_____________________________________________

CODE: BBA 2009

PORTFOLIO MANAGEMENT

______________________________________________

ASSIGNMENT

Name : TAN TZE JUIN

IC : 900202-01-5416

H/P : 016-7769571

Name of Lecturer : Dr. SEAN KOH

APRIL SEMESTER 2012

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CONTENT

Guidelines/Marking Criteria PAGES

1.0 Introduction

1.1 Overview of Company

1.2 Problem Statement

1.3 Research Scope

1.4 Research Objective

1.5 Significant of the Study

1.6 Limitation of Study

03-11

2.0 Background of Study

2.1 Competitive advantage

12-13

3.0 Research methodology3.1 Sampling3.2 Sample Size3.3 Data Collection3.4 Data Analysis3.5 Questionnaire3.6 Location of Research3.7 Research Design3.8 Frequency Distribution3.9 Dependent Variable

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4.0 Conclusion 20

5.0 Reference 21

6.0 Coursework 22-25

1.0 Introduction

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Background of Air Asia

Air Asia Berhad (MYX: 5099) is a Malaysian-based low-cost airline. Air Asia

is Asia's largest low-fare, no-frills airline and a pioneer of low-cost travel in Asia. Air

Asia group operates scheduled domestic and international flights to over 400

destinations spanning 25 countries. Its main hub is the Low-Cost Carrier

Terminal (LCCT) at Kuala Lumpur International Airport (KLIA). Its affiliate

airlines Thai Air Asia and Indonesia Air Asia have hubs in Suvarnabhumi Airport and

Soekarno-Hatta International Airport respectively. Air Asia's registered office is

in Petaling Jaya,Selangor while its head office is at Kuala Lumpur International

Airport. Air Asia plans to open ASEAN regional headquarters in Jakarta by August or

September 2011. The airline itself will maintain its headquarters in Kuala Lumpur for

the time being.

Air Asia won the Sky trax World's best low-cost airline award in 2007, 2009, 2010

and 2011. It has the world's lowest operating costs at USD 0.035/seat-kilometre in

2010. It is also the first airline in the region to implement fully ticketless air travel.

Establishment

Air Asia was established in 1993 and began operations on 18 November 1996. It was

originally founded by a government-owned conglomerate, DRB-Hicom. On 2

December 2001 the heavily-indebted airline was bought by former Time

Warner executive Tony Fernandes's company Tune Air Sdn Bhd for the token sum of

one ringgit (about USD 0.26 at the time) with USD 11 million (MYR 40 million)

worth of debts. Fernandes turned the company around, producing a profit in 2002 and

launching new routes from its hub in Kuala Lumpur, undercutting former monopoly

operator Malaysia Airlines with promotional fares as low as MYR 1 (USD 0.27).

Second hub

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In 2003, Air Asia opened a second hub at Senai International Airport in Johor

Bahru near Singapore and launched its first international flight to Bangkok. Air Asia

has since started a Thai subsidiary, added Singapore itself to the destination list, and

started flights to Indonesia. Flights to Macau began in June 2004, and flights to

mainland China (Xiamen) and the Philippines (Manila) in April 2005. Flights

to Vietnam and Cambodia followed later in 2005 and to Brunei and Myanmar in

2006, the latter by Thai Air Asia.

Expansion abroad

On August 2006, Air Asia took over lines’ Rural Air Service routes in Sabah and

Sarawak, operating under the Fly Asian Xpress brand. The routes were subsequently

returned to MA Swings a year later, citing commercial reasons. Air Asia's CEO Tony

Fernandez subsequently unveiled a five-year plan to further enhance its presence in

Asia. Under the plan, Air Asia proposes to strengthen and enhance its route network

by connecting all the existing cities in the region and expanding further into Vietnam,

Indonesia, Southern China (Kun Ming, Xiamen, Shenzhen) and India. The airline will

focus on developing its hubs in Bangkok and Jakarta through its sister companies,

Thai Air Asia and Indonesia Air Asia. With increase frequency and the addition of

new routes, Air Asia expects passenger volume to reach 18 million by the end of

2007.

Route expansion

On 27 September 2008, the company had on its list 106 new routes to be added to its

then-current list of 60. The number of old routes discontinued has not been publicly

disclosed. On 2nd of April 2012 Air Asia had their first flight from Sydney to Kuala

Lumpur. Sebastian Texan-Anderson was one of the lucky few to be on this historical

flight. 

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Alliance

In August 2011, Air Asia agreed to forge an alliance with Malaysian Airlines by

means of a share swap.

1.2 Problem Statement

1.2.1 Is the advertisement broadcast Air Asia reaching their target market?

1.2.2 Is the promotion and advertisement is effect by the demography factors?

1.3 Research Scope

Advertising and promotion offer a news function to consumers. Viewers of ads learn

about new products and services available to them, much like they learn about events

in the news. This information function has a neutral role. It provides facts without

approval or disapproval from consumers. Customer behaviour at this stage

encompasses expressions of curiosity.

Consumers have a rational response to advertising when they look at the features of a

product or service. This response focuses on a logical listing of all the functional

aspects of the offering. This is an intellectual response, rather than an emotional one.

When customers weigh benefits, they become emotionally involved with advertising

and promotion. Consumers identify ways the product or service can make them

happier, improve their lives or give them pleasure. This part of the consumer response

is irrational and can lead to impulse buying and competition to obtain the product.

Repeated advertising messages affect consumer behaviour. This repetition serves as a

reminder to the consumer. Behaviour that stems from reminders includes suddenly

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thinking of a product while shopping and making a decision to buy it, as if it had been

on the consumer’s "to-do" list.

Consumer behaviour splits between loyalty and alienation depending on how well the

product lives up to its advertised benefits. Corporate behaviour – such as scandals or

charity work – can also affect alienation and loyalty responses. Once the consumer

makes this choice, advertising and promotion are not likely to undo that decision.

1.4 Research Objective

1.4.1 To evaluate the Air Asia marketing activities ( promotion and advertisement) in

influencing the passenger to choose to fly with Air Asia

1.4.2 To distinguish is there any relation on demography with the awareness of

advertisement

1.5 Significant of The Study

1.5.1 The Advantages of Promotion Air Asia

Malaysia Airlines will lay off 6,500 workers and surrender 96 domestic routes to

budget airline Air Asia under a major restructuring plan that will end 59 years of near-

monopoly in the nation's aviation market. 

The state-owned airline will be left with only 19 domestic routes and it will lose all

government subsidies as of August 1, the prime minister's office said in a statement

late Monday. 

Air Asia, Southeast Asia's biggest low-cost carrier by fleet, will also fly the 19 trunk

routes in competition with Malaysia Airlines, the statement said. 

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The airline will continue to operate as a full-service airline, while Air Asia will stick

to its no-frills business model, providing distinct choices to customers on the 19

routes, it said. 

The restructuring comes amid efforts by the government to reduce state expenditure,

while Malaysia Airlines also strives to become profitable and shed its unsavoury

reputation for corruption and mismanagement. 

1.5.2 The Advantages of Advertising

Advertising Air Asia is the most important tool in the marketing of products and

services. Companies all over the world universally accepted this fact. The expenses on

advertising Air Asia are considered to be a profitable investment that reaps profits

both in the long and short run. Businesses that keep on advertising Air Asia regardless

of rise or fall in the economic times get a competitive advantage over those that cut

their ad budgets. There are many benefits of advertising Air Asia which include:

1.Information to the customer.

Advertisement Air Asia about new travelling keeps the customer informed about the

new airlines. They help to provide them information regarding the newly airlines.

2.Takes care of customers.

Advertising Air Asia takes care of customers. It helps in holding on to the loyal

customer, decreasing the number of lost customers and enlisting new customers. Thus

the overall effect of advertising Air Asia is increase in the number of customers that

will gradually become loyal to the product.

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3. Alters the attitudes of people.

An effectual advertisement Air Asia results in a swift change in the attitudes and

habits of the people.

4.Direct communication.

In earlier days customers believed on the opinions of retailers, when making the

purchases of products. With the rapid spread of media and advertising Air Asia to

every nook and corner of the world, people have become aware of the various

products that are available in the same category and the freebees and benefits of

purchasing them. So the companies or manufacturers are able to communicate their

message directly to the customers.

5. Increase employment.

Advertising Air Asia is a complicated task and a lot of people are involved in the

making of an advertisement. Research team, design team and many other people are

required to make and deliver it. So, advertisements generate employment for a lot of

people.

1.5.3 The Disadvantages of Promotion

As with most sales promotions, either the distributor or the business offering the

product are not profiting as much as previously. It is a calculated risk, but one that

needs to be planned and handled carefully to be truly effective. Sales promotions are

usually advertised to inform customers of the special offer. If there is a discrepancy

between what's published and the real offer, than it will be viewed negatively by the

public, states HKTDC. Retailers and distributors must ensure that whatever promotion

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is being published is honoured or the special offer will work against the company,

possibly tarnishing its reputation.

Promotions in sales are a disadvantage when they are offered too regularly. The key

to making them successful is offering them irregularly, catching the customer off

guard and unprepared. If they are provided too regularly then they create price

sensitivity among customers. Dryden outlines price sensitivity as intentional waiting

by customers to purchase items only when they are promoted in a sale, rather than

buying them at the regular retail price. Profits decrease.

1.5.4 Disadvantages of Advertisement

Advertising is an indispensable part of the marketing strategy of any product or

service. A proper advertisement has a great impact on the sales of the product and that

is why companies spend huge amount of money to make effective advertisements.

Needless to say, there are many advantages of advertisements.

 

a. Advertising can inform people about different products and services, their utilities,

cost and other requirements, and help us in making better purchases.

 

b. Advertisements of non-commercial issues like AIDS, Polio can help in educating

people and notifying them of events and programs related to them.

 

c. For advertisers, advertisements can help in attracting huge number of potential

customers and make positive impact about their products and services.

 

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d. Advertisements create a brand name for the product being promoted. People can

recognize the products from the catchy advertisements they see and thus sales are also

improved.

 

e. Advertising can lead to direct feedback from customers. It has been seen that a lot of

opinions are received by advertisers on their product/service, which helps in

improving the product/service.

1.6 Limitation of Study

The Sabah government has no say in the matter and hopes that Air Asia will not drag

it into the airline’s bid to stay put at the low-cost terminal more popularly known as

Terminal 2.

State Tourism, Environment and Culture Minister Datuk Masidi Manjun said: “It is

up to Air Asia to work out its problem with Malaysia Airports Berhad and the Federal

Government as they have the final say on how and where airlines should operate

within KKIA.”

Air Asia chief executive officer Datuk Tony Fernandez, during a special press

conference for the media from Sabah and Sarawak on Friday, said the airline was not

keen to move out of the Terminal 2 as its costs would increase and in turn force it to

reduce flights, causing Sabah to lose some one million tourists.

Fernandez said the state government had been cooperative but an official of Sabah

Tourism Board (STB) was among those causing some problems in the airline’s bid to

stay on at Terminal 2.

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Responding to Fernandez’ aspersions against the STB official, Masidi said: “STB

does not own or operate airports. In this case, KKIA is owned and operated by MAB,

a government -linked company under the purview of Transport Ministry.

“They decide how airlines operate at their airport, so for him (Fernandez) to suggest

otherwise is not just a misrepresentation of the facts but unfairly dragging STB into

the problem,” Masidi added.

Deputy Transport Minister Datuk Abdul Rahim Bakri said his ministry was surprised

by Fernandez’ stand on the matter as Air Asia had signed a letter of undertaking with

the ministry concerning the relocation to Terminal 1.

2.0 Background of Air Asia

The airline was established in 1993 and started operations on 18 November 1996. It

was originally founded by a government-owned conglomerate DRB-Hicom. On

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December 2, 2001, the heavily-indebted airline was purchased by former Time

Warner executive Tony Fernandes's company Tune Air Sdn Bhd for the token sum of

one ringgit. Fernandez proceeded to engineer a remarkable turnaround, turning a

profit in 2002 and launching new routes from its hub in Kuala Lumpur International

Airport at breakneck speed, undercutting former monopoly operator Malaysia Airlines

with promotional fares as low as RM1 (US $0.27).

In 2003, Air Asia opened a second hub at Senai Airport in Johor Bahru near

Singapore and launched its first international flight to Bangkok. Air Asia has since

started a Thai subsidiary, added Singapore itself to the destination list, and

commenced flights to Indonesia. Flights to Macau started in June 2004, while flights

to Mainland China (Xiamen) and the Philippines (Manila) started in April 2005.

Flights to Vietnam and Cambodia followed later in 2005 and to Brunei and Myanmar

in 2006, the latter by Thai Air Asia.

A new budget terminal, the first of its kind in Asia was opened in Kuala Lumpur

International Airport on 23 March 2006. Built at a cost of RM108 million (US $29.2

million) and spanning some 35,000 square metres (116,000 square feet), the Low Cost

Carrier Terminal (LCCT) is the new home for Air Asia Bhd. LCCT will initially

handle 10 million passengers a year. Air Asia Group is expected to carry 18 million

passengers in 2007.

Air Asia operates with the world’s lowest unit cost of US$0.023/ASK and a passenger

break-even load factor of 52%. It has hedged 100% of its fuel requirements for the

next three years, achieves an aircraft turnaround time of 25 minutes, has a crew

productivity level that is triple that of Malaysia Airlines and achieves an average

aircraft utilisation rate of 13 hours a day.

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Air Asia is currently the main customer of the Airbus A320. The company has placed

an order of 175 units of the same plane to service its routes and at least 50 of these

A320 will be operational by 2013. The first unit of the plane arrived on 8 December,

2005.

Competitive Advantages

Low cost airlines begin with two initial cost advantages arising from the very nature

of their operation: higher seating density and higher daily aircraft utilization. By

removing business class and reconfiguring their aircraft, low cost airlines can increase

the number of seats on their aircraft. Seat pitch of a low cost airline is usually 28

inches, compared to a traditional conventional economy class pitch with 32 inches.

Doganis (2001) calculates that should be able to operate at seat cost that are only 40-

50 % those of mainline rival. Combining the load factor benefit and beneficial

distribution cost, low cost airline’s cost per passenger can reduce price by one-third of

conventional airline.

Many low-cost airlines keep expenses down by flying out of secondary airports,

avoiding major hubs where takeoff and landing fees are much higher while still

getting passengers close enough to their destinations.

3.0 Research Methodology

3.1 Sampling

Respondents are randomly selected from Air Asia main airports. This is done so that

event spread (LCCT) of mixture sampling can be gathered. If the sample only be

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gather from them the main airport, which is in LCCT for Air Asia. The result will

only be for people from the Klang Valley and not all over the country.

3.2 Sample Size

The research will be done to 130 in order to achieve the objectives.

3.3 Procedure

The respondents will analyse by questionnaires Air Asia that distribute to the

passenger who are in the waiting area and will be collect immediately.

3.4 Data Analysis

After complete the collection of data, they will be analyzed by using SPSS 12 is in

order to get the results.

3.5 Questionnaire

Air line service like Air Asia has been a big success and threat for other airline service

in the country. Those days flying is only related to rich and wealthy people. But now

with the cheap fair, everyone can fly.

Air Asia has done a lot of promotion and advertisement to promote and create

awareness on their service. How effective is their promotion and advertisement is a

questionable. This Research is done to evaluate their effectiveness of the promotion

and advertisement by Air Asia and how it has effect the market.

This questionnaire contain question on how effective are Air Asia promotion

campaign and advertisement.

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Appreciate if you could spare some time to answer some of this questionnaire.

Part A

1. Sex ( ) Male ( ) Female

2. Age ( ) 15-19 ( ) 20-24 ( ) 25-29 ( ) 30 above

3. Occupation ( ) Executive ( ) Manager ( ) Student ( ) other

4. Race ( ) Malay ( ) Chinese ( ) Indian ( ) Other

5. Income per month

( ) RM100-RM1000 ( ) RM 1001-RM 2000 ( ) RM 2001-Above

6. Travel frequency a year

( ) 0-3 ( ) 4-6 ( ) 7-9 ( ) 10-More

7. Reason of travelling?

( ) Business ( ) Leisure ( ) Other ______________(Please State)

PART B

1. How did you find out about Air Asia

( ) Internet

( ) Friends

( ) New Paper / Magazine

( ) Others ______________

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2. Where did you find out about Air Asia Promotion ( you can tick more than 1

answer)

( ) Air Asia Website

( ) Face book

( ) News Paper

( ) Mailing list (email)

( ) TV / Radio

( ) Others___________

3. Do you find that Air Asia promotion and advertisement is doing well in

communicating their promotion to you?

( ) Yes ( ) No

4. How often do you check Air Asia website

( ) Everyday

( ) Once a week

( ) Every fourth night

( ) Once a month

( ) Casually

5. How well you remember this advertisement?

( ) Don’t remember at all

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( ) Remember the advertisement not the product

( ) Remember the Advertisement and the product

6. Is the advertisement understandable?

( ) Yes ( ) No

7. After viewing this ad, I would consider purchasing the product.

( ) Yes ( ) No

8. Do you think Air Asia tag line is catchy enough?

( ) Yes ( ) No

9. If yes, what your attention?

( ) The theme colour “ RED”

( ) Tag line

( ) Low price

( )others _________

10. Did you get your tickets at a promotion price?

( ) Yes ( ) No

11. How did you purchase your tickets?

( ) Online

( ) Counter

( ) Agents

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( ) Others_________

3.6 Location of Research

The research will be held at Air Asia main airports, LCCS Sepang. This is because for

the convenient location and it have the most passengers as it is the main airport.

3.7 Frequency Distribution

It allows us to obtain a number of responses associated with different values of one

variable and to express it in a percentage. In this study, frequency distribution is being

used in identifying the demographic and general information of the respondents.

3.8 Pearson’s Correlation

Pearson’s Correlation is method to find the correlation between 2 variables. The value

for a Pearson’s can fall between 0.00 (no correlation) and 1.0 (perfect correlation).

Other factors such as group size will determine if the correlation is significant.

Generally, correlation above 0.80 are considered pretty high.

3.9 Dependent Variable

It is the variable of interest of this research. The research goal is to understand the

dependent variable. For this paper, the dependent variables are as listed below:

3.9.1 Internet

The internet is where most of Air Asia customer does their transaction. This range

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from checking out the flight schedule to purchasing their tickets. Other than that it

also one of Air Asia medium of marketing where advertisement and promotion has

been launch and broadcast.

4.0 Conclusion

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A study by the Centre for Asia Pacific Aviation (2002) confirms that Asia continues

to offer attractive conditions for the air transportation industry. With thirteen out of

world’s top twenty-five major urban centres located in the Asia Pacific region and a

rapidly increasing urbanization trends, the Asian air travel market is bound to

continue to grow. Urbanization is highlighted as one of the key drivers for the growth

in air travel. It is estimated that Asia would account for 30% of the world market by

2019, or one third of growth between now and then. While the impact of SARS is

going to slow down the growth of Asian regional demand, the long-run forecast

continues to be very positive. These enable low cost airlines to grow even further.

5.0 Reference

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1. http://www.airasia.com

2. http://en.wikipedia.org

3. http://minotstateu.academia.edu

4. http://www.bryair.com

5. http://www.tribuneindia.com

6. http://www.flyertalk.com

7. http://etd.uum.edu.my

8. http://sandygarink.tripod.com

9. http://etd.uum.edu.my

10. http://www.mixologist84.com/

6.0 Coursework

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1. Briefly explain and compare the TWO categories of risks.

The first is volatility. From this perspective, deviations-positive or negative-from the

expected outcome constitute risk. Volatility is generally associated with the

statistical concept of standard deviation or, equivalently, variance. These measures

have the advantage that there is an explicit and relatively simple relationship

between the risks of individual assets and the risk of a portfolio of assets. Thus , it is

straightforward to incorporate volatility into the operational aspects of the portfolio

management process: portfolio construction, monitoring, and evaluation.

However, most clients find it difficult to grasp the link between portfolio volatility

and their ultimate goals because they do not view the possibility of achieving better-

than-expected returns as risk. This is especially true for individual investors because

they tend to associate risk with losing money rather than with uncertain returns and

their ultimate goals pertain to consumption of goods and services rather than portfolio

value. Institutional clients are generally more comfortable associating risk with

volatility. This is partly because institutional clients are often investment

professionals with a solid understanding of investment processes. In addition,

business plan and actuarial, studies typically provide an explicit link between their

ultimate goals, such as funding certain activities, and portfolio performance

objectives. Nonetheless, many institutional clients also find volatility to be an

insufficient measure of risk.

Risk me measures in the second category incorporate this view by focusing only on

outcomes below some threshold return. These “downside risk” measures are

especially useful when the distribution of potential asset returns does not resemble

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the familiar, symmetrical bell curve associated with the normal distribution.

Unfortunately the intuitive

Appeal of downside risk measures comes at an analytical cost: There is no clear,

reliable relationship between the downside risk of individual assets and the

corresponding downside risk of portfolios. Thus downside risk measures are more

difficult to incorporate explicitly into the portfolio management process.

2. List out components of the Investment Policy Statement.

Description of Client

The endowment fund support the mission of Walnut Lodge Camp. The camp

provides a camping experience for children with disabilities and fosters

independence and acceptance of others through social , recreational, and

educational aspects of life.

Purpose of the IPS

The purpose of this investment policy statement (IPS) is to establish a clear

understanding between the investor and the investment goals and objectives

and management policies applicable to the portfolio.

Duties of the Parties

The advisor shall be responsible for (1) designing, recommending, and

implement an appreciate asset allocation plan ; (2) advising the investor about

the selection of asset categories; (3) identifying specific asset within each asset

category; (4) monitoring the performance of all selected assets; (5)

recommending changes to any of the above; (6) periodically reviewing the

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suitability of the investments for the investor; (7) being available to meet with

the investor at the investor’s request; and (8) preparing and presenting

appropriate reports.

The investor shall be responsible for (1) oversight of the portfolio; (2) defining

the investment objectives and policies of the portfolio ; (3) directing the

advisor to make changes in investments policy, and overseeing and approving

or disapproving the advisor’s recommendations regarding policy, guidelines,

objectives, and specific investments on a timely basis; (4) providing the

advisor with all relevant information about the investor’s financial conditions

and risk tolerances and notifying the advisor promptly of any changes to this

information; and (5) ensuring the accuracy of all information provided to the

advisor for creation and monitoring of this investment policy statement.

Objectives

The investor desires long-term investment growth sufficient to maintain

inflation-adjusted support of the camp’s mission.

The investor’s income stability, insurance coverage, liquidity, and net worth

provide financial capacity to take increased risk. The investor indicates

willingness to accept occasional declines in portfolio value in order to enhance

growth potential .Taking both factors into account, the investor’s risk

tolerance may be characterized as moderate.

Constraints

Liquidity: The investor will maintain adequate liquid reserves outside the

portfolio.

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Time horizon: Indefinite.

Taxes: The investor is tax-exempt.

Legal and regulatory: Subject to the Uniform Prudent Investor Act (UPIA).

Unique circumstances: Leverage, short sales, and direct investment in various

types of securities are prohibited.

Asset Allocation Targets

Fixed income 40%

U.S./global 20/20

Equity 60%

U.S.(large/small) 24/12

International developed (large/small) 6/6

Emerging markets (large/small) 3.6/2.4

REITs 6

Guidelines for Portfolio Adjustment and Rebalancing

The advisor shall review the portfolio annually and rebalance the portfolio

back to recommended weights if the equity/fixed income weighting differs

from the target by more than 5 percept.

Schedule for Portfolio and IPS Reviews

The advisor shall provide the investor with appropriate reports on a regular

basic. The advisor and the investor should review this investment policy

statement together every two years.

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