AirAsia Case Study

From : Group 1

Case Summary

• AirAsia started as government owned company, but was bought by Tony Fernandes in Dec 2001.

• AirAsia initially operated low cost short haul airline. Later they started low cost long haul airline service to select places.

• To provide low cost airlines AirAsia uses lot of cost cutting measures without reducing the quality of service.

Summary continued…

• Air Asia implied various innovative measures in their sales channels and marketing strategies

• Air Asia took various steps for increasing their market outside of Malaysia by the help of collaborations and acquisitions.

• Being a low cost carrier Air Asia is facing problems due to high fuel price and lowering air traffic

Trends in Global Aviation Industry

• Success of Low cost carriers in west• Air travel downturn in 2001 post 9/11• AirAsia starts low cost carrier services under

Tony Fernandes in 2001 • Surge in Asian air traffic between 2003 – 2007• AirAsia’s success inspires many other LCC

followers in Asia pacific region

Inbound Logistics Operations Marketing & Sales Service

• Purchase and procurement of Airplanes• Recruitment of Staff and Crew • Setting up offices• Fuel Purchase

• Staff training• Operation on secondary airports • Focus on fuel efficiency by doubling the tyre usage.

• Diversified Sales channels• Brand differentiating marketing strategies (Cheeky ways)• Lucky draws for promotion• Sponsorship of Man U, Formula One team • Indulged in philanthropic Activities

• Online booking system• Mobile booking system• Internet check In Facility• Free seating policy• Schemes on credit cards

Value Chain & Components Activities for providing service

Business strategy

• Mission : Continue to be lowest cost airline in every market AirAsia serves

Internal Analysis(Strengths)

• First movers in LCC market in Malaysia• Time to time Innovation • Fleet of new and fuel efficient Airbus

airplanes• Adept use of technology( most popular

website with multi lingual support) • Large domestic market(96 routes out of 118

routes)

Competencies

• Providing Low Cost Carrier Services. They could operate with 56% passenger load per flight in comparison to 70% for MAS

• Innovative and brand building advertising. Use of cheeky advertisements.

• Strong and diversified ticket sales channel

Opportunities

• To tap market in other developing Asian countries like India

• Enter into Collaboration with other low cost and high cost carriers in other markets

• Try to expand operations by providing LCC services in premium segment

Threats

• Rise in fuel price will affect profit margins• Fierce competition in Industry. 6 new entrants

since 2002 in LCC segment.• Government intervention in new

collaborations and heavy subsidy for government owned airlines

Effect of Porter’s forces

• Segment Rivalry: Fierce competition with Malaysia Airlines leads to price wars, advertising battles.

• AirAsia has so far been able to keep its prices lower (40 – 60 %)

• Threat of New Entrants: Singapore, Thailand & Malaysia saw 6 new entrants after AirAsia’s relaunch in 2002.

• Threat of buyers powers: Buyers have huge bargaining power due to large number of LCC’s in the market

Effects continued….

• Threat of supplier powers: Fierce competition between Airbus and Boeing for market share. Hence threat is low for aircraft supply. However due to higher fuel prices, fuel companies may not extend credit or accept advance payment from AirAsia. In this regard threat is high.

Goals

• To achieve and maintain high margins. The main focus of the airline is to maintain high margins that can provide cushion to the adverse external environment.

• To achieve sustainable growth. This will allow them to be biggest player in LCC industry over a span of time.

Formulated Business Strategy and impact on Overall Cost Leadership

Strategy for Overall Cost Leadership• Reduce costs on fuel• Save cost on Crew accommodation• Low overhead cost

Business Strategy Continued…Strategy for Differentiation• To remove all auxiliary items. Make them

available at customer demand charging them for that. This allows passengers to make a choice.

• To provide better support services in order to add customer value.

• Take help of cheeky marketing and build a brand name

Business Strategy continued…

Strategic Alliances• Service alliance : When entering a new market

focus on collaboration• Promotional alliance : Enter into promotional

alliance for the purpose of mutual benefit.

Implementation of Business Strategy

• Usage of Airbus airplanes which were more fuel efficient and phase out old Boeing planes

• Usage of secondary airports to save slot fees• Buy fuel in advance to save costs when fuel

prices were rising• Usage of promotional offers to lure customers• Alliance with Citibank for credit card• Promotion of Man U, F1 team

Sustain Competitive Advantage

• Acquisition of Low cost Carriers which are incurring losses so as to gain larger market share

• Buy light weight, highly fuel efficient aircrafts to boost up the margins. Like Boeing 787 – 8.

• Online advertising and promotion.• Implement partial refund if the ticket is

cancelled before stipulated time frame.• Venture as a Cargo Carrier

Thank You