Now Everyone Can Fly Air Asia CASE Discussion

Asian Journal of Management Cases
http://ajc.sagepub.com
Now Everyone Can Fly: Air Asia

Joan Enric Ricart and Daxue Wang
Asian Journal of Management Cases 2005; 2; 231
DOI: 10.1177/097282010500200206
The online version of this article can be found at:
http://ajc.sagepub.com/cgi/content/abstract/2/2/231
Published by:
http://www.sagepublications.com
Additional services and information for Asian Journal of Management Cases can be found at:
Email Alerts: http://ajc.sagepub.com/cgi/alerts
Subscriptions: http://ajc.sagepub.com/subscriptions
Reprints: http://www.sagepub.com/journalsReprints.nav
Permissions: http://www.sagepub.in/about/permissions.asp
Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008
ASIAN JOURNAL OF MANAGEMENT CASES, 2(2), 2005

SAGE PUBLICATIONS NEW DELHI/THOUSAND OAKS/LONDON
DOI: 10.1177/097282010500200206
NOW EVERYONE CAN FLY: AIRASIA

Joan Enric Ricart
Daxue Wang
The case details how AirAsia, a Malaysian airline, was transformed into a successful
low-cost airline through its well-defined business model. The emergence of low-cost
airlines in Asia led to increasingly intense competition in the industry. By forming
joint ventures across Asia, AirAsia is trying to gain advantages with its Pan-Asia plan.
With such a plan, the low-cost carrier would obviously face the risk of over-expansion.
This case study explores AirAsias business model, competitive advantages, and
expansion strategy.
Keywords: AirAsia, Strategy, Low-cost airlines, Business model, Competitive
advantages
Barrelling through longstanding barriers to competition, Tony Fernandes, a former

music executive for Time Warner Inc., has turned Asias stodgy state-dominated airline
industry upside down. Over the last three years, he has built the no-frills AirAsia into
the regions premier budget carrier, prevailing over government bureaucrats determined to protect their flag carriers.
The Wall Street Journal, 20 July 2004
At 8:00 p.m. on the hot and humid evening of 1 August 2004, in his 10-square-metre office
at the Kuala Lumpur International Airport (KLIA), Fernandes, CEO of AirAsia, was
contemplating how to effectively launch his Pan-Asia plan. Ten days earlier, founders of
Ryanair, Europes largest budget carrier, launched a new budget airline with Singapore
International Airlines (SIA). Threats like these were not uncommon, as the last year
had seen the emergence of numerous budget airlines in South-east Asia. Widely
This case was prepared by Professor Joan Enric Ricart and Daxue Wang as a basis for class discussion
rather than to illustrate either effective or ineffective handling of a business situation. Copyright IESE
Publishing, Spain. To order copies of this case or to request permission to reproduce case, please call
+(34) 932 534 200, or send an e-mail to iesep@iesep.com or go to http://www.iesep.com.
recognized as Asias first low-cost, no-frills carrier, AirAsia was planning to break through
with its Pan-Asia plan, a mission impossible asserted by many aviation experts. Fernandes
was trying to figure out the feasibility of this Pan-Asia plan whilst simultaneously maintaining AirAsias competitive edge.
BACKGROUND
Beginning in 1996 with fares slightly cheaper than Malaysia Airlines (MAS), AirAsia
reported losses during its early years of operation. At the end of 2001, three days before
the attack on the Twin Towers in the United States on September 11, AirAsia was officially
acquired by Tune Air, a holding company founded by Tony Fernandes, Connor McCarthy,
and three Malaysian investors. By paying a nominal RM 1 (US $0.26) and assuming RM
40 million (US $10.5 million) in debt, Tune Air took over 99.25 per cent of the ownership
of AirAsia. McCarthy, Ryanairs former Director of Operations, served as adviser to
Fernandes.
The New Business Model

In 2001, in addition to providing charter services, AirAsia was also operating a pair of
leased 737-300s that flew between Kuala Lumpur and four other destinations. In January
2002, a third Boeing 737-300 was added to the fleet. Different from other Asian carriers
that had long catered to the well-to-do business traveller, the refreshed AirAsia targeted
millions of Asians, many of whom had never flown and wanted basic transportation at
cheap price1 (see Exhibit 1 for the income level and air travel in some Asia-Pacific
countries). Setting fares on some routes as low as US $10, AirAsia commenced its flights
with the tag line Now everyone can fly.
Emulating the highly successful Ryanair, AirAsia structured itself as a low fare and
low cost airline. Cost cutting included sticking to a single type of aircraft, using online
ticketing to cut out travel agent commission, charging for snacks and drinks, reducing
the turnaround time on the ground, and ensuring frequent flights. Business class, frequentflier programmes, and jetways into the terminals were eliminated.
On average, AirAsias fares were 50 per cent lower than those offered by Malaysia
Airlines. This low-fare strategy worked; in 2002, more than 600,000 customers were
attracted to AirAsia compared to 290,000 for the year before. Three new destinations
had also been added and the fleet expanded to five (see Exhibit 2 for AirAsias financial
performance).
1
According to A.C. Nielsen, only 602,000 Malaysians, i.e. 6 per cent of the adult population, flew in 2001.
The figures in Indonesia and Thailand were 1 per cent and 3 per cent, respectively.
232 JOAN ENRIC RICART
AND
DAXUE WANG
Unprecedented Growth
2003 was fraught with calamities of war, terrorism, and epidemic disease; yet AirAsia
did not stop expanding its fleet and increasing routes. It maintained a strong load factor
at about 75 per cent. On 3 December 2003, AirAsia began flights from its second hub at
Senai International Airport. 2 Five days later, its first regional flight commenced from
Kuala Lumpur to Phuket, Thailand.
Fernandes worked aggressively to move into the Thai market. He sought an alliance
with Shin Corporation, a Bangkok-based company founded by the family of Thai Prime
Minister Thaksin, which controlled Thailands sole satellite operator. Thaksin had initially
asked Singapore International Airlines (SIA) to work with Thai Airways International
(THAI) to set up a budget carrier. When Singapore Airlines declined, AirAsia entered
and in November 2003 they formed a new budget airline called Thai AirAsia. This deal
gave AirAsia a 49 per cent stake in Thai AirAsia along with management control.3 Again,
the popularity of Thai AirAsias low fares was evident; the airline carried more than
380,000 passengers in just five months since February 2004 (see Exhibit 3 for AirAsias
operating statistics and Exhibit 4 for the domestic passenger movement at Don Muang
International Airport in Bangkok [DMA] between January and June 2004).
The region targeted by AirAsia in South-east Asia was within a 3.5-hour flight time
from its hubs, thereby giving it access to approximately 500 million people. In July 2004,
a new route from Bangkok to Macau marked the airlines first step outside the South-east
Asian market. It offered a springboard into the lucrative southern part of mainland China.
Eventually, AirAsia served twenty-eight destinations around the region, through over
400 domestic and international weekly flights (see Exhibit 5 for AirAsias route map).
With nearly 25 per cent of the domestic market, AirAsia flew fourteen airplanes from
Kuala Lumpur International Airport and Senai International Airport, and four from Don
Muang International Airport in Bangkok. Four of these airplanes were bought in the
financial year 2004 while the others were leased. The average age of the fleet was about
sixteen years.
In 2003, taking advantage of the financial market, AirAsia sold 26 per cent of the
airline for US $26 million. This gave it capital to expand its fleet and flight destinations.
Another US $200 million were expected to be raised in October 2004 through an IPO,
which would value the airline at about US $800 million.
AirAsia was the only airline with a hub at Senai.

Shin took a 50 per cent stake in Thai AirAsia, and another Thai investor held the final 1 per cent for
majority Thai control in compliance with Thai laws.
3
NOW EVERYONE CAN FLY: AIRASIA 233

MANAGEMENT OF REVENUE, COST, AND EFFICIENCY

AirAsia used Navitaires OpenSkies, a revenue management system to optimize passenger
seat sales. OpenSkies was used by many of the leading low-cost carriers, including Ryanair,
Virgin Blue, and JetBlue. Using a multiple fare structure comprising twelve tiers of fares
per route, AirAsia offered passengers savings depending on how far in advance a particular
booking was made and the level of demand of the seats. The highest fare seats were sold
close to the day of travel when time sensitivity outweighed price sensitivity. Such seats
were sold at approximately 80 per cent of the published fares offered by full-service
airlines. Revenues from these last minute fares helped maintain the companys revenue
from passenger seat sales.
While AirAsia sought to maximize its revenue, the low-cost structure allowed it to
offer fares that were on average lower than its competitors on the same routes. Airlines
were usually burdened with high fixed costs associated with the aircraft and airport
services. AirAsia negotiated lower lease charges for its aircraft, lower rates of long-term
maintenance contracts, and lower airport fees. For example, the average monthly contractual lease charge per aircraft decreased by more than 60 per cent from the year 2001
to 2004. At domestic airports, the airline provided its own ground handling and ground
services. At international airports, these services were outsourced to third parties.
AirAsia flew fuel-efficient Boeing 737-300s and practised a quick turnaround of twentyfive minutes, the fastest in the region and about half that of other major airlines. Standard
business class seats were replaced with economy class, enabling the airplane to hold 148
passengers instead of the usual 132.
Fernandes often supervised operations from AirAsias headquarters at the Kuala
Lumpur International Airport. He once suggested that pilots avoid using their brakes as
long as possible upon landing, in order to save fuel. According to Jim Belz, Boeing Sales
Director for South-east Asia, the best measures for an efficient fleet operation were high
daily utilization coupled with high dispatch reliability. AirAsia ranked on top of Boeings
list of both indicators amongst players in the industry.
AirAsia introduced online sales in April 2002. In the following month, only 5 per cent
of the total tickets were sold on the Internet. The number increased to 50 per cent in July
2004.4 In August 2003, SMS (Short Message Service) booking was introduced. It was the
first-of-its-kind in the world, enabling passengers to book via mobile phones. Within the
In July 2003, AirAsia experienced several system failures due to the high volume of traffic on its
website. In the following month, a primary server with a higher capacity and a back-up server were installed.
Following that change, no system failure was experienced.
AND
DAXUE WANG
subsequent four months, some 4,000 tickets were sold through this channel. Passengers
could book through AirAsias nationwide call centre in Petaling Jaya, which was fully
equipped with 180 telephone lines, or via the Internet, SMS, and other alternatives. 5 In
total, about 85 per cent of the sales were made directly, thereby saving the commission
fees paid to the travel agents.6
AirAsia also used a unique VIR (Interactive Voice Recognition) system which offered
real-time information on its flight schedules and fares. Innovative strategies like these
positioned AirAsia as the airline with the lowest operating cost in the world: US $0.025
per ASK (Available Seat Kilometres),7 compared to Ryanairs US $0.046 and Southwests
US $0.081.8 In May 2004, AirAsia was listed in the CIO Top 100 Honouree, recognizing its
value improvement through strategic and creative use of technology.9
The staff, including the executives and sometimes Fernandes himself, did everything
from checking-in passengers at the gate to cleaning up planes. On several occasions,
Fernandes attributed the cost performance of the airline to the staffs productivity and
work ethic, Our pilots have cut fuel consumption by nearly 20 per cent and doubled the
number of landings that we get from the tires. All our staff discusses ways of cutting
costs. The companys engineering team obtained JAR OPS1 approval in just nine months,
instead of the two years usually required by other airlines.
While there was an aggressive focus on cost savings, there was an equally strong focus
on safety and solving defects in AirAsia by committing to Safety First. To support the
growing fleet, AirAsia signed a number of contracts, including a US $20 million engine
MRO agreement with GE Engine Services in July 2002, and a US $3 million aircraft
engine and aircraft frame parts leasing agreement with VolvoAero later in the same
month. In March 2004, it awarded a nine-year agreement to GE Engine Services, a contract
valued at more than US $50 million. This was followed by a ten-year deal of US $63.5
million with ST Aero for components management in July 2004. High safety and
maintenance standards allowed the company to procure favourable insurance rates,
thereby further lowering its expenses.
5
AirAsia offered a multilingual website in six languages: English, Bahasa Malaysia, Chinese, Tamil,
Thai, and Bahasa Indonesia.
6
Sales costs usually accounted for 17.5 per cent of the total costs for traditional airlines, and 43 per cent
of these selling costs were the commission fees paid to the travel agents.
7
ASK is defined by total number of seats available number of kilometres the seats have flown.
8
The Edge, 8 December 2003; Financial Times, 16 July 2004.
9
The CIO 100 was a yearly listing of 100 organizations in South-east Asia that added the most value to
their respective organizations through the use of IT.

THE CULTURE
The company values were: At AirAsia, there is much CARING and FUN amidst people
of PASSION and INTEGRITY who keep a keen eye on SAFETY at all times.
It was not surprising to walk into Fernandess office and find him deep at work with
rock music blasting away. The ability to have fun was set up as one of AirAsias recruiting
criteria, even for the pilots. The staff freely mingled with one another, irrespective of
designation and seniority. The dress code was smart casuals. It is a casual environment
that we have here. I think we are the only airline where everyone shares the same office
pilots, cabin crew, engineers, personnel from marketing, finance and others, said
Fernandes. The company instilled a unique corporate culture that not only encouraged
its employees to have fun but also gave them the freedom to express their concerns by
showing them that they were valued.
AirAsia emphasized customer service, striving to make travelling easy, convenient,
and fun for its guests, a special term used by AirAsia to describe its passengers. Sometimes, several guests were called up front to make safety announcements, and the winner
received a little gift, usually a cap or a T-shirt. Humour was used to put passengers at ease.
AirAsia pilots and flight attendants were known for their self-deprecating humour. For
example, during one of the flights to East Malaysia, there was a rip-roaring session when
passengers were asked to first guess the age of the aircraft and later that of the pilot.
Fernandes operated out of a modest, unglamorous office space at Kuala Lumpur International Airport. He had no intention of relocating AirAsias headquarters to the office
towers in Kuala Lumpur. If you run an airline, you have to be at the airport and this is
one of the main reasons for our success. Youve got to be close to your business. Youve
got to be able to talk to your guests, see why there are flight delays and whats happening.
I think too many senior executives lose track of their staff and business by being too
distant from where the real action is, Fernandes reasoned.10
Fernandes constantly interacted with customers and employees, I am very close to
our staff. Its not staged; its what we are. I find that airlines are so compartmentalized.
You have engineers who think they are one thing, pilots who think they are demigods,
and nobody talks to each other.11 One way he kept egos in check was by making pilots
cook breakfast for engineers each quarter to thank them for looking after the aircraft.
He also tried to provide his employees with opportunities to progress within the company.
In late 2003, a cadet pilot training programme was introduced. Nineteen internal employees were recruited for this programme; former check-in assistants, a former accountant,
and a former baggage handler were given pilot training.
10
11
Business Time, NST, 22 December 2003.

Airline Business, April 2004.
AND
DAXUE WANG
The Womens Aid Organization applauded AirAsia for its progressive policy, implemented in 2003, to extend and equalize the age of retirement for its cabin crew to fiftyfive years. Through this policy, AirAsia aimed to eliminate gender discrimination that
existed in other national companies such as Malaysia Airlines.12 Jane Chen, a forty-fiveyear-old mother whose former job was First Officer at AirAsia, became the first Malaysian
woman to fly a commercial aircraft in September 2003.
FERNANDES: BATTLING WITH RED TAPE

Identified by Business Week as one of the 25 Leaders at the Forefront of Change in Asia,13
Fernandess path into the airline business was a most unlikely one. Graduating in accountancy from the UK in 1987, he pursued a career in the entertainment industry, serving as
Vice-President Asia for Time Warners music business, when he caught the airline bug.
In early 2001, after consulting with McCarthy, who had just left Ryanair, Fernandes
cashed in his stock options, mortgaged his house, and set up Tune Air. He explained that
he quit the music business over his frustration with copyright piracy, a perennial problem
in Asia. In a revealing comment he added, I was also tired of turning unknowns into
stars and then having to put up with obnoxious behaviour. Planes do what you want!14
The Case of Malaysia

After taking over AirAsia, Fernandes improvised actively for the fledgling airline. He got
contracts to fly Muslim pilgrims to Mecca and to ferry Malaysian soldiers between military
postings. He successfully lobbied government officials, including Ling Liong Sik who
was then the transportation minister, for new domestic routes.
The public embraced the new budget carrier immediately, raising alarm at the staterun Malaysia Airlines. Malaysia Airlines first accused AirAsia of robbing its best domestic
routes and then the Malaysian government banlked at granting these routes. The countrys
chief airline regulator, who had the authority to approve the routes, was also a member
of the Malaysia Airlines board.
In August 2002, shortly after the Malaysian government assumed its US $1.8 billion
debt, Malaysia Airlines began slashing fares by 50 per cent on 14,000 seats a week, a
strategy that people felt was aimed at killing off AirAsia. In response, Fernandes wrote
a blistering letter to Prime Minister Mahathir, referring to Malaysia Airlines as statesponsored economic terrorism. He also attacked the government in media interviews,
12
The Star, 15 August 2003.

Business Week, 12 July 2004.
14
Air Transport World, 1 May 2004.
13

a daring move in a country where criticism of the government was muted, and cordial
relations with politicians were considered vital to business success.
Fernandes even crashed an exclusive cocktail party in Kuala Lumpur and confronted
the partys guest of honourLing Liong Sik. He accused the government-supported carrier of trying to drive AirAsia out of business. How can we compete with an airline that
doesnt have to worry about its finances, Fernandes asked. Soon afterwards, the government ordered Malaysia Airlines to end the steep fare cuts. We didnt want to give any
reason for the people to become angry with us, Ling later conceded.
The Case of Singapore

When trying to expand beyond Malaysia and into regional markets, AirAsia faced fresh
obstacles. A key target was Singapore Changi Airport, Asias sixth busiest hub after Tokyo
Haneda, Bangkok, Hong Kong, Tokyo Narita, and Beijing. For Fernandes, Singapore was
not only a hub which allowed him to carry passengers, but also a symbol that could put
AirAsia in league with no-frills giants like Ryanair.
The bilateral agreement between Malaysia and Singapore stated that all carriers must
be granted dual government approval, before flying between the two countries, with the
result that reciprocal landing rights were given only to Malaysia Airlines and Singapore
International Airlines. Failing to get the sanction, in December 2003 AirAsia set up its
own hub at Senai at a privately owned airport about an hours drive from Singapore.
Although it took fifteen more minutes from downtown Singapore to Senai than to Changi
Airport, the 50 per cent price reduction was a strong pull for travellers.
Close to the end of 2003, AirAsia began flying between Senai International Airport
and Kuala Lumpur International Airport, skimming Singapore traffic for the first time.
Taking a dig at Singapore International Airlines kebaya-clad Singapore Girl, AirAsias
ads went: Theres a new girl in town. Shes twice the fun and half the price.
The Singaporean government took other steps to block AirAsia. When AirAsia asked
for permission to provide bus services between Singapore and Senai, the government
rejected their proposal. When Fernandes hired a separate company to offer rides to the
passengers, the government impounded the bus with the excuse that, Such services are
not ideal, as they are inconvenient for both Singaporeans and Malaysians. Fernandes
responded to the snub with a newspaper ad campaign that poked fun at the governments
tight regulation. One ad read: No chewing gum, no jaywalking, and no shuttles to Senai.
Fortunately, low-priced flights are still legal.
Enthusiastic Singaporeans found their own way to Senai. AirAsia served six destinations out of Senai, and about 40 per cent of the passengers were from Singapore. A lot
of people are being dropped off at the Senai airport, like parents dropping off or picking
AND
DAXUE WANG
up their kids, said Fernandes proudly, The Land and Transport Authority of Singapore
cannot stop Singaporeans from coming.15
The Case of Thailand

When AirAsia applied to fly from Kuala Lumpur to Bangkok and Phuket in August 2003,
officials of the Malaysian Ministry of Transport did not respond for three months. They
then approved just one flight per day to each destination, despite the fact that AirAsia
had already been given second national airline status. I do sense that the government
is not used to having two national airlines. Its still very protective. If we dont get it
from the Malaysian side, we could now just get it from the Thai side. But I dont believe
thats the right way. We are a Malaysian airline and we should get it in our home territory.16
Fortunately, by then Malaysia had a new transportation minister, Chan Kong Choy,
who was part of a growing cadre of politicians who admired the entrepreneurial aplomb.
When bureaucrats delayed processing AirAsias applications for a second flight to Bangkok
and one to Jakarta, Chan intervened.
Before Fernandes arrived on the scene, countries in the region seldom had any kind of
open-skies agreement. In mid-2003, Fernandess lobbying pushed Mahathir to raise the
idea of such an agreement with the leaders of neighbouring Thailand, Indonesia, and
Singapore. As a result of this, these nations granted landing rights to AirAsia and other
budget carriers. Fernandes has had remarkable influence in shaping government and
airline thinking in South-east Asia and beyond, said Peter Harbison, Managing Director
of the Centre for Asia Pacific Aviation, the regions foremost aviation research institution.
In recognition of his achievements, Fernandes won the International Herald Tribune
Visionaries and Leaders 2003 award and Malaysias CEO of the Year 2003 from American
Express Corporation Services and Business Times. AirAsia was honoured as the Asia
Pacific Airline of the year 2003 by the Centre for Asia Pacific Aviation, and Developing
Airline of the Year 2003 by Airfinance Journal.
RESTRICTIVE BILATERAL AVIATION AGREEMENTS

The South-east Asian aviation industry grew rapidly, driven in large part by economic
growth, increasing urbanization in the region, and the liberalization of the industry.
Regional passenger activity between 1985 and 2002 increased at an average annual rate
15
16
The Edge, 8 December 2003.

The Edge, 8 December 2003.

of 7.5 per cent, compared with the world average of 4.4 per cent.17 According to S-A-P,
intra-regional passenger volumes grew at 8.6 per cent per year from 2003 onwards. This
trend was expected to continue through to 2008, while the growth rate for Malaysia was
estimated at 9.2 per cent for its international routes and 6.6 per cent for its domestic
routes18 (see Exhibit 6).
Some of the optimism for rapid growth in Asian aviation was a result of China and
Indias continued economic expansion and liberalization of travel policies for their citizens.
Chinese government officials indicated an interest in building a more liberal air service
framework between China and ASEAN (Association of South East Asian Nations) countries. On different occasions, India also expressed a commitment to grant reciprocal air
rights to designated airlines from nine countries. Other countries wishing to increase
connectivity with India would receive similar rights.19
Post deregulation, Europe became a single aviation market with few barriers to adding
destinations and flight frequencies. The United States was its own vast domestic market.
As opposed to the US aviation industry, the regulations of international routes in Asia
were governed by a series of bilateral agreements and remained restrictive. As part of a
move towards an open skies framework by 2015, ASEAN countries reached an informal
agreement, according to which restrictions that capped the number of inter-capital flights
would be lifted by 2008.
Regulatory Liberalization in theThai Aviation Industry

Since 1996, liberalization of the air industry in Thailand had accelerated after early
deregulation efforts in 1988. Private Thai airlines were permitted to operate on all
domestic routes by September 2000 and certain international routes by September 2001.
Thailand entered an open skies agreement with India in October 2003 and with China
in January 2004. This agreement lifted restrictions on airlines, flight and passenger
numbers, and allowed airlines to exercise their Fifth Freedom Rights between Thailand
and India, and Thailand and China, respectively.20
17
Boeing Report.
S-A-P report, 23 July 2004. The S-A-P Group is a San Francisco-based consulting firm that provides
advisory services to airports worldwide.
19
The nine countries included Austria, Australia, China, Korea, Kenya, Sweden, Finland, Kyrgyzstan,
and the Slovak Republic.
20
Fifth Freedom Right: The freedom that enabled an airline to carry passengers to one country, and then
fly on to another country. Eight different freedoms were generally considered since the 1944 Chicago
Convention. For details: http://www.thaitechnics.com/freedom.html.
18
AND
DAXUE WANG
The Much Awaited Open Skies between Singapore and Malaysia

The Kuala LumpurSingapore route was considered to be Asias fourth-busiest and most
protected. According to the Association of Asia Pacific Airlines, 1.9 million passengers
travelled this route between April 2002 and March 2003.
A bilateral agreement gave Malaysia Airlines and Singapore Airlines, virtual monopoly
over flights between Kuala Lumpur and Singapore. They operated 154 out of the 184
flights per week, with a price of about US $184 for a round-trip ticket. Limited competition
resulted in a decline in the number of flights on this route as opposed to other routes.
For example, there were 188 flights between Singapore and Hong Kong, and 380 between
Singapore and Bangkok, per week.
There were signs that this situation might be on the point of changing, since both the
Malaysian prime minister and his Singaporean counterpart expressed an interest in opening up the routes to facilitate more traffic rights between the two countries. However, they
also added that the open sky agreement could only gradually materialize by 2008.
THE EMERGENCE OF BUDGET AIRLINES IN THE REGION

From ValuAir in Singapore to Nok Air in Thailand, a flock of imitators scrambled to copy
AirAsias formula. In July 2004, there were thirteen budget carriers operating or due to
launch later in the year.21 Malaysia Airlines said that it was staying focused on its core
business and felt no need to set up a budget airline, but it would review that policy if
market conditions made it necessary.22
Singapore
A former Singapore Airlines executive set up ValuAir in June 2003. It began operations
in May 2004 with two 180-seat Airbus A320s to serve Hong Kong, Bangkok, and Jakarta.
Destinations within a five-hour radius from Singapore were its focus. In July 2004,
Singapore International Airlines and Temasek, the investment arm of the Singapore
government, set up Tiger Airways in a joint venture with the US airline financier and
the founder of Ryanair, David Bonderman.23 Tiger Airways projected ten destinations
within a four-hour flying radius of Singapore in the first year and fifteen in the second
21
Time Asia Magazine, 12 July 2004.

IHT, 19 July 2004.
23
Bonderman played a key role in financing and directing the business turnarounds of Continental
Airlines and American West Airlines in the early 1990s when both airlines underwent bankruptcy
reorganizations.
22

year, bringing Thailand, Hong Kong, and Madras within reach. The company received
two Airbus A320s and expected to get another two by the end of 2004. Four more were
planned for 2005 and 2006.
Four other airlines, including Australian carrier Qantas, expressed an interest in setting
up budget carrier operations in Singapore.
Thailand
Emerging in July 2004, Nok Air became the third no-frills carrier in Thailand, following
Thai AirAsia and One-Two-Go. Founded by THAI, Nok Air started with two 737-400s
(149 seats), flying to Chiang Mai, Udon Thani, and Hat Yai. Phuket and Kon Kean were
added to the list in the fourth quarter of 2004.
One-Two-Go was established by Orient Thai in December 2003 after AirAsia invaded
the Thai market. By 2004, it had a fleet of eight Boeing 747s and four Boeing 757s offering
services from Bangkok to Chiang Mai, Chiang Rai, Hat Yai, Phuket, and Udon Thani.
Flights from Bangkok to Surat Thani and other destinations were also planned. Overseas,
it was providing services from Bangkok to Singapore and Kuala Lumpur. As for the route
from Bangkok to Macau, although only Thai AirAsia had been granted scheduled daily
flight rights under the agreement of one carrier per country, One-Two-Go received
permission to open a twice per week charter service.
If Thailand and Macau authorities approved a proposed open sky agreement, OneTwo-Go would increase operations to four flights per week. Additionally, One-Two-Go was
also flying between Macau and Phuket on a charter basis. In contrast to AirAsias strategy,
which promoted differential pricing, One-Two-Go offered One price on every seat and
every flight.
Indonesia
Lion Air, with its headquarters in Jakarta, had fifty domestic routes and certain destinations to and from the Asia Pacific region. It offered services with frills, including personal
televisions in economy class. Like Jet Blue, the upmarket low-cost US carrier, it made
money by running a tight ship and earning customer loyalty through quality, timely departures, and cheap fares. By August 2004, Lion Air had a fleet of twenty-four aircraft
comprising eighteen MD80 series and five DHC-8-301 feeder aircraft.
Australia
Launched in September 2000 and later voted as the worlds best low-cost carrier by
Aviation Magazine, Virgin Blue was also eyeing the region. By 2004, Virgin Blue had
AND
DAXUE WANG
captured 30 per cent of Australias domestic market. With over 10 million passengers,
the airline generated US $920 million revenue in the financial year ending 31 March
2004. Its parent airline Qantas planned to bring out a budget airline called Jetstar by the
end of 2004.
The number of budget airlines was increasing rapidly. Air Deccan in India and Cebu
Pacific Air in the Philippines were good examples. Anthony Ryan, founder of Ryanair,
predicted that within ten years, 10 per cent of the Asian air traffic would comprise budget
carriers.24 Robert Martin, Managing Director of Singapore Aircraft Leasing Enterprise,
foresaw that this niche would claim 25 per cent of the market within five years.25 The push
for China and India to set up budget airlines was fuelled by market demand and profitability. Even as Singapore, fretted over the potential threat that discount carriers posed
to state-controlled Singapore Airlines, it planned to complete Asias first dedicated terminal
for budget carriers by 2006.
THE COMPETITIVE THREAT

Four full-service carriers in South-east AsiaMalaysia Airlines, THAI, Garuda, and
Singapore International Airlinesaccounted for approximately half of the total seats for
regional destinations (see Exhibits 7, 8 and 9 for the operating statistics, financial performance, and route map of these airlines). The competition within the intra-regional
routes was primarily between these flagship airlines and other local airlines, while nonlocal carriers such as European airlines only competed on a small number of routes.
Malaysian Hubs
AirAsias largest competitor for its domestic flights at Kuala Lumpur International Airport
was Malaysia Airlines. Internationally, AirAsia had to compete mainly with Malaysia
Airlines and THAI for its Thailand destinations, and with Garuda and Lion Air for its
Indonesian destinations.
Malaysia Airlines provided multi-class scheduled services to a broad network of more
than 100 domestic and international destinations. On three occasions, between 2002 and
2004, Malaysia Airlines offered SuperSaver fares on almost all of its routes within
Malaysia. These discounted fares were 50 per cent of the domestic economy class fares.
They were resumed later on a limited number of tickets. Malaysia did not have any antitrust laws that prohibited monopoly or predatory pricing.
24
25
Asian Wall Street Journal, 10 December 2003.

Asia Times Online, 4 December 2003.

Thailand Hub
Don Muang International Airport was the busiest airport in Thailand. Annually some
eighty airlines operated 160,000 flights that hauled 30 million passengers and 700,000
tons of cargo. Thai AirAsias largest competitor was THAI, which had shown profits for
thirty-nine successive years. In addition to this, Thai AirAsia also faced competition for
its domestic routes from budget carriers Nok Air (associated with THAI) and One-TwoGo (associated with Orient Thai Airways). International competition pitted Thai AirAsia
against Orient Thai Airways and Singapore Airlines. The Bangkok-Singapore route locked
twelve full-service airlines and two low-cost carriers in fierce competition. Yet Thai AirAsia
maintained a load factor of 70 per cent on this route.
By June 2004, Thai AirAsia and Nok Air retained 20 per cent of the domestic air service
in Thailand. AirAsia, Thai AirAsia and ValuAir claimed 2 per cent of the international
passenger travel at Don Muang International Airport. Based on the latest open-skies
agreements, Thai AirAsia applied for landing rights to Phnom Penh, Hanoi and Yangoon,
as well as in South ChinaHainan and Kunming.
Challenges from Budget Airlines

In Europe, the growing low-cost airline sector triggered survival battles amongst its top
fifty carriers. The first sign was Ryanairs winter promotion of one million seats for 99p
in July 2004.
In Asia, budget carrier rivalry was also turning lethal. From day one, One-Two-Go had
been poised to match any fare that was offered by AirAsia.26 For example, a day after Thai
AirAsia announced its less than Baht 1,000 (US $25.40) deal for a Bangkok to Chang Mai
flight, One-Two-Go sold a Baht 999 (US $25.37) ticket for the same route (THAIs full
service charge was Baht 2,000).
These fare wars forced Udom, Managing Director of One-Two-Go, to slash the fare on
this service to 30 per cent less than planned, thus resulting in revenue losses.27 But Udom
had already wreacked revenge by purchasing as many of the cheapest tickets on AirAsia
flights as he could, often spending more than US $3,500 a day. Fostering ill will between
One-Two-Go and AirAsia was a small price to pay, he argued, to keep the low-price tickets
out of the hands of potential AirAsia customers. I buy them and throw them away, said
Udom.28 By June 2004, One-Two-Go had accumulated US $760 thousand losses in its first
26
Bangkok Post, 13 November 2003.

In February 2004, THAI welcomed the Year of the Monkey (Chinese New Year) by 40% fare reduction
on that route.
28
27
AND
DAXUE WANG
six months of operation. With a US $1.52 million breakpoint, Udom said, Once that line
is crossed, the company would have to decide whether to continue or throw in the towel
altogether.29
Tiger Airways announced a 59-cent (US $0.34) promotional fare for over 3,000 one-way
tickets to three Thai destinations: Bangkok, Phuket, and Hatyai. Responding in kind,
Thai AirAsia offered 5,000 29-cent (US $0.34) seats on these routes during a September
promotion. This promotion became effective the same day that Tiger Airways launched
its services. Meanwhile, SilkAir, the regional wing of Singapore Airlines, also joined the
price war on Thai routes by offering more than 900 return tickets to the popular island
resort of Phuket for US $52. Touting amenities, SilkAirs chief executive Mike Barclay
announced, In addition to low fares, we offer excellent in-flight service, hot meals, a full
bar service, in-flight entertainment, seat assignment and many extras at no additional
cost.
THE FUTURE: A PAN-ASIA VISION?

Soon after its emergence, the Thai government awarded Thai AirAsia two daily flights to
Singapore and landing rights for flights to Macau. What makes setting up a Thai venture
all the more ingenious is the fact that AirAsia is able to overcome possible obstacles to
securing air freedom rights back home, said Philip Wickham, an airline expert at ING
Financial.
Envisioning a Pan-Asian network stretching from China to India, Fernandes wanted to
replicate his Thai joint-venture model across Asia (see Exhibit 10 for the map of Southeast Asia and Asia). His goals included 6 million guests annually by 2005 and fleet expansion to eighty new planes by 2012.30
There were more than 235 cities in Asia with populations of over half a million. One
hundred and thirty cities had more than 1 million. Amongst the latter, forty-three cities
were in China and thirty-seven in India. Analysts expected an annual growth of regional
air travel at 5 per cent over the next two decades; more than 8 per cent was predicted in
China.31 Rising incomes and economic growth were empowering a greater number of
Asians to rely on air travel, particularly in those parts of the region where the road and
rail infrastructures were poor. These environments enabled budget carriers to account
for 25 per cent of all air travels in the US and about 10 per cent in the EU. Jim Eckes, a
veteran chief at Indo-Swiss Aviation, saw an opportunity in connecting Asias disparate
29
30
31
Report of Xeno-Thai Law & Consulting Ltd, 4 June 2004.

Business Week, 12 July 2004.

towns and cities. There is no question here that the geography is different. There are no
fast railways or superhighway networks as in Europe or the USA, said Eckes.32
By June 2005, AirAsia expected to expand its fleet size with three purchased and
thirty-three leased carriers. A capital expenditure of US $26 million was needed to support
this expansion. AirAsias long-range acquisition plans included eighty new aircraft over
a seven-year span. Forty would be purchase obligations and forty purchase options from
Airbus or Boeing. A purchase agreement was reached as early as December 2004 and
delivery would commence in January 2006.
The immediate next step for the Pan-Asian network saw AirAsia implementing its
joint venture business model in Indonesia. A preliminary agreement to acquire a 49 per
cent share in AWAir, an Indonesian company that suspended services in March 2002,
would allow AirAsia to operate its low-cost carrier model from a hub at Soekarno-Hatta
International Airport in Jakarta. The 49 per cent interest would cost US $2 plus liabilities.
Located at the crossroads of international shipping and air routes, Singapore was a
centre for transportation in South-east Asia. Changi Airport was a regional aviation hub
served by sixty-eight international airlines. A third terminal and a dedicated low-cost
terminal for budget airlines were constructed to expand the airport. Both terminals would
be ready for use by 2006. Although Fernandes believed that only two budget airlines
could survive on the Singaporean soil, he did not by any means give up his ambition to
invade.33 Soon, AirAsia had set up a company in Singapore and applied for a licence
to operate from there.
Fernandes was also involved in similar talks with the state-owned Chinese National
Aviation Corporation, which owned Chinas two largest carriers. A code-sharing agreement
with Air Macau allowed the two airlines to book tickets on each others flights, giving
AirAsia access to Chinas market.34 In addition to this, Fernandes was planning to commence flights between Malaysia and India in 2005, with 70 per cent cheaper fares than
the normal ticket prices on this route.35 He did not plan to fly to all points across India,
but only wanted to cater to the south Indian population in Malaysia.
Southwest Airlines acquired just six aircraft in its first five years of operation, and it
increased its capacity by 16 per cent per year on average. Over-expansion, no less than
fierce competition, killed many promising airlines.36 Analysts already wondered if AirAsia
had drawn enough attention. If AirAsia continued to expand to countries with different
cultures and languages, Fernandes would undoubtedly confront a number of challenges.
32
33
34
35
36
Asia Times Online, 4 December 2003.

Orient Aviation, February 2004.
CNN, 27 April 2004.
The Times of India, 30 July 2003.
Examples of failing airlines were Ciao Fly in Italy, Goodjet in Sweden, and Debonair in France, etc.
AND
DAXUE WANG
How to turn the Pan-Asia plan into a reality and how to maintain AirAsias established
advantages were the foremost thoughts on Fernandess mind. Forcing himself to concentrate he got back to work. Another sleepless night ahead of him!
Exhibit 1
Per Capita GDP and Air Travel in Asia-Pacific Countries (2002)
Per Capita GDP
(in US$)
Country
Australia
Brunei
China
India
Indonesia
Japan
Malaysia
New Zealand
Pakistan
Philippines
Singapore
South Korea
Thailand
Passenger Round trips

(Per Capita)
20,822
18,151
989
487
817
31,407
3,905
14,872
408
975
20,886
10,006
2,060
1.11
1.29
0.04
0.01
0.05
0.55
0.42
1.53
0.02
0.08
3.30
0.42
0.26
Source: S-A-P report.

Exhibit 2
AirAsias Financial Statement1
(1) Balance Sheet (US $000)
As on 31 March
Non-current assets
Property, plant and equipment
Investment
Deferred expenditure
Deferred tax assets
Current assets
Deferred share issue expense
Inventory
Trade and other receivables
Amount owing by related parties
Deposit, bank and cash balances
2000
2001
382
382
0
0
0
6,659
0
696
2,401
0
3,563
As on 30 June
2002
2003
2004
385
385
0
0
0
3,458
1,764
0
1,694
0
10,921
5,276
1,679
1,993
1,974
42,900
41,699
51
1,150
0
12,579
0
728
2,766
0
9,086
10,077
0
513
5,941
0
3,623
21,795
0
577
12,220
181
8,817
49,206
721
1,039
29,986
53
17,407
(Exhibit 2 contd)

(Exhibit 2 contd)
As on 31 March
2000
2001
Current liabilities
Trade and other payables
Hire purchase payables
Current tax liabilities
Amount owing to related parties
Borrowings
12,749
11,106
22
16
1,026
579
Non-current liabilities
Deferred tax liabilities
Hire purchase payables
Loan from related parties
Borrowings
Shareholders Equity
Share capital
Share application monies
Share premium
Accumulated losses
Minority interest
As on 30 June
2002
2003
2004
16,182
14,365
22
19
1,197
579
12,858
12,643
3
22
191
0
19,709
19,654
22
33
0
0
39,643
26,881
34
116
53
12,560
16,881
0
29
16,852
0
24,408
0
7
24,402
0
0
0
0
0
0
92
0
92
0
0
12,900
293
63
0
12,560 (2)
(22,589)
13,703
0
0
(36,292)
0
(27,626)
13,703
0
0
(41,328)
0
678
42,444
0
0
(41,766)
0
12,915
42,444
7,268
0
(36,809)
12
39,547
46,086
0
17,357
(23,896)
0
2000
2001
2002
(15 months)
Revenue
Passenger seat sales
Chartered flight revenue
Other revenue
39,286
10,837
27,854
595
44,144
11,590
31,160
1,394
Cost of Sales
Fuel expenses
Operating lease expenses
Maintenance and overhaul
Staff costs
User charges and station expenses
Others
45,262
9,073
18,131
5,157
2,171
6,128
4,602
Gross Profit
(2) Income Statements (US $000)
Sales and Marketing expenses

Administration expenses
G&A expenses
Staff costs
2003
2004
57,216
23,120
32,416
1,681
86,853
51,543
32,384
2,925
103,339
91,571
6,451
5,317
46,438
10,899
19,173
4,692
2,195
4,913
4,566
54,776
16,837
19,603
3,633
2,796
6,334
5,572
75,918
24,627
20,786
14,704
6,709
5,747
3,346
73,452
27,028
11,261
19,415
12,738
2,521
490
(5,976)
(2,293)
2,441
10,934
29,887
168
753
395
358
108
927
484
443
394
2,088
1,143
945
1,148
6,069
2,356
3,713
2,477
9,040
4,651
4,389
(Exhibit 2 contd)
AND
DAXUE WANG
(Exhibit 2 contd)
2000
2001
2002
(15 months)
677)
149)
539)
36)
380)
81)
989)
309)
3,435
1,201
Operating profits (EBIT)

Finance costs
Loss of associated companies
(7,426)
809)
(3,831)
1,200)
(342)
81)
3,038)
22)
16,136
824
31
Profit before taxation

Taxation
(8,235)
9)
(5,031)
6)
(423)
15)
3,016)
(1,941)
15,282
2,382
Profit after taxation
(8,244)
(5,036)
(438)
4,957)
12,900
2000))
2001)
2002)
(15 months)
2003
2004
(4,931)
(699)
(3,153)
4,001)
7,610)))
(7)
(167)
(1,725)
(5,862)
(37,855) (3)
6,622)
6,388)
(585)
6,802)
37,099(4))
1,685)
5,523)
5,462)
4,940)
6,854)))
1,878)
3,563)
9,086)
3,623)
8,564)))
3,563)
9,086)
3,623)
8,564)
15,418)))
Other operating expenses

Other operating income
2003
2004
(3) Cash Flow Statements (US $000)
Net cash generated from (used in)

operating activities
Net cash generated from investing
activities
Net cash flow generated from
financing activities
Net increase in cash and cash
equivalents
Beginning balance of cash and
cash equivalents
Ending balance of cash and cash
equivalents
Source: Company report.

Notes: 1. The financial statements of the company are for the years ending 31 March 2000 and 31 March
2001, 15-month period ending 30 June 2002, years ending 30 June 2003 and 30 June 2004. Translate
exchange rate at: US $1 = RM 3.8.
2. The maturity period of the non-current borrowing does not exceed two years.
3. Among them, US $26 million were used to buy four airplanes during the year.
4. Among them, US $25 million were from secured bank borrowings. Specifically, US $12.5 million
were drawn from a US $13.2 million (RM 50 million) revolving facility. According to the agreement,
each facility drawn shall be repaid within one month or rolled over for another month but not
exceeding one year after the date of the first drawdown. Another US $12.5 million were from a
term loan facility up to the maximum principal US $13.2 million. The loan shall be paid in one
single repayment on demand by the bank or the earlier of two years from the first drawn or on 5
December 2004. As of 30 June 2004, the company has an aggregate of US $3.5 million of available
credit facilities for the following financial year.

Exhibit 3
Operating Statistics of AirAsia
Flights to and from KLIA and Senai

2000
Passengers carried
271,118
339
RPK (million)(1)
547
ASK (million)(2)
Passenger load factor (%)(3)
62
Average fares (US$)
54
Number of aircraft year end
2
Frequency of scheduled flights
(per week)
N/A
Number of destinations
4
Aircraft utilization
(block hours per day)
9.2
0.054
Revenue per RPK(4) (US$)
Revenue per ASK(5) (US$)
0.033
0.050
Cost per ASK(6) (US$)
1,238
Average stage length (km)(7)
Domestic market share(8)
N/A
Employee number
236
2003
2004
Flights to and
from DMA
(5 months
ending
June 2004)
2001
2002
290,687
363
586
62
53
2
610,738
672
1,018
66
48
3
1,481,097
1,539
2,086
74
39
7
N/A
4
77
6
161
10
301
22
119
10
10.1
0.054
0.033
0.042
1,327
N/A
241
11.2
0.048
0.032
0.034
1,128
10.1%
322
12.5
0.040
0.029
0.029
975
17.1%
648
12.8
0.037
0.029
0.025
967
23.1%
1,382
12.5
0.033
0.025
0.034
798
8.0%
463
2,838,822(9) 380,387
2,771
300
3,592
395
77
77
34
25
13
4

Notes: 1. Revenue Passenger Kilometres = number of paying passengers * number of kilometres the
passengers were flown.
2. Available Seat Kilometres = total number of seats available * number of kilometres the seats
were flown.
3. The number of passengers as a proportion to the number of seats available.
4. Non-scheduled, chartered flight revenue was subtracted from the total revenue for the purpose of
this calculation.
5. Non-scheduled, chartered flight cost was subtracted from the total operating expenses for the
purpose of this calculation.
6. Representing the average number of kilometres flown per flight.
7. The number is for the years ending 31 December 2002 and 2003, and six months ending 30 June
2004, estimated by S-A-P. For Thai AirAsia, it refers to Thailands market share.
8. In the year 2004, 1.5 million passengers were flown within six months, 90.8 per cent were within
Malaysia and 9.2 per cent were on international routes to or from KLIA and Senai.
9. The statistics are for the years ending 31 March 2000 and 31 March 2001, 15-month period ending
30 June 2002, years ending 30 June 2003, 30 June 2004, and 30 June 2005. Translate exchange
rate at US $1 = Baht 39.37 = RM 3.8.
AND
DAXUE WANG
Exhibit 4
Domestic Passenger Movements
(1) At Airports of Malaysia (2002 to June 2004)
AirAsia
Others
Total
AirAsia share
2002
2003
2004
(JanuaryJune)
1,010,582
9,038,363
10,048,945
10.1%
1,780,128
8,655,829
10,435,957
17.1%
1,351,741
4,506,179
5,857,920
23.1%
Source: Malaysia Airport, Senai Airport, and Company report of AirAsia.

(2) At Don Muang International Airport (2004)
Thai AirAsia
Others
Total
Thai AirAsia share
January
February
March
April
May
June
885,348
885,348
0.0%
42,195
759,885
802,080
5.3%
48,822
757,414
806,236
6.1%
60,201
770,109
830,310
7.3%
80,007
666,296
746,303
10.7%
79,991
593,433
673,424
11.9%
Source: DMA and Company report of AirAsia.

Exhibit 5
AirAsias Route Map (as of August 2004)

Exhibit 6
Average Annual Passenger Growth Rate in South-east Asia
19852002
Domestic
South-east Asia
Malaysia
Thailand
Indonesia
(1)
200308 (forecasted)
International
7.5%
11.2%
10.6%
9.6%
(2)
Domestic
9.3%
8.0%
7.9%
7.6%
International
8.6%
6.6%
10.1%
13.2%
9.9%
9.2%
7.8%
10.5%
Source: Boeing Company reports and S-A-P forecast.

Notes: 1. For South-east Asia: Domestic means the region.
2. To and from China, India and other South-east Asian countries only.
Exhibit 7
Operating Statistics of Major Airlines in South-east Asia (Financial Year 200304) 1
MAS
Passengers carried
15,370,000
(domestic)
(8,299,800)
ASK (million)
55,692
RPK (million)
37,659
Passenger load factor
67.60%
Staff number
18,712
Average on-time
performance
91.78%
Fleet
109
Aircraft utilization
(block hours per day)
9.6
13.8
Average age of fleet(2)
Destinations: Domestic
32
International
82
THAI
(JanJune
2004)
SIA
Garuda
(2003)
8,892,000
13,278,000
7,229,072
(N/A) (1,356,000(3)) (5,516,586)
34,930
88,253
N/A
24,803
64,685.2
N/A
70%
73.3%
69.6%
25,447
14,010
9,000
AirAsia
Thai AirAsia
(FebJune
2004)
2,838,822
(2,710,022)
3,592
2,771
77%
1,382
380,387
(329,796)
395
300
77%
436
N/A
83
N/A
95
84.75%
67
86%
13
N/A
4
N/A
N/A
14
63
10.6
5.6
1
60
N/A
N/A
30
24
12.8
16
14
8
12.5
N/A
7
3

Notes: 1. AirAsias fiscal year ending 30 June, MAS and SIA fiscal year ending 31 March, THAI fiscal year
ending 30 September, and Garuda fiscal year ending 31 December each year.
2. Industry average age of fleet is 12.5 years.
3. For Singapore, domestic routes refer to East Asia.
AND
DAXUE WANG
Exhibit 8
Income Statement of Major Airlines in South-east Asia (US $000, Financial Year 200304)
MAS
Total revenue
1,967,381)
(Asian routes)
(356,895)
Total cost
1,932,940)
Fuel and oil
535,622)
Staff costs
395,939)
Aircraft operating costs
347,702)
Depreciation
42,264)
Maintenance and overhaul costs
204,649)
Landing, parking costs and other airport charges 412,227)
Sales commission and other marketing costs
194,329)
In-flight meals and other passenger costs
N/A)
Operating profits
34,441)
Profit before taxation
154,555)
Profit after taxation
152,422)
THAI
1,872,096)
(1,076,937)
1,619,329)
482,091(1)
86,622)
148,882)
239,421)
273,737)
152,845)
219,086)
252,766)
156,974)
113,838)
SIA
4,191,020)
(1,424,140)
4,103,440)
825,481)
715,160)
547,289)
541,224)
443,265)
238,426)
275,860)
264,140)
87,580)
191,487)
250,321(2)
Garuda
928,057
(N/A)
921,659
6,398
26,493
299
Source: Company report of each airline.

Notes: 1. MAS and SIAs fiscal year ended on 31 March 2004; Garudas fiscal year ended on 31 December
2003; THAIs data is for half a year from 1 January 2004. Translate exchange rate at US $1 = RM
3.8 = SGD 1.715 = Thai Baht 39.37 = IDR (Indonesian Rupiah) 9,430 as on 30 June 2004.
1. Sum of fuel costs and staff costs.
2. After adjustment for reduction in Singapore statutory tax rate.
Exhibit 9
Route Map of Major Airlines in South-east Asia
(1) Malaysia Airlines (MAS)
Domestic Routes
Asian Routes

(2) Thai Airways International (THAI)
Domestic Routes
International Routes
(3) Singapore Airlines (SIA)
North & South-east Asia Routes
AND
DAXUE WANG
(4) Garuda
Domestic Routes
Exhibit 10
Map of South-east Asia and Asia
(a) South-east Asia
( b) Asia

Keywords: Capacity, Process analysis, Textiles, Spinning

Discussion Questions
Should Ayesha Woollen Mills produce 48-count yarn? Why?
Should Ayesha Woollen Mills purchase another spinning frame? If yes, then what
should be its ring diameter?
Would a change in the product-mix affect Ayesha Woollen Mills inventory carrying
costs?
In Naumans place how would you present your case (i) to your father, and (ii) to
Idrees?
NOW EVERYONE CAN FLY: AIRASIA

Abstract: The emergence of low-cost airlines in Asia led to increasingly intense competition in the aviation industry. By forming joint ventures across Asia, AirAsia, a Malaysian
airline, is trying to gain advantages with its Pan-Asia plan. Such a plan would no doubt
expose the low-cost carrier to the risk of over-expansion. This case study explores AirAsias
business model, competitive advantages, and expansion strategy. It details how AirAsia
transformed itself into a successful low-cost airline through its well-defined business
model.
Keywords: AirAsia, Strategy, Low-cost airlines, Business model, Competitive advantages
Discussion Questions
State your views about the airlines industry. What is the character of this industry
in Asia? How does it affect the attractiveness of the industry?
What are the differences between the business model of AirAsia and that of traditional airlines?
What are the core competencies and competitive advantages of AirAsia?
How do you evaluate AirAsias expansion plan? What will be the effect of this expansion on its core competencies?
SUMMARIES
AND
DISCUSSION QUESTIONS 135
Downloaded from http://ajc.sagepub.com by lukas sapto aji on September 25, 2008

Now Everyone Can Fly Air Asia CASE Discussion

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Now Everyone Can Fly Air Asia CASE Discussion

Uploaded by

Copyright:

Available Formats

Asian Journal of Management Cases

Now Everyone Can Fly: Air Asia

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

ASIAN JOURNAL OF MANAGEMENT CASES, 2(2), 2005

NOW EVERYONE CAN FLY: AIRASIA

Barrelling through longstanding barriers to competition, Tony Fernandes, a former

The New Business Model

232 JOAN ENRIC RICART

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

AirAsia was the only airline with a hub at Senai.

NOW EVERYONE CAN FLY: AIRASIA 233

MANAGEMENT OF REVENUE, COST, AND EFFICIENCY

234 JOAN ENRIC RICART

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

NOW EVERYONE CAN FLY: AIRASIA 235

Business Time, NST, 22 December 2003.

236 JOAN ENRIC RICART

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

FERNANDES: BATTLING WITH RED TAPE

The Case of Malaysia

The Star, 15 August 2003.

NOW EVERYONE CAN FLY: AIRASIA 237

The Case of Singapore

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

The Case of Thailand

RESTRICTIVE BILATERAL AVIATION AGREEMENTS

The Edge, 8 December 2003.

NOW EVERYONE CAN FLY: AIRASIA 239

Regulatory Liberalization in theThai Aviation Industry

240 JOAN ENRIC RICART

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

The Much Awaited Open Skies between Singapore and Malaysia

THE EMERGENCE OF BUDGET AIRLINES IN THE REGION

Time Asia Magazine, 12 July 2004.

NOW EVERYONE CAN FLY: AIRASIA 241

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

THE COMPETITIVE THREAT

Asian Wall Street Journal, 10 December 2003.

NOW EVERYONE CAN FLY: AIRASIA 243

Challenges from Budget Airlines

Bangkok Post, 13 November 2003.

244 JOAN ENRIC RICART

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

THE FUTURE: A PAN-ASIA VISION?

Report of Xeno-Thai Law & Consulting Ltd, 4 June 2004.

NOW EVERYONE CAN FLY: AIRASIA 245

Asia Times Online, 4 December 2003.

246 JOAN ENRIC RICART

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

Passenger Round trips

Source: S-A-P report.

NOW EVERYONE CAN FLY: AIRASIA 247

(2) Income Statements (US $000)

Sales and Marketing expenses

248 JOAN ENRIC RICART

Downloaded from http://ajc.sagepub.com by lukas sapto aji on October 10, 2008

Operating profits (EBIT)

Profit before taxation

Profit after taxation

Other operating expenses

(3) Cash Flow Statements (US $000)

Net cash generated from (used in)

Source: Company report.

NOW EVERYONE CAN FLY: AIRASIA 249