Air Asia case study

CASE STUDY

Group – 6 Sec- C

• 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 airline.

• In a very short time, after launching as an LCC, Air Asia converted from a debt ridden company to a profit making company.

AirAsia - Introduction

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

Business

Mission

SWOT

Analysis

Goal Formulation

Strategy

Formulation

Program

Formulation

and Implementation

Feedback and

Control

•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

Mission

SWOT Analysis

Strengths• Low

Operational Costs

• Highly Trained, well paid and motivated staff.

• High Utilization of Resources.

• First mover advantage.

• Influential Political Support.

• Strong Brand Presence

Weaknesses• Frequent

flight delays• Limited

variety for flyers

• Lack of infrastructure and congestion at airports hit bottom-line.

Opportunities• Very limited

presence in the long haul segment

• Liberalization of ASEAN countries.

• Alternate sources of revenue through VAS.

• Diversifying into sectors like air cargo.

Threats• Increasing

competition• Rising Fuel

Prices• Substitutes

like high speed rails and other LCC’s.

• Terror attacks and health risks

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

Goal Formulation

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 LeadershipOperating Expenses Cost/ASK for Air Asia

2009 2007Reason

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 StrategyNewer, fuel efficient Aircraft.Efficient flying skills of pilots

Maintenance and Overhaul

.16 0.28 1.)New aircraft requires less 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 lounges.

Cost of Aircraft, depreciation, amortization

.42 .48 1.) Reduced leasing costs.2.) High aircraft utilization

Total cost per ASK 2.95 3.16 Approx 6.7 % less than 2007 figures.

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

• Tony Fernandes invited Connor McCarthy to join AirAsia's executive team.

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

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

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

• Multiple hubs within Malaysia to serve better.

• Innovative marketing.

Program Formulation and Implementation

Growth- illustration

March 2001

June 2002

June 2003

June 2004

June 2005

June 2006

June 2007

291 6111.481

2.839

6.289

9.312

12.992

Passengers Flown by Air Asia Group (in thousands)

Diversification and expansion

Porter’s 5 forces ModelBargaining power of customers

Bargaining power of supplier

Threats of potential entrants

Threats of substitute products

Competitive Rivalry

Medium• Customers

highly sensitive to prices.

• Competition gives buyers more choices

Low•Volatile international crude oil prices. – tacked through hedging policy

•Limited aircraft manufacturers limits sudden expansion plans

Sizeable•Attractive market for full cost carriers to start low cost subsidiaries.

• Develop-ment of new low-cost carriers.

Medium• Train, bus

and car travel are developing

• Other LCC’s like JetStar Asia, Tiger Airways, ValuAir Nok Air etc.

High• Hard

competition

• Price cutting and cartelization by bigger players.

• Ancillary income increaseOffer 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

Recommendation For Future

LCC growth in Different markets

Price Differentiation

Additional Income

Capacity Growth

Attention Seeking Advertisement

CEO - AirAsia

Thank You!!Questions??