AirAsia: Now Everyone Can Fly

I. Introduction
AirAsia is a Low-fare airline company owned by Anthony Fernandes. The company
had its beginnings since 2001 and has been growing rapidly ever since. Within two
years, AirAsia has proven that low-fare airline models such as Southwests, Ryanairs,
and easyJets model would fare well in the Asian marketplace. Its success has even
spawned numerous imitators and competitors. But the question still remains, can
the low-fare model continue to succeed and grow in Asia?
With the corporate philosophy of Now Everyone Can Fly, AirAsia has paved the way
for low-cost aviation through innovative solutions, efficient processes and a
passionate approach to business. More people around the region are choosing
AirAsia as their preferred choice of transport.
AirAsia creates value through their Vision and Mission:
Vision |
To be the largest low cost airline in Asia and serving the 3 billion people who are
currently underserved with poor connectivity and high fares. |
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 |
AirAsia makes the low-fare model through implementing these strategies:
Key Strategies | |
Safety First | Partnering with the worlds most renowned maintenance
providers and complying with the world airline operations. |
High Aircraft Utilization | Implementing the regions fastest turnaround time at only
25 minutes, assuring lower costs and higher productivity. |
Low Fare, No Frills | Providing guests with the choice of customizing services without
compromising on quality and services. |
Streamline Operations | Making sure that processes are as simple as possible. |
Lean Distribution System | Offering a wide and innovative range of distribution
channels to make booking and traveling easier. |
Point to Point Network | Applying the point-to-point network keeps operation
simple and lower costs. |
II. Business Model
Not all Low-fare Airlines employ the same business model practices. AirAsias
business model has the following characteristics:
Simple Product | Catering on demand for extra payment Planes with narrow
seating and only a single class No seat assignment No frequent flyer programs |
Positioning | Non-business passengers, especially leisure traffic and priceconscious business passengers Short-haul point to point traffic with high
frequencies Aggressive marketing Secondary airports Competition with all
transport carriers |
Low Operating Costs | Low wages Low airport fees Low costs for maintenance,
cockpit training and standby crews due to homogeneous fleet High resource

productivity Short ground waits due to simple boarding processes No air freight,
no hub services, short cleaning
times, and high percentage of online sales |
III. External Factors
a. Competitive Profile Matrix
| AirAsia | Ryanair | Southwest |
Critical Success Factors | Weight | Rating | Score | Rating | Score | Rating | Score |
Support | 0.05 | 2 | 0.1 | 2 | 0.1 | 4 | 0.2 |
Product Quality | 0.15 | 4 | 0.6 | 3 | 0.45 | 4 | 0.6 |
Price Competitiveness | 0.25 | 4 | 1 | 2 | 0.5 | 3 | 0.75 |
Customer Loyalty | 0.15 | 3 | 0.45 | 2 | 0.3 | 4 | 0.6 |
Global Expansion | 0.15 | 4 | 0.6 | 1 | 0.15 | 3 | 0.45 |
Features | 0.1 | 4 | 0.4 | 4 | 0.4 | 3 | 0.3 |
Reputation (safety, efficiency) | 0.15 | 3 | 0.45 | 4 | 0.6 | 4 | 0.6 |
Total | 1.0 | | 3.6 | | 2.5 | | 3.5 |
AirAsia has the best price based on the cost per average-seat-kilometer which means
that they have lower operating costs than the other two airlines; this may be caused
by their location (which affects costs such as wages and fuel) and airports used.
Southwest Airlines scored highest for support and customer loyalty. These two
factors are closely related to each other since good customer support shows through
customer loyalty. Ryanair and AirAsia had negative comments about rude staff and
bad customer relations.
For global expansion, AirAsia scored highest; they have expanded globally, adding
long haul flights to their (as well as their subsidiaries) products. Ryanair only serves
locally while Southwest serves in USA and Mexico.
AirAsia had the most extensive list of features including pre-order meals,
online entertainment for long-haul flights, and a 15kg free check-in baggage weight.
Ryanair charges for each check-in baggage but provides television screens for each
passenger seat. Southwest Airline also has free check-in baggage; they have no
entertainment systems; they serve nuts instead of meals.
b. Opportunities
Long haul flight is a trial to get undeveloped market share. Offering low-fare long
haul flights will tap into an entirely different market. This will cater to people with low
budget but wants to travel outside the country.
Companies can differentiate themselves from traditional LCC model by adding
customer services or operation as full service airline with low fare. The airline could
add features (with extra charge) to be able to differentiate themselves from other
low-cost airlines. This could include full meal offerings, entertainment devices, or onair duty free shopping.
ASEAN Open Skies allows unlimited flights among ASEANs regional air carriers
(should have taken effect since December 2008). This is a good opportunity to offer
new routes.
Increasing middle-class population in Asia allows more people to travel by air which
will be faster. Low-cost airlines make the cost of air travel comparable to that of
buses or private cars. Increasing middle-class could also indicate higher consumer

spending which may include expenses for vacations.

High fuel prices might seem as a threat; but will many competitors springing up, the
high fuel prices will squeeze out
the unprofitable ones. High fuel prices might also push the fares of full-service
airlines even higher; this will make the low-fare tickets even more attractive.
c. Threats
Full-service airlines may cut down on costs to be able to compete on cost with the
low-fare airlines. Full-service airlines may also have an offshoot; an example is Tiger
Airways, which is an offshoot of Singapore Airlines. This creates more competition
from companies with extensive understanding of the industry.
AirAsias success has spawned numerous imitators and competitors such as Oasis
Hong Kong Airline, Cebu Pacific Airline, and the like. These competitors, much like
AirAsia, are also starting to offer long-haul flights. AirAsia could further differentiate
them by adding more features to their flights and website. Adding more value-added
services may also increase their operating cost, it may also lengthen their parking
time at the airports.
The unstable fuel prices are certainly a threat to all in the airline industry. It specially
affects low-cost carrier because they basically compete on price. Fuel price hikes
might push then to increase ticket prices.
External Factor Evaluation Matrix |
Opportunities | Weight | Rating | Weighted Score |
1. Long haul flight is a trial to get undeveloped market share | 0.05 | 4 | 0.2 |
2. Differentiation from traditional LCC model by adding customer services or
operation as full service airline with low fare | 0.03 | 4 | 0.12 |
3. ASEAN Open Skies allows
unlimited flights among ASEANs regional air carriers (Dec. 2008) | 0.15 | 3 | 0.45 |
4. Increasing middle-class population in Asia | 0.05 | 3 | 0.15 |
5. High fuel prices will squeeze out unprofitable competitor | 0.1 | 1 | 0.1 |
Threats | | | |
1. Full service airlines start cut costs to compete | 0.15 | 4 | 0.6 |
2. Entrance of other LFAs | 0.1 | 3 | 0.3 |
3. High fuel price decreases yield | 0.12 | 2 | 0.24 |
4. Accident, terrorist attack, and disaster and affect customer confidence (in
certain countries) | 0.07 | 2 | 0.14 |
5. Aviation regulation and government policy | 0.1 | 4 | 0.4 |
6. Increase in operation cost in producing value-added services | 0.08 | 1 | 0.08 |
Total | 1.0 | | 2.78 |
AirAsia scored a total weighted score of 2.78 which indicates performance that is
slightly above average. The companys strategy takes advantage of opportunities and
minimizes the effect external threats. They are certainly doing well, but there is still a
lot room for improvement.
IV. Internal Factors
a. Strengths
AirAsia has a strong management team and strong links with the government and
industry leaders. Their strong management is partly contributed by the diverse
background of the executive management teams which consists of industry experts.

They also have links with the Thai prime minister, who holds a 50% stake in Thai
AirAsia; this has helped AirAsia open up and capture a recognizable market share in
Thailand.
AirAsia has a very
good blend of proven strategies of other low-cost airlines; this makes their business
model simple and proven. This includes Ryanairs operational strategy (no frills,
landing in secondary airport), Southwests people strategy (employee comes first)
and Easyjets branding strategy (linking with other service providers like hotels, car
rental).
They have capitalized on IT wisely. Selling tickets online minimizes distribution cost, it
also keep the costs low by enabling direct purchase thus saving up on airline agent
fees. It has also contributed directly to AisAsias marketing effort; it has also allowed
them to create brand awareness.
b. Weaknesses
Limited target cost limits their service resource. Because of this human resource
limit, they cannot handle irregular situations. According to some reviews, customers
had complaints about bad service and rude personnel. Someone even complained
that he was not allowed to fly even if he clearly had his ticket on hand. There are also
complaints about flight delays.
AirAsia (following Ryanairs strategy) flies from and land in secondary airports to
reduce costs. This may be an inconvenience to passengers. (Secondary airports are
usually under-utilized.) They also tend to use stairs rather than the airbridge because
it is much cheaper. This may cause inconvenience to passengers, especially those
with physical disabilities.
Internal Factor Evaluation Matrix |
STRENGTHS | Weight | Rating | Weighted Score |
1. Strong management team |
0.05 | 3 | 0.15 |
2. Very good in strategy formulation and implementation | 0.1 | 4 | 0.4 |
3. Well-established brand name in Asia | 0.12 | 4 | 0.48 |
4. Currently the low-cost leader in Asia | 0.12 | 4 | 0.48 |
5. Excellent utilization of IT | 0.06 | 3 | 0.18 |
6. Low cost operations | 0.07 | 4 | 0.28 |
7. Business model is simple and proven | 0.05 | 3 | 0.15 |
8. Single type fleet minimizes maintenance fee and easy for pilot dispatch | 0.06 |
3 | 0.18 |
9. Penetrated and stimulated potential, untapped markets | 0.08 | 4 | 0.32 |
WEAKNESSES | | | |
1. Service resource is limited by lower cost | 0.03 | 2 | 0.6 |
2. Limited human resources could not handle irregular situation | 0.08 | 1 | 0.08 |
3. Government interference and regulation on airport deals and passenger
compensation | 0.08 | 1 | 0.08 |
4. Non-central location of secondary airports | 0.03 | 2 | 0.06 |
5. Brand is vital for market position and developing it is always a challenge | 0.04 |
2 | 0.08 |
6. Heavy reliance on outsourcing | 0.03 | 1 | 0.03 |
Total | 1.0 | | 3.55 |

AirAsia scored a total weighted score 3.55 in the internal factor evaluation. They have
a lot of strengths that have helped them gain recognition and success. Their score
indicates that the company has a very strong internal position.
V. Recommended Strategies
1. Open more Asian market: take advantage of its large population and growing
middle-class population.
2. Enforce
political advantages: AirAsias joint venture with Shin Corp. (owned by the Thai prime
ministers family) could support AirAsia to grow and expand more in Thailand.
3. Invest in a marketing program that shows that budget airlines do not
compromise the safety of the customers.
VI. Guide Questions:
1. What opportunities exist in the Asia-Pacific region for the entrance of new lowfare airlines? How might demand for low-fare service differ in the Asia-Pacific region
and in North America and Europe?
Traditionally, top airlines have received high marks for their overall outstanding
quality of service both in the air and on the ground. High quality service means high
costs which are passed on to customers as more expensive fares. Demand has been
decreasing since the 9-11 attack and the 2001 recession. The past years saw a
significant drop in demand for premium air transport and first-class seats. Thus, in
recent years, there has been a rise of low cost airlines to serve as a cheaper
alternative.
The recent recession offers great opportunity for low-cost carriers; people did not
have the money to fly on premium airlines, so low cost airlines was sought after. The
current and future economic climate is conducive to low-cost carrier models. Asian
airlines could take the opportunity to partner up with others outside the airline
industry to gain mutual benefits. For example, they could partner up with airplane
makers, to make planes that are cost effective or use renewable energy for
the airplanes to protect themselves from fluctuating fuel prices. They could also
partner up with tourism and business firm such as hotels to create travel deal to
offer to tourists to help boost passenger traffic.
The difference in demand between Asia Pacific Asia-Pacific region and in North
America and Europe may not be too different. LFA would have a good opportunity in
Asia because of its large population and the resurgence of the Asian market.
However, demand could differ because of government regulation and slow
dissemination of information regarding low-fare demand. LFAs would actually be at
an advantage when operating in Asia because of few interregional highways and
speed rails.
2. Do governments pose a significant obstacle to the expansion of low-fare airlines
in Asia?
Governments have played an important role in shaping air transportation. Federal
regulation was necessary to give the public confidence in the safety of air
transportation. Many airlines are still state-owned (partially), although most
countries have deregulated their airline industry. The government still protects stateowned airlines which hampers the expansion plans of privately owned low-fare
airlines. For example, AirAsia plan of the traditionally profitable intraregional
markets to Thailand and other neighboring countries was not met with much

enthusiasm by the Malaysian government because Malaysian Airlines also flew the
same routes.
The government could also put taxes on landing which could affect the
operational costs of low-fare airlines. Government red tape and clearance for setting
up business in another country is also an obstacle for most.
3. Compare AirAsias strategy with the strategies of Southwest and Ryanair. How is
it similar to and different from the strategies of those carriers?
| AirAsia | Ryanair | Southwest |
Safety First | Partnering with renowned maintenance providers and complying with
world airline operations. | Hires and trains pilots, cabin crews and maintenance
personnel and includes apolicy of maintaining its aircraft in accordance with the
highest European airline industrystandards.Maintenance is done by Ryanair or
maintenance contractors approved under the terms of Part145/JAR 145, the
European airline industry standard for maintenance. | Safest airline worldwide |
High Aircraft Utilization | Regions fastest turnaround time at only 25 minutes,
assuring lower costs and higher productivity. | High aircraft utilization because of
the use of single-type fleet. | Fastest gate turn-around, fewest cancellations, best ontime performance |
Low Fare, No Frills | Providing guests with choice of customizing services without
compromising on quality and services. | No frills. | No frills. |
Lean Distribution System | Offering a wide and Innovative range of distribution
channels to make booking and traveling easier. | Maximizing the use of IT to allow
customers to make and pay for confirmed reservations in real time throughRyanair's
Ryanair.com website | Online
booking of tickets |
Point to Point Network | Point to point network applied. | Provides frequentpointto-point service on short-haul routes | Point to point network applied. |
In-flight Services | Entertainment sets, pre-order meals, 15kg free check-in baggage.
| On-board merchandise, beverage and food sales, TV screens in each
passenger seat, ancillary services | Peanuts instead of meals, no seating
arrangement, free check-in baggage, fewest customer options |
Choice of routes | Uses secondary airports. | Favors secondary airports with
convenient access to majorpopulation centers and regional airports | - |
Types of aircraft used | Airbus A320-200, Boeing 737-300, Airbus A330-300 | Boeing
737-800 | Airbus A319-100, Airbus A320-200, Airbus A330-200, Airbus A330-300,
Boeing 747, Boeing 747-200, Boeing 747-200F, Boeing 747-400, Boeing 757, Boeing
757-200, Boeing 757-300, McDonnell Douglas DC-9, McDonnell Douglas DC-9-30,
McDonnell Douglas DC-9-40, McDonnell Douglas DC-9-50 |
Global expansion | Other countries in the region (Thailand, Indonesia, Vietnam,
Philippines)They have already introduced long-haul flights. | Europe continental
Europe (62 countries) | North America and Mexico |
AirAsias strategies is similar to Ryanairs operational strategy (no frills, landing in
secondary airport), Southwests people strategy (employee comes first) and Easyjets
branding strategy (linking with other service providers like hotels, car rental).
4. Did Tony Fernandes weigh
the range of political, economic, and operational risks when he took over AirAsia?
What risks might have been overlooked?

Tony Fernandez actually bought the airline without any prior aviation knowledge. He
just had a childhood dream of owning an airline. Also, prior to buying the airline, he
already wanted to follow the model of Southwest Airlines; he had an idea how he
would position his brand. He might have overlooked the following factors:
Political: the government was supportive of AirAsia initially because it was taking
over previously money-losing domestic routes. But when AirAsia planned to expand
into traditionally profitable intraregional markets to Thailand and other neighboring
countries, the government was less enthusiastic about it.
Economic: AirAsia re-entered the market three days after terrorist destroyed the
World Trade Center. It was also a time of recession. These events have both positive
and negative effect on LFAs. Unstable political situation (terrorist attacks) discourage
travelling, while recession have greatly reduced demand for airline tickets.
Operational: operational risks include key manager planning, maintenance and
reliability, scheduling risks, government intervention and regulation, supply chain
equipment issues, third party supply failure, and business interruptions such as
strikes.
5. How would you describe Tony Fernandess entrepreneurial strategy?
Tony Fernandes was a risk taker; he bought his airline without prior knowledge
about aviation as well
as firsthand experience with the airline industry. He simply had a childhood dream
of owning an airline. He said in one of the interviews, Go with your gut, give it your
best bet and you may fail, but dont give up. This statement shows the type of the
person that he is. He is an independently-minded person who knows when to trust
his gut. This has also enabled him to carry out new, untested ideas and ventures,
even when nobody else believes in them. Its about seeing the need for a new
product of service. With his marketing and entrepreneurial ability, he was able to
make his childhood dream come true.
6. How should AirAsia respond to the challenges posed by (a) new low-fare carriers
entering the Asian marketplace and (b) low-fare strategies pursued by incumbent
carriers?
For both cases, it would require AirAsia to give the best possible service at the best
possible price. They should innovate and come up with new ground and in-flight
services to differentiate themselves from other low-cost airlines. AirAsia should
review their customer feedback and customer service parameters to effectively
match the customers views and opinions to the services they offer. They can also
introduce new concepts and enhancements to their brand of service. They must
work to earn a reputation (for efficiency, punctuality, and safety) so that they could
compete in terms of price and quality with the low-fare strategies pursued by
incumbent carriers.
7. How do you think the Asian passenger air transport
marketplace will shake out? What lessons can be drawn from the North American
and European experience?
The Asian passenger air transport marketplace will shake out when Asian
governments impose strict regulations in the airline industries that prevent
competition from flourishing. There will also be shake out if the Asian economy goes
through recession again; the people would not have the relatively high purchasing
power they have now.
The lesson that can be drawn from the North American and European experience is

that business models that work in North America and Europe could also be
applicable in the Asian setting. The world is becoming more globalized; the mindsets
of people are also changing making it easier for them to adapt business models that
are applied in other parts of the world.
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