Porter Five Forces of Airasia

orces in a way that improves the position of the organization. Porter's model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.

Bargaining Power of Customers

There are two types of buyer power. The first is related to the customer's price sensitivity. If each brand of a product is similar to all the others, then the buyer will base the purchase decision mainly on price. This will increase the competitive rivalry, resulting in lower prices, and lower profitability.

The other type of buyer power relates to negotiating power. Larger buyers tend to have more leverage with the firm, and can negotiate lower prices. When there are many small buyers of a product, all other things remaining equal, the company supplying the product will have higher prices and higher margins. Conversely, if a company sells to a few large buyers, those buyers will have significant leverage to negotiate better pricing. Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes.

There is one system use by AirAsia which is named Yield Management System. This is also known as Revenue Management System; it understands, anticipates and reacts to the behavior of customer to maximize revenue for the organization.

This takes into account the operating costs and aids AirAsia to optimize prices and allocate capacity to maximize expected revenues. The optimization is done on two levels in AirAsia which are seat and route.

Every seat is considered an opportunity to maximize revenue. Seats are available at various prices in different points of time. A reservation done at a later date will be charged more than the one done earlier. For routes, it can be done by adjusting prices for routes or destinations that have a higher demand when compared to others. The effective method however is to combine these two levels for all flights, all routes so that both the seat and the route are effectively priced for all the flights.

AirAsia has realized increased revenue (3-4%) for the same number of aircraft by taking advantage of the forecast of the high/low demand patterns, effectively shifting the demand from low period to high period and by charging a premium for late bookings.

Bargaining Power of Suppliers

The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. Buyer power looks at the relative power a company's customers has over it. When multiple suppliers are producing a commoditized product, the company will make its purchase decision based mainly on price, which tends to lower costs. On the other hand, if a single supplier is producing something