Question

Why the threat of new entrants on Air Asia is low? What are the factors? Please provide 3 factors and explain in more detail.

Answer 1

There is a high barrier entering airlines industry since it requires high capital to set up everything such as purchase or lease air craft, set up office, hire staffs, and etc. Thus, this has reduced the treat to Air Asia. Moreover, brand awareness is quite important in this industry. Thus, to enter this industry not only required high capital but also have to take some time to create brand awareness. Consumers always choose the product or service they really trust. Thus, instead of creating brand awareness, new entry has to create so called brand loyalty. Hence, this is reducing treat to Air Asia too.( Roy L. Simerly) However, the government legislation is one of the barriers for entering airlines industry. For example, MAS has been protected by Malaysia government on the route to Sydney and Seoul Incheon. Therefore Air Asia find itself very difficult getting a new route from government. This not only affects the timeline set by Air Asia but also influence their profit.

Factors:

Here are some common barriers to entry:
1. Patents – patented technology can be a huge barrier preventing other firms from joining the market.
2. High cost of entry – the more it will cost to get started in an industry, the higher the barrier to entry.
3. Brand loyalty – when brand loyalty is strong within an industry, it can be difficult and expensive to enter the market with a new product.

Finally, the threat of new entrants is moderately low in AirAsia’s favour at present. The high capital requirements and start up capital prevents many entrants. In addition, AirAsia’s current leading role and favourable brand awareness make it a first choice amongst the current competition. However, potential new entrants from full service carriers could be threats in the future and long term.

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