Business Impact on AirAsia QZ8501 Tragedy

A.     Organization Identification

AirAsia is the leading low-cost carrier (LCC) airline in Asia, headquartered in Kuala Lumpur, Malaysia which started its business in 2001. With employment for over 15.000 people and its slogan ‘Now Everyone Can Fly’, AirAsia has carried over 230 million guests. It is well known as Asian largest low cost airline and has been awarded as the World’s Best Low Cost Airline in the Annual World Airline Survey by Skytrax for 6 consecutive years from 2009-2014.

Figure 1. AirAsia Logo

As stated in their corporate profile published on their official website address: http://www.airasia.com, AirAsia’s missions are to attain the lowest cost so that everyone can fly with AirAsia, maintain the highest quality product, embracing technology to reduce cost and enhance service levels. The AirAsia Group services the most extensive network across Asia & Australia with its affiliates spread out in some countries; Malaysia, Indonesia, Thailand, Philippines, and India by the names; AirAsia Indonesia, Thai AirAsia, Philippines’ AirAsia, AirAsia India, AirAsia Zest, AirAsia X, Thai AirAsia X, and Indonesia AirAsia X.

AirAsia manages to maintain their low cost fare by applying the following strategies;

·                Low fares no frills. AirAsia reduce the cost by not providing foods and drinks for passangers in their flights. By doing this, the company could cut the cost of everything that full service airline provide for free. Air Asia is the pioneer of no frills air travel in the Far East and is fantastic at providing affordable fares to everyone and making air travel cheap, easy and convenient

·                Strategic IT implementation. As stated by WONG Pui Man, Cary (2009) in his academic writing on Enabling Technology in Airline Industry taking AirAsia as the case study, AirAsia has adopted information technologies strategically to integrate the operations and coordinate all the business and management functions, among others; Yield Management System (YMS), Computer Reservation System (CRS), and Enterprise Resource Planning System (ERP). The IT systems have been effectively substituting the cost of employees in implementing its marketing and sales activities, as well as operation activities.

·                Point-to-point network. AirAsia is applying the point-to-point network, reducing the numbers of transit in their flights to keeps operations simple. They prefer to arrange their flight directly to its destination rather than transit in other place before.

The 2013 Annual Report of AirAsia says that by the end of 2013 AirAsia has 182 operating routes to 83 destinations in 17 countries and flying more that 217 million passangers since its first establishment. It has more than 13.000 employees with biggest market share in Malaysia, Indonesia, Thailand, and The Philippines. With such numbers, AirAsia was voted as the largest LCC airline in Asia in terms of fleet and number of passangers carried.

B.     Issue Identification

For more than 13 years operating smoothly as an affordable airline for millions of people, AirAsia faced with a tragedy which became a great issue for the company. In a morning on December 28, 2014 AirAsia flight QZ8501 route Surabaya-Singapore was claimed missing.

As reported by www.straitstimes.com, air traffic controllers lost contact with Flight QZ8501 around an hour after it left Juanda international airport in Surabaya, East Java, at 5:20am. The Airbus A320-200 had been scheduled to arrive in Singapore at 8:30am. There were 162 onboard, 156 were Indonesians, 3 were South Koreans and 1 person each from Singapore, Malaysia and France consisted of 138 adult passengers, 16 children and an infant, in addition to the two pilots and five cabin crew.

Figure2. Satellite map showing heavy cloud formation above Java Sea, the location of the plane crash

The real cause of the tragedy is still remain unknown and is being investigated. Some predict that the main cause is the bad weather. As covered in an article by http://www.merdeka.com, the Head of Australian Strategic Aviation Solution, Neil Hansford said that AirAsia QZ8501 was passing through a thunderstorm area where most pilots will avoid. He believed that the cause is purely human error instead of technical error.

According to Alvin Lie, one of Indonesian flight observer, there are two possibilities happened to AirAsia QZ8501. First is that the plane crashes its wings in the air because of bad turbulence caused by cumulonimbus, and second is that the plane falls down to the sea and hit sea surface so hard that it broke the body of the plane. But he believes that a proper investigation should be done to analyze the real cause of the incident by finding out the black box.

Despite all the predictions on the causes, AirAsia Indonesia admitted that they have committed ‘administrative negligence’ when requesting a change in its Surabaya-Singapore flight schedule. As covered on an article in http://www.straitstime.com, AirAsia Indonesia had only verbally informed the Ministry of Transportation regarding their route of Surabaya-Singapore operating on Sunday.

Speaking on January 13, 2015 regarding the AirAsia incident at the first hearing with House of Representatives Commission V on transportation, AirAsia Indonesia’s President Director Sunu Widyatmoko said that based on the flight permit issued by the ministry, the airline was allowed to fly four days a week on Mondays, Tuesdays, Thursdays and Saturdays. "I admitted that administrative negligence occurred when requesting the change in flight schedule, as the verbal information failed to reach the ministry," Mr Sunu said. "We will take this as a correction," he added.

The crash marks a tragic end to aviation in Southeast Asia in 2014 topping up the tragedy of the disappearance of MH370 in March 2014 which disappeared with all 239 passengers on board, and the shooting down of MH17 over Ukraine that killed all 298 passengers and crew in July 2014.

When speaking about airlines business, we can not separate it from the risks incurred by the companies’ day to day activities. Amongst the most typical operations risks within the airline industry we find hazardous activities affecting safety, inadequate financial processes leading to inefficient control, and inadequate IT back up systems leading to loss of information.

According to Miller (1992), the label "risk" has also commonly been assigned to factors either external or internal to the firm that impact on the risk experienced by the firm. The use of the term "risk" to refer to uncertain environmental variables that reduce performance predictability. The term "uncertainty" as used in strategic management and organization theory refers to the unpredictability of environmental or organizational variables that impact corporate performance [Miles & Snow 1978; Pfeffer & Salancik 1978] or the inadequacy of information about these variables [Duncan 1972; Galbraith 1977].

One of the prediction of what happen to AirAsia QZ8501 is bad turbulence caused by cumulonimbus. If somehow the investigations lead to the cause of the accident is as predicted, then it can be included in one of the categorizations of uncertainty which is Natural uncertainties. This category includes natural phenomena that impact economic output.

C.     Business Impacts

This tragedy of the missing plane by AirAsia will surely contribute such big impacts to AirAsia’s business, among others;

1.    The threat of losing customers

The shock caused by AirAsia’s tragedy happened to all frequent travellers and flyers in the world. It will for sure makes them questioning the safety of the airline. The threat of losing big number of customers for AirAsia is quite possible since their track records as the airline with no accidents or plane crashes is suddenly lost.

2.    Decreasing the company share price

After the incident the company’s share price is relatively decreasing. As cited from http://www.firstpost.com, on Monday, December 29, 2014 AirAsia’s share price fallen down to 12.9% to 2.56 Malaysian Ringgit.  But on January 4, 2015 the price is continuously gaining to 11.6% down from the price before the tragedy.

3.    The new law issued by Indonesian Government.

As mentioned in an article published by http://www.laruno.com, Mr. Ignasius Jonan, Indonesian Minister of Transportation gave his statement that Indonesian government will review AirAsia’s business and operationals for the sake of flights safety. The ministry will also increase the flight safety standards from category II to category I applied by the Federal Aviation Administration (FAA). Any airlines which do not perform safety procedure as regulated by FAA will not get their flight permit by Indonesian government.

Beside giving impacts to AirAsia as the company, the tragedy will also contribute to other fields and or institutions, for example;

·        Tourism in several city in Indonesia will be impacted.

As mentioned in an article on http://m.voaindonesia.com, according to Daryono, the Head of Tour and Travel Association in Solo, the only airline in Solo which directly promote to the city and has route to other cities or even to other countries so far, is only AirAsia. In 2014 Solo has significantly attracted tourists to visit. Almost 3 millions tourists came, and 35.000 of them are international tourists. The association worried that the tragedy will impact the interest of tourists to visit Solo.

·        There will be no more low cost airticket.

The Ministry of Transportation believed that there is a tight business competition among airlines which makes airline companies violate the rules and regulations by adding or changing the routes and flight schedules. This was what happened with AirAsia QZ8501 that flew on Sunday December 28, 2014. The Ministy of Transportation will then apply a new rule that the lowest rate of low-cost airticket will be maximum 40% of a normal airticket. In the future there will be no more airtickets sold in a very cheap price, for example, IDR 50.000 or 100.000.  

This will be disadvantages to the low cost carrier customers who probably depend on cheap airtickets to travel, and to other low cost airlines that market and promote themselves mainly through their low price airtickets.

·        The customers will prefer to fly with other airlines.

This will be advantageous to other airlines as AirAsia’s competitors, but it was predicted that the situtation will not happen in a long term basis. Eventually the loyal customers will still choose AirAsia, and other low budgetted travelers will be chosing the cheapest airtickets to fly.

D.     Managing the Crisis

In the communication perspective, AirAsia handles the crisis quite well.

1.    The highly visible compassion shown by Toni Fernandes, the founder and owner of AirAsia, such as changing the airline’s bright red logo to a somber gray online as an initial response to the tragedy. It is a simple yet good example of how to communicate in a crisis.

Figure 3. Toni Fernandes’ will to change the airline’s logo color online

2.    Fernandes was looking after the grieving families and put them in the priorities over any other matters. He was showing a lot of empathy and using many media to deliver it. A few hours after the flight claimed disappeared, he himself flew to Surabaya and meet the families of the victims.

As stated on an article in http://www.skift.com, “Since Sunday, Fernandes has been constantly in the spotlight, apologizing for the loss of life. An active Twitter user with nearly a million followers, he quickly took to social media to express shock and sympathy. On television, he has not shied away from answering questions while avoiding speculation about the cause of the crash, which occurred during bad weather.” He was very genuine, choosing the right words and showing the sympathy from his facial expression.

3.    AirAsia and its Indonesian were issuing regular statements about the known facts in several languages and had set up a hotline for relatives.

Currently, the investigation is still going on progress, and the report will be the most important thing for the families of the victims as it is for AirAsia. Some recommendations that I may add here for AirAsia’s communication activities would be;

1.    If the investigation shows the airline is in some way to blame, it will be crucial for AirAsia to fully acknowledge that and convincingly show that they will take action to ensure that type of accident can never happen again.

2.    Meanwhile, AirAsia should continue doing their communication effort by showing empathy to the victims’ families and put them as their priorities.

3.    In the same time AirAsia should also help the investigation process by giving any data needed for the investigators and work cooperatively with them.

4.    Holding press conferences and creating press releases on any progress of the investigations will also be helpful.

Many people believed that despite all the tragedy, AirAsia will survive and eventually maintain their good service as a low cost carrier airline to its customers. “Certainly AirAsia will recover as it is a very good airline and this tragedy will not impact its growth,” said AirlineRatings.com editor Geoffrey Thomas, as it was covered in an article posted on http://www.livetradingnews.com. Surely they will be quite blown in terms of business at the earliest time after the tragedy happened, but it will not be a long-term effect. After they bounced back from the tragedy they will emerge even stronger.

References

2013 AirAsia Annual Report: More than you can imagine. Retrieved from http://www.airasia.com/docs/common-docs/investor-relations/annual-report-2013.pdf

AirAsia.com. The AirAsia Family. Retrieved from http://www.airasia.com/bn/en/about-us/corporate-profile.page

Fadil, Iqbal. (2014, December). AirAsia QZ8501 ditemukan, ini dugaan penyebab jatuhnya. Retrieved from http://www.merdeka.com/peristiwa/airasia-qz-8501-ditemukan-ini-dugaan-penyebab-jatuhnya/patah-saat-di-udara-atau-jatuh-terempas-di-laut.html

Heffernan, Stephen. (2015, January 11). Will AirAsia Survive. Retrieved from http://www.livetradingnews.com/will-airasia-survive-91430.htm#.VLfkwnKSw8g

Laruno.com. (2015, January). Tragedi Pesawat Jatuh , 3 Dampak Negatif Untuk Perusahaan Air Asia. Retrieved from http://laruno.com/news/tragedi-pesawat-jatuh-3-dampak-negatif-untuk-perusahaan-air-asia/2/

Miller, Kent D. 1992. Journal of International Business Studies, Vol. 23, No. 2: A Framework for Integrated Risk Management in International Business. Palgrave Macmillan Journals.

Sari, Novita Intan. (2015, January 6). Buntut tragedi AirAsia QZ8501, nantinya tak ada lagi tiket murah. Retrieved from http://www.merdeka.com/uang/buntut-tragedi-airasia-qz8501-nantinya-tak-ada-lagi-tiket-murah.html

Satriawan, Yudha. (2015, January). Pariwisata Solo Kena Dampak Tragedi Pesawat Air Asia. Retrieved from http://m.voaindonesia.com/a/pariwisata-solo-kena-dampak-tragedi-pesawat-air-asia/2588624.html

Straitstime.com. (2014, December). AirAsia flight QZ8501: Relatives of Indonesian passengers swarm Surabaya airport. Retrieved from http://www.straitstimes.com/news/asia/south-east-asia/story/airasia-flight-qz8501-relatives-missing-indonesian-passengers-swarm-

Straitstime.com. (2015, January). AirAsia admits 'administrative negligence'; no right to fly route on Sundays. Retrieved from http://www.straitstimes.com/news/asia/south-east-asia/story/airasia-admits-administrative-negligence-20150114

WONG Pui Man, Cary. (2009, March). Professional Diploma Program in Logistics and Supply Chain Management Project Studies – Enabling Technology in Airline Industry. Retrieved from http://www.skcs.hk/AirAsia.pdf

Wright, Stephen. (2015, January 2). AirAsia’s CEO Is Becoming the Model for Airline Leaders During a Crisis. Retrieved from http://skift.com/2015/01/02/airasias-ceo-is-becoming-the-model-for-airline-leaders-during-a-crisis/