1. Demographic In 2005, the total population in Asia stands at more than 3.5 billion.

The United Nations statistics also show that Asia has an astonishing demographic dividend where more than 35% of its population is below the age of 25 and more than 55% hovers below the age of 35. This indirectly means that the increasing large population of the middle age group equates to a larger working age population with more disposable income and thus the likelihood of more business and leisure travels is almost confirmed. This thus presents another golden opportunity for AirAsia.

2. Economic Although, economic downturns (e.g. global financial crisis) would result in a downturn in the industry, it can prove to be an opportunity for AirAsia. For example, as a result of the global economic downturn (i.e. worldwide stock market plunge), aircraft leasing costs were reduced by about 40%; creating an environment with lesser competition and enabled AirAsia to lease their aircraft at a cheaper rate (leading to cheaper ticket prices for customers). But the threat facing by Airasia is fluctuating oil prices would have an impact on operation costs when fuel prices are too high. Yield and profitability would decrease for AirAsia if fuel prices become too high. Overall, although such economic events are unavoidable, the opportunities outweigh the threats, presenting AirAsia opportunities to expand its business: during times of economic downturns, demand for affordable low fares would increase amongst budget-conscious travelers, especially from leisure and corporate travelers.

3. Political/Legal Globalization saw a trend of increased privatization and deregulation of governments across the world, which resulted in the ongoing consolidation of the airline industry. As governments were important drivers of airline success in Asia, most airlines in East and Southeast Asian countries had full or substantial state ownership, management, and control, often subsidized and protected by the governments from competition; with the pursuit of nonbusiness goals, profits were often sacrificed for the sake of national objectives. Privatization and deregulation of governments presented opportunities for new routes and airport deals through open-skies agreements between countries, or the permission of the entry of private

airlines, reducing the constraints for international airlines. For instance, in 1997, Malaysia signed an open-skies agreement with the United States; such deregulation present new airlines (i.e. AirAsia) with the opportunity to access domestic routes. Having access to domestic routes could lead to the trial of long haul flights to attain and penetrate an undeveloped market share (i.e. new routes to utilize its new aircraft). However, globalization can also result in global uncertainty (i.e. accidents, terrorist attacks, and disaster), which can affect customer confidence. Once customer confidence is affected, AirAsia would face the threat of losing its profitability, or even bankruptcy. Being a low-cost carrier, AirAsia is subjected to subjected to aviation regulations, government policy and government restraints (i.e. government protection in favor of full-service airlines), and dependent on the geography and infrastructure of Asia, and the travelling preferences of customers.

4. Sociocultural In recent years, rapid economic growth resulted in a burgeoning middle class within Asias large population. Together with increased in trade and tourism within and into Asia, demand for air travel increased; more people were willing to compromise on food and other services in exchange for lower prices. The attractiveness of budget airlines is primarily their low ticket prices, which can be as low as 10-20% of those charged by full-service airlines. This presents AirAsia with opportunities to differentiate itself from competitors by adding customer services or operation as full service airline with low fare, giving it a competitive advantage (i.e. provision of in-flight food and drinks, and online sales of hotel, car, and holiday reservations, as well as travel insurance), and corporate travel services, with its own branded credit card; further increasing brand awareness and value for customers. However, if AirAsia is not careful in its implementation to differentiate itself from competitors, it could incur an (unnecessary) increase in operation cost in producing value-added services. Overall, the social/cultural aspect presents AirAsia with more opportunities than threats, as long as it does not unnecessarily increase operation cost in producing value added services.

5. Technological Global By utilizing information technology, AirAsia was able to the first airline in Southeast Asia utilize e-ticketing and bypass traditional travel agents. This enabled the airline to save on the cost of issuing physical ticket (i.e. estimated at US$10 per ticket), and eliminated the need for large and expensive booking and reservation systems, and agents commissions. If not handled properly (i.e. backup systems and maintenance), there would be risk

of system disruption due to heavily reliance on online sales. Hence, the technology aspect would pose to be a threat if AirAsias systems are not properly backed up and maintained (i.e. contingency plan in the event of a system disruption).

6. Physical Environment The physical environment segment refer to potential and actual changes in the physical environment and business practice that are intended to positively respond to and deal with those changes. To sustaining the quality of the physical environment

Industry Analysis 1. Threat from New Entrants: Low The airline industry requires high capital. The cost of setting up an office, purchasing or leasing aircrafts, hiring pilots and other staffs such as air stewardess and etc incurs a high start-up cost. Hence, the threat of new entrants is low for Air Asia. Strict government regulations. Every potential entrant is required to obtain license and permit before it is allowed to be operated. This is because the airline industry in Malaysia is already highly competitive. As a result, the government needs to protect the interest of its national airline, Malaysia Airlines (MAS), where MAS has been operating on losses a few years back. Apart from offering air transportation service, Air Asia also offers affordable tour packages. Air Asia has been establishing good relations with hotels and tourism companies around Asia, therefore, it is hard for new competitors to compete. Most of Air Asia customers have high brand loyalty towards Air Asia because of its widely known one of the low-cost airlines that continues to offer the lowest possible price.

2. Bargaining Power of Supplier: High Overall, power of supplier is high as there are limited and just availability of suppliers, the switching cost is high (i.e. airplanes and their maintenance are costly), and there are few substitutes for airplanes (i.e. air travel covers longer distances in a shorter period of time). Limited number of aircrafts supplier. There are only two aircrafts supplier companies in the world, which are Air bus and Boeing. Compared to Boeing aircrafts, Airbus aircrafts is the most advanced in technology, hence, Air Asia must rely on the Airbus engineers to do maintenance on the aircrafts and seek advices.

3. Bargaining Power of Buyer: High The internet has allowed customers to have access in aviation market information, mainly, the price of air transportation ticket charged by different airline companies, where price comparison can be made. Low switching cost for customers. Customers priority is to look at price and flight schedule that suits them best when purchasing air transportation tickets. As mentioned earlier, customers main purpose of using the airline service is to get to their intended destination. Therefore, customers can switch to other airline easily. As there are almost no switching costs for customers switching from one budget airline to another, the bargaining power of buyer is moderately high. Moreover, customers are able to compare prices of budget airline via the Internet, giving them more choices

4. Threat from Substitutes Product/or Services: Low Although there are several substitutes (i.e. trains and ships), the geographical structure of Asia has made air travel an efficient, viable, and convenient mode of transportation. Hence, threat from substitutes is moderately low. Compared to other modes of transportation, the archipelago geographical structure of Asia made air transportation the most viable, convenient and efficient mode of transportation. However most of the lowcost airlines only fly domestic routes within the country of origin, while only a few operate international routes connecting nearby countries. Hence, customers will always look for alternatives. The prices of substitutes are about the same with Air Asia. Some of the airlines offers cheaper price to achieve profitable passenger loads. The price offered depends on the time gap between the booking date and flight date. The longer the date, the cheaper the price. If the air transportation tickets are purchased last minute, the price will be about the same with premium airlines such as MAS and Singapore Airlines (SIA).Therefore, in this situation customer would switch to the premium airlines.

5. Rivalry among Competing Firms: High Intensity of rivalry is moderately high due to the increased competition (with more competitors wanting a part of this growing lucrative market), and high exit cost. Exhibits 8 and 9 provide information on low-cost carries in Asia: from 1 budget airline (Cebu Pacific Air) in 1996 to 16 budget airlines by 2005, the entry of more low-cost airlines dramatically increased competition.

AirAsia also faced competition from a broad range of airlines, ground transportation, and sea services. The airline industry offers similar service. Customers main purpose of using the airline service is to get to their intended destination. Though Air Asia offers additional services such as hotel booking and tour packages, it is subject to its customers choice. An industry with similar products and/or services offered is highly competitive. The airline industry incurs high fixed cost. In order to cover the fixed cost, the airline companies have to gain more market share. As such, constant price reduction is done to compete with others. Hence, the rivalry is strong. Low switching cost for customers. Customers priority is to look at price and flight schedule that suits them best when purchasing air transportation tickets. As mentioned earlier, customers main purpose of using the airline service is to get to their intended destination. Therefore, customers can switch to other airline easily, which makes the industry so competitive. The airline industry incurs high exit cost. In order for an airline company to exit the industry, it needs to pay its loans and staffs retrenchment as well as refund the flight cancellations, which all incurs high cost. Even making losses, the airline company has to get running to cope with fixed costs. There are approximately 45 low-cost airlines in Asia. Some of the airlines do not compete directly with Air Asia, but they compete indirectly in routes that Air Asia does not fly. Thus, the higher the number of competitors, the fiercer the competition.