CASE STUDY

Group – 6 Sec- C
AirAsia - Introduction
•• AirAsia is a Malaysian low-cost airline.

•• Initially it was a Malaysian Govt. controlled company.

•• It was re-launched in Jan 2002 as an LCC(Low Cost Carrier) after

takeover by Tony Fernandes.

•• It operates scheduled domestic and international flights.

•• AirAsia is a pioneer of low-cost flights in Asia and is the largest Asian no-
frills
frills airline.
airline.

•• In a very short time, after launching as an LCC, Air Asia converted from a
debt ridden company to a profit making company.
Air Asia – A Recap
• The airline was established in 1993 by a Malaysian government-owned
conglomerate DRB-Hicom and started operations on 18 Nov 1996.
• 2001 Dec – Tony Fernandez takes over the loss making AirAsia for US$ 0.26
• 2002 Jan – Re-launched as first no frills LCC.
• 2002 Dec – First profit of US$ 6 million
• 2004 - Starts regional flights to neighbouring countries. Formation of
Thai Air Asia in partnership with Thai Shin Corporation.
• 2004 Nov – Listing on the Malaysian stock exchange.
• 2005 - Indonesia Air Asia established, hubs in Jakarta and Bali.
• 2006 Mar – Main Hub moved from KLIA to neighbouring specifically built
LCC terminal
• 2006 Aug – Domestic Route rationalisation arrangement with MAS, took over
two third(96 out of 118) of MAS’s loss making routes. Becomes largest airline
in Malaysia.
• 2007 - ‘Air Asia X’ launched, First long haul flight to Gold Coast,
Australia.
• 2008 May – 25th consecutive quarter of profitability since 2002.
• 2009 - Servicing 18 countries, 84 Aircrafts, 136 routes, 627 flights per
day in the asia pacific route.
Global Trends in Aviation
•Change in ownership pattern FROM Government owned or Supported
TO Private.

•Deregulation in airline industry leading to greater competition and

pricing freedom.

•In order to increase efficiency, carriers are entering into new strategic
alliances with each other.

•Fierce competition, rising fuel prices leading to streamlining of

operations to enhance the value chain.

•Emergence of Low Cost Carrier (LCC) market due to rising

economies, increasing business travel and growing disposable incomes
especially in Asia.
 Business Unit Strategic Planning

Progr
am
Strat Feed
Busin SWO Goal Form
egy back
ess T Form ulatio
Form and
Missi Analy ulatio n and
ulatio Contr
on sis n Imple
n ol
ment
ation
Mission
•To be the best company to work for, whereby employees are
treated as part of a big family.

•Create a globally recognized ASEAN brand.

•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
 SWOT Analysis

Strengths
Opportunities
Low
Operational
Weaknesses Very limited Threats
Costs Frequent presence in Increasing
Highly Trained, flight delays the long haul competition
well paid and Limited segment Rising Fuel
motivated variety for Liberalization Prices
staff. flyers of ASEAN Substitutes
High
Utilization of
Lack of countries. like high
Resources. infrastructu Alternate speed rails
First mover re and sources of and other
advantage. congestion revenue
LCC’s.
Influential at airports through VAS.
Terror
Political
hit bottom- Diversifying
Support. into sectors attacks and
Strong Brand line. health risks
like air cargo.
Presence
Goal Formulation

•• To be the largest low cost airline in Asia and serve the people
who are currently underserved with poor connectivity and
high fares.
Strategy Formulation

To provide basic airline experience to customers by curtailing

costs. This was achieved by providing only the requisite facilities
and keeping the prices as low as feasible. To provide requisite
safety and focus on simplicity.
Overall Cost Leadership
Operating Expenses Cost/ASK for Air Asia Reason
2009 2007

Staff Cost .35 .33 1.) Superior Productivity –Similar

training and incentives .
2.) To and fro flight on the same day

Fuel and Oil 1.21 1.59 Multi layered Hedging Strategy

Newer, fuel efficient Aircraft.
Efficient flying skills of pilots

Maintenance and .16 0.28 1.)New aircraft requires less

Overhaul maintenance.
2.)Single Type of aircraft reduces need
for diverse spares, skills etc.

Sales and Marketing .14 .11 1.)In-house marketing team reduces

costs and turnaround time.
2.)Stress on e-ticketing and telephone
booking .
3.) Free publicity through media

User Station and Aviation .26 .22 1.) Reliance on secondary airports.
2.) No amenities like passenger
Differentiation
 Lowest prices without compromising on customer
service.
 VAS to flyers-
 Ticketless check-in – saved time and hassle free
 Single class seating- no bias amongst flyers
 Standard operating procedures ensured uniform
level of competence amongst the staff.
 Multi-lingual website
 Customer ‘delight’ services like lucky draw
 Shunned ‘hub and spoke’ for ‘point to point’ system.
 Reliance on ITES
Program Formulation and Implementation
•• Tony
Tony Fernandes
Fernandes invited
invited Connor
Connor McCarthy
McCarthy to
to join
join AirAsia's
AirAsia's executive
executive team.
team.

•• They
They restructured
restructured the
the complete
complete business
business model
model and
and adopted
adopted low-fare,
low-fare, no-
no-
frills
frills concept.
concept.

•• They
They planned
planned to
to offer
offer only
only one
one standard
standard class
class cabin.
cabin.
•• It
It did
did not
not provide
provide in-flight
in-flight entertainment
entertainment or
or free
free meals.
meals.

•• Seats
Seats were
were sold
sold through
through telephonic
telephonic booking
booking centre,
centre, sales
sales office,
office, travel
travel
agents
agents and
and at
at local
local banks
banks and
and post
post offices.
offices.

•• Multiple
Multiple hubs
hubs within
within Malaysia
Malaysia to
to serve
serve better.
better.

•• Innovative
Innovative marketing.
marketing.
Growth- illustration

Passengers Flown by Air Asia Group

(in thousands)

12.992

9.312

6.289

2.839
1.481
291 611

March June 2002 June 2003 June 2004 June 2005 June 2006 June 2007
2001
Diversification and expansion
Porter’s 5 forces Model
Bargaining Bargaining Threats of Threats of
Competitive
power of power of potential substitute
Rivalry
customers supplier entrants products
Medium Low Sizeable Medium High
• Customers •Volatile •Attractive • Train, bus • Hard
highly international market for full and car travel competition
sensitive to crude oil prices. – cost carriers to are
prices. tacked through start low cost developing • Price cutting
hedging policy subsidiaries.
and
• Competition • Other LCC’s cartelization
gives buyers •Limited aircraft • Develop- like JetStar by bigger
more choices manufacturers ment of new Asia, Tiger players.
limits sudden low-cost Airways,
expansion plans carriers. ValuAir Nok
Air etc.
Recommendation For Future
• Ancillary income increase
 Offer more on board services/ products to the passengers-
◦ Taxi booking service
◦ Internet WIFI access on board
◦ Newspapers, Movie renting,…
◦ Merchandising. (perfum, make-up, toys…),

• Ticket price differentiation.

• Place advertisings in the plane’s cabin.

Recommendation For Future
• Increasing AIR Asia's assets - Enlarging this
existing fleet.

• Cargo’s installations to load/unload the aircraft

• Invest in joint ventures

• Diversification - AIRASIA should acquire new know-

how in a view to offer More Service to the
consumer.
i.e. To take over an online travel agency

OK
LCC growth in Different markets
Price Differentiation
Additional Income
Capacity Growth
Attention Seeking Advertisement
CEO - AirAsia
Thank You!!
Questions??