Company and market analysis of AirAsia

Low cost carriers play a significant role in the airline industry which have changed the competitive environment within modern markets and have made great impacts in the passengers’ market globally, that had previously been controlled by full service network carriers (O’Connel and Williams, 2005). Airlines services classified as low cost carriers or LCCs appeared in the airline industry in the South-East Asia region following deregulation in the early 2000s. AirAsia pioneered low cost traveling in Malaysia as well as Asia in general. The airline was established in 1993. It operates scheduled domestic and international flights and it is considered as Asia’s largest low-fare, no-frills airline. It is also the first airline in the region to implement fully ticketless travel. AirAsia facilitates online transactions through e-commerce system for customers and business partners. It took eight and a half years for AirAsia, which started with just two aircraft and 200 staff, to become the continents’ largest low-cost carrier (LCC) by breaking the 100-million-passenger mark. The AirAsia group has grown fast, with a fleet of 96 aircrafts connecting 22 countries with 139 routes and 8,000 staff. AirAsia’s current annual passenger records are already well above those of leading carriers in the region. For example, International Air Transport Association statistics show full-service airlines Cathay Pacific carried 18.1 million passengers last year, Thai Airways International 17.9 million, Singapore Airlines 16.3 million and Malaysia Airlines 11.9 million (Fernandes, 2010).

AirAsia reaches to more than 20 destinations worldwide including Iran. AirAisa had started operation to Iran twice-weekly since July 2010, and increased to daily operation nowadays. Iran market for AirAisa is quite potential since Iranians have big middle class income and desire to travel internationally. Malaysia accepts Iranian tourists without visa requirements, and there’s already an established Iranian expat community in Malaysia. Apart from travelling to Malaysia for the purpose of vacation, a number of Iranians are flocking to Malaysia, attracted by a fellow Islamic country with a relatively low cost of living, instead of pursuing their dreams in traditional exile hubs such as Canada or Sweden. Easy visa, high educational standards, freedom, low cost of living and great transportation facilities are among Malaysia’s attractions for Iranian people. According to the statistics provided by Tourism Malaysia, there were 101,000 visits made by Iranians to Malaysia in 2009. After the 9/11 attacks, people from the Middle East feel more secure in Islamic countries. So as the number of Iranians moving to Malaysia is increasing, the airline market and flight transportation between Iran and Malaysia becomes more competitive. Therefore, AirAsia as a newly operating carrier in Iranian market should consider all the necessities to get the competitive advantages over its full service competitors such as Iran Air, Etihad Airways, Mahan Air, Emirates, Qatar Airways, and Gulf Air that are operating between the two countries.

Airline services regardless of whether they are full service or low cost carriers are made up of a very complex mix of intangibles (Gursoy et al., 2005). Thus, measuring customers’ expectations, and their service quality is difficult because customer satisfaction is measured by many intangible factors such as atmosphere and condition of the cabin, crews behaviors, etc.(Fitzsimmons and Fitzsimmons, 1994).

Understanding and meeting customers’ expectations, and gaining the competitive advantages over the competitors are important in order to survive in today’s world of globalization. It is important that service companies measure and monitor service quality and satisfaction based on their customer needs and expectations (Saha and Theingi, 2009).

Service offerings are changing increasingly in recent years within the airline industry (Atilgan et al., 2008). As the passengers’ needs and wants are growing in variety, challenge in airline market is becoming tough. In such an occasion, airline companies need to be aware of the latest shift and trend to be able to react on time. Since the culture of customers varies in different nationalities, airline companies need to consider the market trend and people’s culture of the market they are entering. Thus, precise and timely information on a wide range of customer needs and expectations become critically important.

Airline companies need to consider and apply the valuable service strategy to increase customer satisfaction and customer loyalty. Airline companies as ambassadors that carry the image of their origin countries, need to increase their service level to attract more tourists and improve the tourism industry.

As Malaysia is a touristic country that attracts Iranians frequently, the airline industry has an important effect on its travel and tourism industry. In the wake up of increasing competition and improving tourism industry, there is a need for airline providers to recognize the importance of service improvement in order to establish competitive advantages. High service quality fosters customer satisfaction, stimulates intention to return and encourages recommendations (Nadiri and Hussain, 2005). In a highly competitive airline industry, managers must find ways to make their services stand out amongst competitors. To achieve this, managers should understand their customers’ needs, and improve their service quality level to meet customers’ wants and needs.

Statement of the Problem

AirAsia is considered as one of the most popular and successful budget airlines in South East Asia (Cassandra, J., 2007), that newly entered in Iranian market. When a service company enter a new market and make a decision to operate a business, it should take into consideration the new market customers` expectations to set its service quality according to their expectations and needs. Each market demands its service quality based on the customers` expectations and needs. People perceive service quality differently. What Iranian passengers perceive AirAisa service quality might differ from what other nationalities perceive. And the customers` perceptions are driven mostly from their culture.

There is a need to investigate the Iranian perceptions of service quality so that AirAsia improve its service quality to remain different from its competitors in Iranian market and increase its market share in Iran. Before AirAsia started its operation in Iran, Air Arabia was the only operating low cost carrier in the country. Although, some studies have been conducted to measure service quality and to explore customer satisfaction and loyalty in full service airlines in Iranian market (Khalia M., Aghdasi M., 2006) and also ranking airlines` service quality factors in Iranian society (Nejati, M., 2008), but there is no study that focused on low cost carriers in Iran.

A study has been done in the airline industry focusing on low cost carries in Malaysia (Azmi A., Hanim A., Norzalita A., Asbudin A., 2010). But the study considered only domestic flights as well as short-haul trip to collect data in order to measure service quality, customer satisfaction and loyalty, and therefore the resulted underlying dimensions of service quality might not be applicable to the long-haul trips or international flights. In addition, the study focused mostly on Malaysian market as well as Malaysian passengers. The study evaluated the service quality offered by AirAsia and measured customer satisfaction and loyalty based on what Malaysian customers perceive. This might differ from Iranian customers in terms of culture and background. The study also applied SERVQUAL model to measure service quality and customer satisfaction. Considering the weaknesses of SERVQUAL model, this study is applying AIRQUAL model developed by Erik, Hussain and Bavik (2006), in the guidance of Churchill (1979) and Parasuraman et al. (1985; 1988) to control the psychometrical application problems of the existing quality scales.

Kalthom , Noor and Kamariah (2007) conducted a study to measure the service quality of airline services in Malaysia examining the effect of ethnicity on expectations and perceptions of service quality. They attempted to compare the travel behaviour, perceptions and expectations of Malay and non-Malay passengers.

Therefore, this study is seeking to determine service quality perceptions of AirAsia Iranian passengers, and then associate these perceptions to their satisfaction and repurchase intentions by applying the AIRQUAL model.

Objectives

The main purpose of this study is to understand the Iranians ` perceptions of AirAsia service quality. This study is also seeking to determine the dimension(s) or factor(s) that significantly influence the satisfaction level of AirAsia Iranian passengers. The service dimensions to be identified in this study are based on passengers’ perceptions of AirAsia service quality. Specifically the study is aimed at addressing the following objectives:

To determine service quality perceptions of AirAsia` Passengers in Iranian market.

To associate these perceptions to their satisfaction and repurchase intentions.

To find out how service quality dimensions (Airline tangibles, terminal tangibles, personnel, empathy and airline image) can influence the customers` satisfaction and repurchase intensions.

To identify how customers` satisfaction can influence their repurchase intentions.

To examine how customers` satisfaction and repurchase intentions influence their word of mouth communication.

Significance of the Study

Since Iranian market is potential for AirAsia due to Iranian great tendency to travel to Malaysia, the result of this study will provide important awareness for AirAsia Company about the Iranian perceptions of service quality. This will aim AirAisa to design and manage its service quality perceptions according to Iranian customers` needs.

Research Questions

To fulfill the objectives, the research questions can be expressed as:

What are the Iranian passengers` perceptions of AirAsia service quality?

How do service quality dimensions (Airline tangibles, terminal tangibles, personnel, empathy and airline image) can influence the customers` satisfaction and repurchase intentions?

Is there any relationship between the customers` satisfaction and their repurchase intentions?

How the passengers` satisfaction and repurchase intentions can influence their word of mouth communication?