URJHS Volume 13

AirAsia's Application of the "Thirty-Six Stratagems"

Wong Wei Mei

Central China Normal University

Keywords: AirAsia; 36 Stratagems; Strategy; Low-cost Carrier; China; Polarity

Abstract

Based on the ''36 Stratagems'' (三十六计)—a compilation of strategies from the China Warring States Era, this paper analyses the transfer of military strategies into the corporate setting of AirAsia. The ''36 Stratagems'' plan offers new perspectives about how to form creative strategies in today's dynamic business landscape with similar characteristics to ancient Chinese warfare, particularly for the aviation industry surrounding AirAsia in South-East Asia. This paper illuminates the different ways AirAsia utilised one of the stratagems during the global economic crisis in 2008 and how the low-cost carrier adapted the stratagem to the business model and market condition.

Strategy: The 36 Strategems

Introduction

Corporate Strategy is defined as a long-term plan of action designed to achieve a certain goal for the whole organisation (Stimpson & Farquharson, 2010). The "36 Stratagems" plan, though unconventional, is the perfect guide to executing unique and aggressive corporate strategies. This plan is an ageless compilation of Chinese strategies from hundreds of years of experience. It is a unique collection of lessons, proverbs, and aphorisms that captures the fundamentals of Chinese strategies (Sengar, 2006). In the West, Sun Tzu's "Art of War" is more popular. The 36 Stratagems plan is a complete playbook compiled through more than twenty generations, and yet it is as short as only one hundred and thirty-eight Chinese characters. It is compact and can be interpreted creatively to fit into any business landscape (Krippendorff, 2003).

Sun Tzu's Art of War is a military text more focused on the philosophy and set of rules surrounding military organisation battlefield tactics. It was the work of only one man, while many people created the 36 Stratagems. In fact, they are stories passed down from generation to generation, refined to a point where only the bare fundamentals remain. The 36 Stratagems playbook is usually applied subtly in politics and diplomacy; it also targets psychological warfare (Verstappen, 1999).

Brief History

The 36 Stratagems plan is hugely influenced by a turbulent time in China's history known as the China Warring States Era (403-221 BC). The political situation of the period was a culmination of historical trends of conquest and annexation. The seven states—Qin, Han, Wei, Zhao, Qi, Chu, and Yan—dominated the smaller separate states as all of them battled each other to surge to power. The Seven Warring States and the smaller states engaged in brilliantly planned battles, shifting alliances and using political manipulation (Krippendorff, 2003). Brilliant scholars and generals have used geographical, political, and most importantly psychological warfare to achieve their numerous goals. The various states fielded massive armies of infantry, cavalry, and chariots. Complex logistical systems maintained by efficient government bureaucracies were needed to supply, train, and control such large forces. The size of the armies ranged from tens of thousands to several hundred thousand men (Ebrey et al, 2006). Consequently, the leaders and scholars of this period worked under extreme circumstances to come up with workable strategies; for western readers, these strategies show ageless representation of the mechanics of human nature under severely stressful situations. Many of the proverbs in the 36 Stratagems stemmed from events occurring in this era (Verstappen, 1999).

Overview

There are 6 strategies in the book, and each of the 6 strategies are comprised of 6 stratagems: (a) stratagems when in a superior position, (b) stratagems for confrontation, (c) stratagems for attack, (d) stratagems for confused situations, (e) stratagems for gaining ground, and (f) stratagems for desperate situations (Sengar, 2006). Generally, the first three strategies are used when facing more advantageous situations, while the last three are usually executed in a more disadvantageous environment. There is a laconic style that is common to Classical Chinese in the original text. Every proverb has a short and concise explanation attached to it. Battle scenarios and folklore usually accompany the strategies to further explain the source and history behind it. This also gives a better understanding as to how to execute the strategies.

At first glance, the 36 Stratagems plan looks like it is primarily used for military purposes. But in reality, this plan has been used as an aggressive and comprehensive bible for the business world. In fact, many global companies like Nintendo, British Airways, Epson, etc. (Krippendorff, 2003) have been utilising the 36 Stratagems, even some unknowingly. The 36 Stratagems are very different from the more direct business strategies developed in the West and require a little bit of creativity in execution. The plan offers and expands options where other strategies limit you to stringent concepts (Krippendorff & Rivera, 2004). Even if people are not comfortable with using the 36 Stratagems, there is a need to be aware of such stratagems in case rival businesses use it against them.

AirAsia Overview

Low-cost Carriers

The aviation industry has been rapidly changing for the past 15 years. Flying has been revolutionized, and it has been established as a staple method of travelling long distances over a short amount of time. A spike in emergence of low cost, no-frill carriers accompanied this development. The low-cost carrier runs on a very different business model compared to the mainstream air-carrier businesses. It is increasingly imperative for air-carrier businesses to distinguish themselves in their market pool. Deyes' (2008) research revealed that a significant 30 percent of passengers and customers pick an airline based on pricing.

A common feature of low-cost carriers is that they avoid providing hub-and-spoke networks and usually offer point-to point services (Tretheway, 2004). Their price structures also greatly differentiate them from conventional airlines. Low-cost carriers mostly start by offering services at the lowest cost possible while providing only basic services. Their low fares and services can be reflected by Porter's generic business strategy to set low-cost carriers apart (Hooper, 2004).  Minimal services to customers help low-cost carriers reduce costs dramatically.

AirAsia Background

AirAsia is a highly successful low-cost airline in South-East Asia today, but initially AirAsia was a sister airliner to the national carrier, Malaysian Airlines (MAS). Both of them were government-owned. The Malaysian government was more focused on Malaysian Airlines, which affected the performance of AirAsia. Even though AirAsia flew domestic routes not catered by Malaysian Airlines, it was having difficulty retaining profits (Shari, 2003).

Dato' Tony Fernandes wanted to run a low-cost carrier in South-East Asia. He arranged for a meeting with Conor McCarthy, former operations director of Ryanair. Both of them developed a plan for a low-cost airline based in South-East Asia (Grant, 2010). Fernandes registered a company in Malaysia called TuneAir in May 2001. He wanted government support and arranged for a meeting with Prime Minister Mahathir Mohammad to get an official endorsement from the prime minister to operate in the aviation industry. Prime Minister Mahathir Mohammad, however, suggested that Fernandes acquire AirAsia (a shell of a company with a massive debt of USD $37 million) instead of issuing a new license (Economist, 2009). Pesek (2003) and Ranawana (2001) stipulated that the Prime Minister used this meeting as an opportunity to offload this struggling government-owned airline, an ongoing attempt for more than two years.

Fernandes agreed, and they drew up an agreement. For a token sum of MYR 1, AirAsia was bought by TuneAir (Prystay, 2001). Fernandes remodeled it into a short-haul low-cost carrier, and today AirAsia is the single largest low-cost carrier in Asia. This award-winning airline now flies both domestic and international routes and has plans to continue expanding routes and the company itself.

Stratagem: Seize the Opportunity to Lead the Sheep Away (顺手牵羊)

Polarity （阴阳） and Wu Wei (无为)

Polarity. The Stratagem, "Seize the Opportunity to Lead the Sheep Away," stems from two very important ideas, one of which is polarity. In Taoist teachings, there is no concept of good or bad but merely two sides of the same coin. This correlates with a strong advocacy of YinYang, otherwise known as polarity. Chinese philosophy places a lot of emphasis on polarity (Miller, 2003; Watts, 1999). Contrary to the Eastern belief, the West has cultivated an environment that encourages us to pursue the good without the bad, to overcome our competitors instead of maintaining harmony between adversaries, to turn in a profit without making losses. Giving leeway reflects weakness; letting other companies survive is a sign of cowardice.

Ironically, all these Western lessons are far from the scenarios in reality. When running a business, there are bound to be profits as well as losses. There will always be competitors and there will be inevitable ups and downs. To actively seek only the good seems folly. Understanding and utilising polarity can benefit businesses in striking a balance and can be more beneficial for a company compared to destroying competitors. This way, a business can learn from another company and improvise. At the same time, this scenario motivates employees and prevents the entry of more competitors. The classic example is the ongoing war between Coca-Cola and Pepsi (Krippendorff & Rivera, 2004). When companies accept the complexity of their situations, they will have a better control of the environment. The environment can include market, consumers, competitors, etc. With such understanding, companies can gain more clarity and form more interdependent plans. New strategic possibilities often surface as a result of such clarity.

Twenty five hundred years ago, Lao Tzu introduced Taoism. He advocated the study of the pattern of nature, e.g., markings of shells and patterns of running water, in order to understand and better influence our environment. Once one identifies a system's pattern, it will be easier to manipulate the system. Successful companies such as Microsoft, Virgin, and Sony have implemented polarity as part of their corporate strategy in order to have a holistic understanding of their surroundings and have a firm belief that both yin and yang have to coexist (Jaeger, 2012).

Wu Wei (Go with the grain). Wu Wei is very closely related to polarity, and many of the concepts intertwine. Lao Tzu introduced the concept of Wu Wei. A very easy way to look at this is the common phrase, "Going with the flow."  In the West, people tend to look at things in a more rigid, orderly manner. Most scenarios already come with a supposedly tried and tested measure to handle them, and those that act against this system are considered reckless and bound for failure. In Taoism, the Chinese believe that learning the pattern of nature means being able to manipulate the pattern while going with the flow. Forcing an action against the situation requires too much effort. Thus, companies should strive to exert influence efficiently with minimal effort, moulding it after the flow of events. Sun Tzu from the Art of War believed that a proficient fighter does not only win but is skilled at winning with ease (Krippendorff, 2003).

Seize the Opportunity to Lead the Sheep Away (顺手牵羊)

This is the 12th stratagem of the 36 Stratagems. It is the stratagem for confrontation. This stratagem is derived from two general concepts—Polarity and Wu Wei (Go with the grain). This stratagem came from an old Chinese folk tale about a bereft traveler who wandered and came upon a flock of sheep. The shepherd was distracted so the traveler used this opportunity to snatch a sheep. He then strutted away so calmly that the shepherd did not notice the loss of a sheep until it was too late. This stratagem fundamentally means to take advantage of opportunities no matter how negligible to attain profit (Verstappen, 1999). There is no definite definition to the stratagem and it is largely up to interpretation. It is important for a business to focus on current goals while keeping a keen eye out for any threats or opportunities, as those are the times to take full advantage of them.

Opportunities are often only available for a limited amount of time, so flexibility is key. This way, one can emerge and utilise the possibilities at a moment's notice. The best time to move in and act is when your enemy or competitor fails to react or retreats. Most companies retreat due to structural reasons or a lack of keen insight into the situation around them. A good businessman will be able to dive in when others pull out. It is also important to create opportunities or value, especially when undetected by an unsuspecting or unlikely competitor. In ancient times, a good general often waited for enemies to make a mistake. The general observed weather and spatial organization as well; treating all of these as opportunities while others might dismiss or cower from them.

Being attentive and understanding of one's surroundings, as mentioned in the explanation of polarity, helps us to take even small opportunities and small gains, often leading to a long-term and more solid return. Actively searching and seizing opportunities is a basic requirement for the continuity of a successful company. As such, many established businesses like Microsoft or Home Depot follow this strategy. A good example is when Home Depot, unsuspecting to contractors, swooped in to encourage consumers to do their own home renovations and projects instead of hiring independent contractors (Kim & Mauborgne, 1999). This was because contractors had a hard time viewing a parts supplier as a direct competitor. Home Depot did not hesitate to take this opportunity to lure customers away from professional contractors.

Application for "Seize the Opportunity to Lead the Sheep Away" (顺手牵羊) on AirAsia

Low-cost carriers have trouble in sustaining themselves. This is largely due to decreases in profit margins, regulated markets, increases in fuel price, economic conditions, difficulty in establishing unique business image, and bankruptcy (Hardy, 2009). Despite that AirAsia, a low-cost airline based in Malaysia (Alloway, 2008), grew steadily while combating all those factors. When fuel prices soared, most airlines cut back on flights, employees, and purchases. During the global economic downturn in 2008, several budget carriers struggled during the worst of the downturn, and an estimated two dozens airlines worldwide declared bankruptcy. Despite the industry slump, AirAsia increased flights, added routes, and boosted capital investments.

AirAsia increased efforts during the global economic downturn as AirAsia's fellow competitors shrank back and cut down on flight routes. As the stratagem of "Seize the Opportunity to Lead the Sheep Away" (顺手牵羊) implies, AirAsia seized the opportunity of promoting itself while others cowered in face of the economic crisis. AirAsia gave away a million free seats and increased advertising. While others were wary of AirAsia's seemingly reckless move, AirAsia planned to fill up the vacuum left in the industry and use this as an opportunity to poach customers from other airlines. The decrease in flights from fellow competitors meant a huge number of passengers scrambling for alternate flights. One huge untapped market in the budget aviation industry is the business traveler or travelers previously flying on conventional airlines. AirAsia responded by increasing flights and flight routes. In light of the struggling economy, many travelers did not hesitate to switch to AirAsia. Some might have seen this as a short-term plan, but in reality AirAsia used this opportunity to casually lead regular customers from other network carriers to AirAsia. This plan was executed without much resistance as other airlines failed to cater to their existing customers due to company rigid policies of dealing with the economic crisis. The free seats giveaways and increase in flights might make a slight dent in terms of losses, but in exchange AirAsia tapped into the market of the conventional airlines' regular customers. This convinced many conventional airline regular customers, after trying out AirAsia, to continue frequenting AirAsia even after the economy improved. While other airlines were struggling to keep their companies alive, AirAsia took aggressive moves and captured more market share, causing AirAsia's competitors to struggle to catch up and regain their losses even after the economy improved.

The travelling industry took a big setback but to everyone's disbelief, AirAsia increased advertising. AirAsia was attentive to the opportunity that was presented, an opportunity that was oblivious to AirAsia's competitors. The marketing and advertisement costs, which were cheaper in light of the global economic downturn, were fully utilised by AirAsia while others pulled out. This in turn brought more attention to AirAsia and helped AirAsia stand out among fellow competitors. Another example of seizing the opportunity was when AirAsia utilised the cheaper advertising cost to exchange for more brand recognition during the SARS outbreak in 2003. During the economic downturn, AirAsia tripled spending on advertising while other airlines cut back (Economist, 2009). In fact, there was a surge of 400 percent growth in passenger volume compared to the corresponding period the year before. The increase in marketing ensured that people would remember AirAsia, thus building a brand following. Branding is a vital source of competitive advantage and shows the authentic value a company represents (Fombrun, 1996), and AirAsia used the slump to build its brand into a stronger one, helping with higher long-term and short-term results. This became a crucial goal of AirAsia's management (Keller, 2002). AirAsia's pursuit of branding during a time when the industry took a back seat magnified AirAsia's ability to set the company apart from the rest. It glaringly reflected the strengths of AirAsia, especially when AirAsia showed commitment beyond the expected basic requirement of taking a passenger from one point to another. AirAsia exploited the competitors' lapses and seized the advantages for the company's benefit. The negligence of the competitor was turned into a benefit to AirAsia. Thus, AirAsia managed to innovate and improve to stay relevant in the market of 2008. Despite the decrease in business in the industry, AirAsia experienced a spike in passengers. In the long run, this built consumer loyalty. In this case, it is clear how AirAsia used the stratagem wisely and made the most out of the economic crisis.

Convincing consumers to switch brands is usually an expensive feat. But in a situation where almost all of AirAsia's competitors pulled out and focused on sustaining operations and reducing loss, AirAsia did not follow the incumbents and did the opposite. With the increase of marketing, increase of availability, and the attractive low fare, many frequent travelers tried or switched to AirAsia, building trust that even in a global economic downturn AirAsia was still reliable. Reliability in flight industry is very important and can distinguish a company from the others. Trust of a brand by consumers is hard to obtain and is very valuable. Many businesses don't recognise the value of the trust of a consumer simply because there is no number attached to it, but consumer trust benefits a company in the long run. A good review, or word of mouth, is more convincing than a commercial. It is vital to retain existing customers but it is equally important to attract new customers (Westcott, 2005). With trust, AirAsia built a pool of loyal followers that attract more and more passengers to switch to AirAsia even today, all of which resulted without aggressive response or comeback from AirAsia's struggling competitors.

AirAsia also took the opportunity to showcase the volatility and aggressiveness of the aviation industry. This prevented others from entering the market, preventing further competition (Global Travel Industry News, 2008). AirAsia also bought 25 of the A330-300 aircraft from Airbus—three were delivered in 2009 and the others were fast-forwarded for delivery in 2011. As fuel prices rose, other airline companies opted to lease planes or use existing planes of an older model. Aviation companies like UK-Canadian carrier Zoom and Hong Kong-based Oasis (Oprea, 2010) declared bankruptcy mainly because they were still using old planes. For a low-cost airline, maintaining a low cost of operations is imperative. Using the new planes would not only reduce fuel consumption but also reduce maintenance and personnel costs (Ringbeck & Franke, 2003). The bulk aircraft order also resulted in lower capital costs (Vidović, Štimac & Vince, 2013). In short, AirAsia strongly utilised the stratagem "Seize the Opportunity to Lead the Sheep Away" (顺手牵羊) and came out strong during and after the global economic crisis.

Conclusion

The 36 Stratagems plan is used by successful businesses all around us. Most of them do not even realise it because the 36 Stratagems are fundamental basics when it comes to strategies. Up to interpretation, they could be used in the most basic manner or in a more complex way. AirAsia is one of the companies that successfully executed the 36 Stratagems. Other than using "Seize the Opportunity to Lead the Sheep Away" (顺手牵羊), AirAsia also used "Exchange a Brick for a Jade" (抛砖引玉), "Befriend the Distant Enemy to Attack One Nearby" (远交近攻), and "Feign Madness But Keep Your Balance" (假痴不颠). AirAsia was able to achieve success over competitors, despite being a relatively young aviation company, due to AirAsia's ability to utilise the surrounding situation to benefit it. AirAsia will continue to prosper as long as the company continues to believe in conquering the market and competitors with strategic implementation of the 36 Stratagems.

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