hbs

Company: Square Studio Siti Khatijah Binti Hamid Aisyah Syazwani binti Ariff Zainol Nadia binti Lokman Mohamad Yahya Fekri bin Aladin Mohd Azri bin Mat Raffei

HBS Case Study AirAsia: Flying Low-Cost with High Hopes

1.

Briefly describe the trends in the global airline industry.

The trend in the global airline industry is to offer low price rate to travel in short-haul distance by airplane as of 2002 after AirAsia re-launched its brand. During/after that time, many new airline companies are established which promotes low cost carriers such as the Tiger Airways (founded on 2003), Jetstar Asia (founded on 2004) and Firefly (founded on 2007). Even established airline companies such as Malaysia Airline (MAS) strategized in appealing customer by making a low cost campaign of “Everyday Low Fare” which offers 1 million free seats, excluding the fuel surcharge and taxes for its domestic flights and other short-haul routes within South-East Asia.

2.

Comment on the business-level strategy adopted by AirAsia. How has AirAsia achieved cost leadership or differentiation?

AirAsia achieved cost leadership by providing the general domestic consumer of low fare price in airline industry compared to others. The low rate price is possible due to several reasons. Distinguished from other airline company, AirAsia is the first airline operator in Asia to adopt the low-fare, no-frills concept. Apart from that, AirAsia maintains a tight control over production and overhead costs. From the Cost per Available Seat Kilometre (ASK) (2007) data, it can be seen that AirAsia’s maintenance and overhead were lesser than that of other popular low cost carriers by 0.06 cost/ASK. The reason is that AirAsia’s new aircraft requires less maintenance. Furthermore, AirAsia minimize its cost of sales, R&D and service. From the same ASK data, it shows that the total of operating expenses of AirAsia cost/ASK is only 3.16 which is 46% lower than comparable peers. With smart strategies and effective business model, AirAsia triumphs in the global airline industry.

3.

Referring to Porter’s model of the five forces of competition, is the above strategy suitable for AirAsia to achieve a better position in the industry? What are the risks of using the strategy?

The above strategy is suitable for AirAsia to achieve a better position in the airline industry. This is because if there is a threat of new entry, AirAsia would counter it defiantly. This can be seen through the low-rate war campaign between AirAsia and MAS. MAS, which offered an “Everyday Low Fare” campaign, were outdone by AirAsia’s much lower rate campaign of “SubZero”. Furthermore, AirAsia can control and manage the buyer power as AirAsia covered both of the main services in airline travel of short-haul and long-haul flight. AirAsia which started as an airline company that focused on domestic flights gradually expand its services to long-haul flights and even to other services such as online booking services for hotels, hostels and car rental. AirAsia actively sought out various companies to partner with. Even with all of these successes, there are still risks in using this strategy. The main risk is of imitation. Other companies might imitate AirAsia’s business plan and strategies (services) by analyzing it. Other risk is of technology. As an airline travel company, most of them share similar technologies as can be seen through their airplane models of Boeing/Airbus. Another risk is that of tunnel vision in which the airplane companies could not see other opportunities apart in their area of industry.

4.

Identify the ways AirAsia can sustain its competitiveness through the business level strategy it has adopted.

In cost leadership business level, AirAsia could sustain its competitiveness by steadily offers its low price rate of airline travel while maintaining its good "Real 5 Star” services. AirAsia should continue in competing for a wide customer based on price. Hence, AirAsia should pro-actively participate in low fare war between other airline companies. Besides that, AirAsia should maintain its tight control over overhead costs by minimizing its operating expenses. By doing so, the company would gain profits in their gross revenue.