fare successful service but eventually began to add more
destinations and creator of aviation services. To the point where tourists felt that they had more value for money
when flying with traditional airlines, Laker had to raise their fares in order to maintain profitability. Who stuck
in the centre is a recipe for strategic mediocrity and below average performance as it is at the same time
pursuing all strategies means that the firm is unable to follow any of them due to their inherent contradictions,
according to Porter.
2.2 Air Industry:
The Airline industry has been developed very fast since the world wars, and a number of issues have
influenced the airline industry evolution during this time. According to Clemes et al., (2008), the aviation
industry has been distinguished as one of the more significant service industries and Tiernan et al., (2008) plays
a vital role in the world’s economy.According to Leeand Cunningham, (1996), the aviation industry will try to
differentiate their services through the use of computerized booking system is also designed to create customer
loyalty in the distribution channel.
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Saha and Theingi (2009) view that, it is imperative that the measures and monitors of companies quality
service and satisfaction to influence behavioral intentions to their customers. In 2009 and 2008 airline industry
has hardly hit by economic downturn and rise in oil prices respectively. Now a day, air travel demand has
improved with the recovery of economy.
In 2008 and 2009 airline industry had lost $ 16 billion and $ 9.9 billion respectively. After a turnaround,
International Air Transport Association (IATA) expected aviation industry will get profit $ 1.5 million in 2010.
However, most of U.S. carriers are affected again in the month of December with travelers being snowed
throughout the United States and Western Europe. Most of the companies bound to get hurt fourth-quarter profit
and revenue due to cancel flights during the month. The effect of loss of flight cancellations are expected
through 2011. Employees are needed train to recognize and respond to various situations during interpersonal
exchange between them and the buyers suggested by Lorenzoni and Lewis (2004).
Low
Fares
Low Service Level
Airlines
pursuing
leadershipstrategy
High
Fares
High Service Level
acost
Airlines
unable
toachieve
either
a
costleadership
or
adifferentiationstrategy
Airlines
pursuing
anintegrated
strategy(Some potentiallystuck in the
middle)
Airlines pursuing adifferentiation
strategy
Fig. 2: Airlines Business Strategies
This is the first research design will involve the introduction of the airline's business strategy is really
catching up. As mentioned before, Porter's competitive strategy introduced typology that can be used to
compare how competition in the industrial sector that is given to their position. Therefore, it would be relevant
to use this tool to find out the position of the sample airlines compete on the same routes (some traditional and
others that can be called low-cost airlines).
Financial performance and strategic measure to enable the difference between an airline successfully
integrated cost leadership / differentiation strategy and carriers trapped in the middle and do not work better than
a lie in the lower left quadrant of the scatter gram airline business strategy.To determine how the company can
manage to implement an integrated strategy leadership / successful cost differences, secondary data can be
collected to compare airline after successfully implement the best strategy and supplier cost airlines seem stuck
in the middle. It should be noted that the framework proposed research priorities airlines including assumptions
about the factors that explain the success of the strategy of leadership / integrated cost difference. They suggest
that researchers compare airline, openly, any airline implementing different business strategies and achieve
different levels of financial performance and business. This can lead to some flight demonstrations that exist
between the strategic choice model of traditional airlines and low cost. Currently the airline industry is looking
for new strategic channel, airline aims to compare the performance and results of operation may be the most
valuable.
2.3 Pricing Strategy:
According to Rhoades, (2006), in the early 1970s Southwest Airlines in the United States started low-cost
business model. This business model became motivation to other low-cost carriers after its success to all over
the world, such as Easy jet in the UK, Ryan Air and Air Asia, Cebu Pacific, Jetstar Airways, Asian and Pegasus
Airlines, and Air Qantas Jetstar, Virgin Blue, freedom Air in Oceania. According to Tiernan et al, (2008); Wen
and Yeh, (2010), low cost airlines focus on price leadership. Malaysia Airlines and Air Asia are dominated in
Malaysian aviation industry. Full-service airline consider as Malaysia Airlines on the other hand low-cost airline
consider as Air Asia (O'Connell and Williams, 2005).
Malaysia Airlines refused allegations by Air Asia that it had used financing subsidies "Everyday Low
Fares" campaign as it was established a campaign of zero-fare as well as to Southeast Asia destinations in May
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2008.Predatory pricing practices have been made against Malaysia Airlines. The campaign "Everyday Low
Fares" has created a new market for the airline said IdrisJala of Malaysia Airlines.
The Air Asia is very successful with its outstanding performance by providing low cost passage through
excellent service despite its challenges and competition in the low cost Airline market. According to Porter
(1980), Day and Wensley (1988) a service organization can get a competitive advantage by offering lower
prices to customers over competitors or by delivering more benefits that justify higher prices. Similarly, Air
Asia is positioned itself as a low cost carrier with no frill service with value for money.
The value of a business can be a strong pricing tool. Price is one of the tools in marketing mix which gains
profit to the firm. They pointed out "price management is an important component in the marketing and
competitive strategy and the main determinant efficiency." In addition to outstanding operational effectiveness
and efficiency of the company's most important determinant of survival is the pricing strategy. According to
Poala et al.(2007) low-cost business model to conclude that companies implement optimization strategy of lowcost airfare tickets using dynamic pricing strategies tend to change depending on the demand curve. The concept
of low-cost airlines have promoted the lowest fares it offers beyond the date of departure and the price increases
as the day of departure as the ability of the current approach taken has shown by Mason (2001).Bilotkach et al
(2007) has also been supported this finding andstudies which identified offered speed up the growth rate as the
departure date approaches.
Air Asia and Malaysia airlines in Malaysia can be classified through the pricing strategy. According to
Button (2007), the cost leadership strategy applied by the airline that in situation where the market leader sets
the price and competitors feel compelled to match the price. Pricing strategy is a strong element that can
generate revenue for the firm.According to Franke (2004) and Doganis (2006) focused specifically on the
benefits of low cost airlines can be derived from a selection of their operations. Their research shows that there
is no element that is responsible for driving competitive advantage. Instead, all of the choices made to contribute
to the production cost benefits. Theessential of various strategic choices created by the airline proposes to
investigate other elements of the low-cost business model. In fact, income generation is one of the distinctive
aspects that distinguish low-cost airlines' policy of full cost.Piga and Filippi (2002) were analyzed in
comparison based on the price of low-cost business model with the airline pricing strategy in full cost.
2.4 Customer Satisfaction:
The key objective in the services operation is customer satisfaction because it brings benefit to the
organization (Ranaweera and Prabhu, 2003).Customer satisfaction in service industry has become very
important and Dennett, et al. (2000) suggested the air quality of service in the aviation industry has received
more attention due to the competition. According to Fornellet al. (1996); Spreng et al.(1995) in many
organizations, customer satisfaction has also meant that the organization had received fewer complaints, thereby
reducing the cost of dealing with failure.
Price is an important factor for user satisfaction (Anderson et al. 1994). Customer satisfaction is greater
than the assessment of service quality and is subject to a number of factors, such as quality of service, product
quality, price, terms and condition, and personal characteristics (Zeithaml and Bitner, 1996). The sheer quality
of service is not a sufficient condition for the establishment of customer loyalty because customers are always
aware of the cost / benefit trade-off relationship (Lee and Cunningham, 1996).
Athanassopoulos et al. (2001) studied the effect of customer satisfaction on customer behavioral responses
and report that customer satisfaction has a direct impact on the three variables (the decision to stay with the
existing service providers, participation in the communication of word-of-mouth, and the intention to change
service providers). According to Anderson et al (1994) customer satisfaction or dissatisfaction with the service
experience is required, and is influenced by the perceived quality and value of service.
According to Atilgan et al. (2008), in most customer service settings may not be received the level of
expected service before the actual service experience. Either under or above client’s expectationsfalls
performance of services. Exceeded expectations, while the high quality of service and the service is considered
to be a surprise.Establish quality of service measured with actual service performance in terms of service
features, particularly in certain contexts, while satisfaction measured by overall customer service experience
(Oliver, 1993). In general, the quality of service literature identifies expectations as an instrumental influence in
consumer evaluations of service quality (Parasuraman et al., 1985; Sultan & Simpson, 2000).
These findings have given more valuable information to aviation industries for customer service to measure
and manage flow and profitability. Price is an important influence on the perception of consumer satisfaction.
Different price perception dimensions and can potentially be leaded to customer satisfaction in addition to ease
product price level. Customers hope to gain low cost carriers. If the product performs well either to or above the
customers' expectations, then their satisfaction of the product improves. Customer will repeat purchase intention
on Air Asia. On the contrary, if a product is below the customers' expectations, then customer satisfaction
decreases. This will directly lead to the competitive advantage on Air Asia.
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When investigating customers’ decision making include customer service expectation and satisfaction
among the key variables those are usually considered (Park et al, 2004). Most of the literature shows the quality
of service as a multi-dimensional variables those are focused by aircraft passengers, which is consistent with
Parasuraman et al. (1988) concept of service quality called SERVQUAL. SERVQUAL measured base on the
five dimensions of service quality such as reliability, assurance, tangibles, empathy, and responsiveness.
Usually, the quality of service expectations as the influence of literary recognition plays an important role in
consumer evaluation of service quality (Parasuraman et al., 1985; Sultan & Simpson, 2000).
Parasumaran et al. (1991) there are five service dimensions to categorize the level of customer service
expectations: those are reliability, tangibles, responsiveness, assurance and empathy. Reliability is concerned
with the revenue from the remaining dimensions are concerned with the services. Author remember that while
reliability is an important in meeting customer expectations (i.e. provide results as promised, such as a clean
room or a flight on time to the destination), the dimension of the process is important in exceeding customer
expectations. Here, can be concluded that while airlines such as Ryanair and Finnair deliver the same service
(air transport) and expected the same results (customers arrive to the final destination), the process of delivering
a completely different service.
Service Quality:
Quality is a driving force for improved competitiveness, customer satisfaction and profitability
(Edvardsson, 1992). As for service quality, e.g. American Marketing Organization defines it in two ways: first,
it is an area of study that defines and describes how services are delivered so that the service recipient is
satisfied; second, high quality service is a delivery of service that meets and exceeds the expectations of the
customers.
Table 1: Service quality aspects in airline industry (multiple sources)
Service quality aspects
Price, safety, timelines, baggage transportation, food quality, seat
comfort, check-in process and on-board services
Seat comfort, safety, courtesy of staff
Airlines reliability (safety)
Aircraft type
First customer contact / interaction with contact employees
Airline brand, price, sleep comfort
Employee’s service, safety & reliability, on board service,
schedule, on time performance, frequent flyer program
Flight schedule, total fare, flexibility, frequent flyer program,
punctuality, catering, ground services
Level of concern and civility, listening and understanding,
individual attention, cheerfulness, friendliness, courtesy
Willingness to correct errors, task proficiency, courtesy,
friendliness, tolerance
On-time performance, overbooking, mishandled baggage,
customer complaints
Researcher(s)
Gourdin (1998); Elliot and Roach (1993)
Tsaur et al. (2002)
Fick & Ritchie (1991)
Truitt & Haynes (1994)
Carlzon (1987); Bitner et al. (1990)
Boetsch et al. (2011)
Liou&Tzeng (2007)
Teichert et al. (2008)
Babbar&Koufteros (2008)
Mersha&Adlakha (1992)
Tiernan et al. (2008)
Parasumaran et al. (1985) stated that the equality of service is defined by the assessment of customer
service outcome and service process as well as comparison customer expectations with the performance of
services. Hence, the quality of service can be considered as fit between current service level and customer
expectations. Park et al. (2004) define the quality of service as a customers’ overall impression of an
organizational efficiency and its services. Thus, customer satisfaction is a made of judgment based on a certain
service encounter.Chen & Chang (2005) suggest that service quality is a process, and in case of airline industry,
the authors divide the process into ground and in-flight services and state that passengers’ expectations are
different for each of the processes.
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Word of
Mouth
Determinants of Service
Quality:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Access
Communication
Competence
Courtesy
Creditability
Reliability
Responsiveness
Security
Tangibles
Understanding
Personal
Needs
Past
Experience
Expected
Service
Perceived Service
Quality
Perceived
Service
Fig. 3: Determinants of perceived service quality
Source: Parasumaran et al., 1985
Parasumaran et al. (1985) identifies there are 10 key determinants for quality for service, which impact both
expected and perceived services, and through those, perceived service quality (Figure 3). Expected service is
also encouraged by word of mouth, personal needs as well as past experience.
Price is only the factor that can be distinguished between the Malaysia Airlines and Air Asia. With the
slogan "Now Everyone Can Fly" Air Asia has been aggressively promoting itself. Long-known Malaysia
Airlines has challenged the branding position for this. There are different customer base and offer different
services experience served by both airlines. However, where service differentiation is quite minimal, this may
not be true in the case of domestic flights and some of international flights. So, it can be concluded that the level
of customer satisfaction and customer’s perceptions of full-service airlines and low-cost airlines are different
(O'Connell and Williams, 2005).
Fig. 4: Customer satisfaction conceptual model in the air travel industry
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Conclusions:
Airline industry has seen a major change in the trend in 1990 when low-cost airlines increased in the market
rate. It plays an important role for moving people and goods from one place to another domestically or
internationally, especially when the distance is remote. Due to the current price competition consumers are
getting benefits because they pay low fares between Malaysia Airlines and Air Asia. Without burning their
pockets now everyone really can fly.
To get customer loyalty higher customer satisfaction can be expected and also expected to reduce price
elasticity, protect market share from competitors, net of transaction costs, reducing the cost of attracting new
customers, and increase the firm's reputation in the marketplace (Anderson et al., 1994).
Reputation can be contaminated easily if service fails which can cause customer dissatisfaction. Although
Saha and Theingi (2009) discovered even customers are not satisfied by low cost airlines, they prefer to switch
carriers without complaining; Air Asia keep proceed to be one of the company's short-haul low-cost carrier in
each market and gain strong organic growth through profit objectives.
Air Asia is positioning itself as a market leader of low cost airlines. Therefore, compete for the position, Air
Asia needs to guarantee its ticket prices should be maintained at an average ticket prices sold by the airlines. It is
an important for getting more customers over competitors, but retaining existing customers even more
important. Since it is known that customer satisfaction makes customer loyalty, Air Asia is a more efficient
management of the essential factors that affect customer satisfaction.
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