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  • Subject area(s): Marketing
  • Price: Free download
  • Published on: 14th September 2019
  • File format: Text
  • Number of pages: 2

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Dear AirAsia Team,

After fully analyzing the three companies your team has expressed interest in acquiring or merging with, we have identified the benefits that each would bring to AirAsia. To realize which company would bring the greatest overall benefit, we need to outline the company's' major characteristics. The airline has been ranked the World's Best Ultra-Low-Cost Carrier (ULCC) for eight years in a row while maintaining an extremely low-cost structure of US$0.023 per available seat kilometer. AirAsia not only invests greatly in management and training employees but also truly cares about them, believing that when your staff is content they perform better in the workplace, which leads to higher customer satisfaction. This aspect is also increased by the fact that AirAsia has an extremely quick turnaround and connection times, especially when compared to other ULCCs. A contributing factor for this is the use of a single aircraft type. This creates a sense of familiarity among staff which ends up reducing training, service and maintenance costs and time for departures. Moreover, by properly understanding its target clientele composed of low and middle-class families, AirAsia is able to deliver strong targeted marketing campaigns, which creates strong brand awareness and respective associations.

In 2001 the future for AirAsia was looking bleak. Tony Fernandez came in and through simplification of operations, joint ventures, and future planning to tap into long-haul airline ventures through AirAsia X, the company has experienced nearly two decades of constant growth in the Asian market.

A potential merger between AirAsia and either Southwest Airlines or Virgin Atlantic would produce inharmony and an incompatible business structure, which could lead to a potential failure. This is a scenario similar to when Latam Airlines, a leading network airline in Peru, tried to adopt a low-cost approach after a new low cost provider entered the market. They were unable to make a significant change in their fares but this increased the number of consumer complaints to the respective government agency and the ___ on social media was very hard to ignore. This managed to significantly reduce their market share and customer satisfaction.

RyanAir, on the other hand, operates a very similar ULCC structure to AirAsia, selling one-way flights as cheap as £5 within Europe. Although it is already the largest carrier by number of passengers, currently holding a market share of 15%, the company aims to increase its dominance and is expected to be the market leader, holding a 20% share of the market for short-haul flights in Europe by 2024. They accomplished this while maintaining an unprecedented safety record.

RyanAir has 73 maintenance bases across Europe which would provide a great benefit since AirAsia currently has none. This merger would also allow AirAsia to fulfill their goal to re-enter the London Market,  since its exit in 2012. Furthermore, both companies have a similar clientele of customers that are looking for a no-frills flight and aiming to go from one point to another. In 2016, the International Air Transport Association predicted that demand for Air Travel will double over the next twenty years with the biggest driver of demand being the Asia-Pacific region. The European and Asia-Pacific markets combined are expected to carry 4.6 billion passengers per year. Through a merger, the two companies would be geographically positioned to cover nearly 64% of the air traffic by 2035.

On the other hand, a merger with RyanAir would also mean acquiring their market competition, with Europe having much more competition in the ULCC sector than Asia. Additionally, the EU has very different regulations than the many Asian countries in which AirAsia currently operates, so both RyanAir and AirAsia would need to understand each other's regulatory environments well for a successful merger. Moreover, due to the size of both companies, regulatory issues may arise either through the EU or in countries where AirAsia currently operates which could potentially block the merger. Though this would apply with all mergers, their size and relevance might make the respective administration more thorough and demanding regarding regulatory requests.

When comparing the two companies we can see that RyanAir is larger than AirAsia in some

factors and AirAsia larger in others. RyanAir has a market cap of over $25 billion, has 11,458 employees, and flew 11.8 million passengers using a fleet of 400 planes in their 2017 fiscal year. AirAsia, on the other hand, has a market cap of over $2.15 billion, 17,000 employees, and flew 56.6 million passengers with a fleet size of 221 planes. RyanAir has $3.64 billion in cash and short-term investments whereas AirAsia has a total of $585 million.

With all this considered, we propose a Merger of Equals with RyanAir. The two firms will create a new entity in which both will be able to continue to run their operations independently while being able to leverage their relationship with each other to maximize all the benefits outlined above. This type of merger is the most beneficial as it will allow both companies to maintain a majority of their current cultural and structural systems that have allowed them to become as successful as they are today. It will also allow them to expand their geographic markets using strategic partnerships and reducing overhead costs for both companies using economies of scale.

Combining AirAsia's extremely low-cost structure with RyanAir's impressive load factor efficiency and seating density will prove a promising combination that guarantees overall success.

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