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Asian Journal of Management Cases

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Now Everyone Can Fly: Air Asia
Joan Enric Ricart and Daxue Wang
Asian Journal of Management Cases 2005; 2; 231
DOI: 10.1177/097282010500200206
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http://ajc.sagepub.com/cgi/content/abstract/2/2/231

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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 AirAsia’s 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 Asia’s stodgy state-dominated airline
industry upside down. Over the last three years, he has built the no-frills AirAsia into
the region’s 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, Europe’s 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.
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recognized as Asia’s first ‘low-cost. the refreshed AirAsia targeted millions of Asians. Three new destinations had also been added and the fleet expanded to five (see Exhibit 2 for AirAsia’s financial performance).e. respectively. Cost cutting included sticking to a single type of aircraft.25 per cent of the ownership of AirAsia. in 2002. three days before the attack on the Twin Towers in the United States on September 11. BACKGROUND Beginning in 1996 with fares slightly cheaper than Malaysia Airlines (MAS). and jetways into the terminals were eliminated. Ryanair’s former Director of Operations. AirAsia structured itself as a low fare and low cost airline. 232 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc. The New Business Model In 2001.26) and assuming RM 40 million (US $10. more than 600. 2008 . On average.com by lukas sapto aji on October 10. Different from other Asian carriers that had long catered to the well-to-do business traveller. Connor McCarthy. The figures in Indonesia and Thailand were 1 per cent and 3 per cent. and ensuring frequent flights. AirAsia’s fares were 50 per cent lower than those offered by Malaysia Airlines. a third Boeing 737-300 was added to the fleet. AirAsia was planning to break through with its Pan-Asia plan. In January 2002. Setting fares on some routes as low as US $10. only 602. Fernandes was trying to figure out the feasibility of this Pan-Asia plan whilst simultaneously maintaining AirAsia’s competitive edge. flew in 2001. 1 According to A.000 Malaysians. This low-fare strategy worked. AirAsia was officially acquired by Tune Air. McCarthy.000 for the year before. served as adviser to Fernandes.sagepub. At the end of 2001. reducing the turnaround time on the ground. AirAsia was also operating a pair of leased 737-300s that flew between Kuala Lumpur and four other destinations. 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). i. By paying a nominal RM 1 (US $0. 6 per cent of the adult population.5 million) in debt. Tune Air took over 99. and three Malaysian investors.000 customers were attracted to AirAsia compared to 290. Business class. using online ticketing to cut out travel agent commission. frequentflier programmes. Nielsen. Emulating the highly successful Ryanair. AirAsia reported losses during its early years of operation. charging for snacks and drinks. in addition to providing charter services. a holding company founded by Tony Fernandes. AirAsia commenced its flights with the tag line ‘Now everyone can fly’. no-frills carrier’.C. a mission impossible asserted by many aviation experts.

and another Thai investor held the final 1 per cent for majority Thai control in compliance with Thai laws. AirAsia served twenty-eight destinations around the region. thereby giving it access to approximately 500 million people. a Bangkok-based company founded by the family of Thai Prime Minister Thaksin. The average age of the fleet was about sixteen years. AirAsia sold 26 per cent of the airline for US $26 million. This deal gave AirAsia a 49 per cent stake in Thai AirAsia along with management control. On 3 December 2003. Four of these airplanes were bought in the financial year 2004 while the others were leased. taking advantage of the financial market. Thaksin had initially asked Singapore International Airlines (SIA) to work with Thai Airways International (THAI) to set up a budget carrier. Eventually. which would value the airline at about US $800 million. This gave it capital to expand its fleet and flight destinations. When Singapore Airlines declined. He sought an alliance with Shin Corporation. its first regional flight commenced from Kuala Lumpur to Phuket. Another US $200 million were expected to be raised in October 2004 through an IPO. the airline carried more than 380. 2 Five days later. AirAsia flew fourteen airplanes from Kuala Lumpur International Airport and Senai International Airport. It maintained a strong load factor at about 75 per cent. which controlled Thailand’s sole satellite operator. the popularity of Thai AirAsia’s low fares was evident. terrorism. With nearly 25 per cent of the domestic market. 2 AirAsia was the only airline with a hub at Senai. It offered a springboard into the lucrative southern part of mainland China. and epidemic disease. Shin took a 50 per cent stake in Thai AirAsia. a new route from Bangkok to Macau marked the airline’s first step outside the South-east Asian market.Unprecedented Growth 2003 was fraught with calamities of war. In July 2004.3 Again. AirAsia began flights from its second hub at Senai International Airport.5-hour flight time from its hubs. The region targeted by AirAsia in South-east Asia was within a 3.000 passengers in just five months since February 2004 (see Exhibit 3 for AirAsia’s operating statistics and Exhibit 4 for the domestic passenger movement at Don Muang International Airport in Bangkok [DMA] between January and June 2004). AirAsia entered and in November 2003 they formed a new budget airline called Thai AirAsia. yet AirAsia did not stop expanding its fleet and increasing routes.com by lukas sapto aji on October 10. In 2003.sagepub. Fernandes worked aggressively to move into the Thai market. 3 NOW EVERYONE CAN FLY: AIRASIA 233 Downloaded from http://ajc. Thailand. through over 400 domestic and international weekly flights (see Exhibit 5 for AirAsia’s route map). and four from Don Muang International Airport in Bangkok. 2008 .

2008 . AirAsia offered passengers savings depending on how far in advance a particular booking was made and the level of demand of the seats. only 5 per cent of the total tickets were sold on the Internet. He once suggested that pilots avoid using their brakes as long as possible upon landing. It was the first-of-its-kind in the world. no system failure was experienced. 234 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc. a revenue management system to optimize passenger seat sales. In the following month. The highest fare seats were sold close to the day of travel when time sensitivity outweighed price sensitivity. OpenSkies was used by many of the leading low-cost carriers. At domestic airports. Boeing Sales Director for South-east Asia. AirAsia experienced several system failures due to the high volume of traffic on its website. AirAsia ranked on top of Boeing’s list of both indicators amongst players in the industry. the best measures for an efficient fleet operation were high daily utilization coupled with high dispatch reliability. The number increased to 50 per cent in July 2004. AirAsia introduced online sales in April 2002. Using a multiple fare structure comprising twelve tiers of fares per route. Such seats were sold at approximately 80 per cent of the published fares offered by full-service airlines. a primary server with a higher capacity and a back-up server were installed. and JetBlue. Airlines were usually burdened with high fixed costs associated with the aircraft and airport services. COST. the fastest in the region and about half that of other major airlines.sagepub. For example. According to Jim Belz. lower rates of long-term maintenance contracts. Fernandes often supervised operations from AirAsia’s headquarters at the Kuala Lumpur International Airport.4 In August 2003. and lower airport fees. At international airports. the low-cost structure allowed it to offer fares that were on average lower than its competitors on the same routes. these services were outsourced to third parties. enabling the airplane to hold 148 passengers instead of the usual 132. the airline provided its own ground handling and ground services. In the following month. in order to save fuel. Standard business class seats were replaced with economy class. SMS (Short Message Service) booking was introduced. While AirAsia sought to maximize its revenue.com by lukas sapto aji on October 10. the average monthly contractual lease charge per aircraft decreased by more than 60 per cent from the year 2001 to 2004. including Ryanair.MANAGEMENT OF REVENUE. Following that change. AirAsia flew fuel-efficient Boeing 737-300s and practised a quick turnaround of twentyfive minutes. Virgin Blue. AND EFFICIENCY AirAsia used Navitaire’s OpenSkies. AirAsia negotiated lower lease charges for its aircraft. enabling passengers to book via mobile phones. Revenues from these ‘last minute’ fares helped maintain the company’s revenue from passenger seat sales. Within the 4 In July 2003.

AirAsia signed a number of contracts. 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. On several occasions. SMS. Tamil. Passengers could book through AirAsia’s nationwide call centre in Petaling Jaya. To support the growing fleet. AirAsia was listed in the CIO Top 100 Honouree. thereby further lowering its expenses. 5 In total. 16 July 2004. This was followed by a ten-year deal of US $63. which was fully equipped with 180 telephone lines. thereby saving the commission fees paid to the travel agents. 5 AirAsia offered a multilingual website in six languages: English.046 and Southwest’s US $0. or via the Internet. and a US $3 million aircraft engine and aircraft frame parts leasing agreement with VolvoAero later in the same month. 8 December 2003.com by lukas sapto aji on October 10. 8 The Edge.081.’ The company’s engineering team obtained JAR OPS1 approval in just nine months.025 per ASK (Available Seat Kilometres).9 The staff.5 per cent of the total costs for traditional airlines.000 tickets were sold through this channel. High safety and maintenance standards allowed the company to procure favourable insurance rates. Fernandes attributed the cost performance of the airline to the staff’s productivity and work ethic. there was an equally strong focus on safety and solving defects in AirAsia by committing to ‘Safety First’. about 85 per cent of the sales were made directly.sagepub. NOW EVERYONE CAN FLY: AIRASIA 235 Downloaded from http://ajc.6 AirAsia also used a unique VIR (Interactive Voice Recognition) system which offered real-time information on its flight schedules and fares. and Bahasa Indonesia.7 compared to Ryanair’s US $0.subsequent four months. instead of the two years usually required by other airlines. 2008 . 7 ASK is defined by total number of seats available ∗ number of kilometres the seats have flown. some 4. it awarded a nine-year agreement to GE Engine Services. including the executives and sometimes Fernandes himself. All our staff discusses ways of cutting costs. Chinese. recognizing its value improvement through strategic and creative use of technology. In March 2004. Thai.5 million with ST Aero for components management in July 2004. 6 Sales costs usually accounted for 17. a contract valued at more than US $50 million. While there was an aggressive focus on cost savings. and other alternatives. Innovative strategies like these positioned AirAsia as the airline with the lowest operating cost in the world: US $0. and 43 per cent of these selling costs were the commission fees paid to the travel agents. Bahasa Malaysia. Financial Times. including a US $20 million engine MRO agreement with GE Engine Services in July 2002. ‘Our pilots have cut fuel consumption by nearly 20 per cent and doubled the number of landings that we get from the tires. did everything from checking-in passengers at the gate to cleaning up planes.8 In May 2004.

It was not surprising to walk into Fernandes’s office and find him deep at work with rock music blasting away. 2008 . ‘I am very close to our staff. there was a rip-roaring session when passengers were asked to first guess the age of the aircraft and later that of the pilot. several guests were called up front to make safety announcements. said Fernandes. usually a cap or a T-shirt. He also tried to provide his employees with opportunities to progress within the company. Nineteen internal employees were recruited for this programme. unglamorous office space at Kuala Lumpur International Airport. even for the pilots. personnel from marketing. Fernandes operated out of a modest.’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. The dress code was smart casuals. it’s what we are. there is much CARING and FUN amidst people of PASSION and INTEGRITY who keep a keen eye on SAFETY at all times. and nobody talks to each other. a cadet pilot training programme was introduced. NST. April 2004. and fun for its ‘guests’. The staff freely mingled with one another. cabin crew. pilots who think they are demigods. ‘If you run an airline.’ Fernandes reasoned. AirAsia emphasized customer service. irrespective of designation and seniority. convenient. The ability to have fun was set up as one of AirAsia’s recruiting criteria. ‘It is a casual environment that we have here. 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.THE CULTURE The company values were: At AirAsia. I think too many senior executives lose track of their staff and business by being too distant from where the real action is. 236 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc. It’s not staged.com by lukas sapto aji on October 10. In late 2003. You have engineers who think they are one thing.sagepub. You’ve got to be close to your business. a former accountant. finance and others’. Airline Business. you have to be at the airport and this is one of the main reasons for our success. 22 December 2003. Humour was used to put passengers at ease. see why there are flight delays and what’s happening…. He had no intention of relocating AirAsia’s headquarters to the office towers in Kuala Lumpur. former check-in assistants. engineers. Sometimes. I think we are the only airline where everyone shares the same office —pilots.10 Fernandes constantly interacted with customers and employees. 10 11 Business Time. You’ve got to be able to talk to your guests. and the winner received a little gift. a special term used by AirAsia to describe its passengers. striving to make travelling easy. I find that airlines are so compartmentalized. and a former baggage handler were given pilot training. For example. AirAsia pilots and flight attendants were known for their self-deprecating humour. during one of the flights to East Malaysia.

referring to Malaysia Airlines as ‘statesponsored economic terrorism’. Fernandes cashed in his stock options.12 Jane Chen.The Women’s Aid Organization applauded AirAsia for its progressive policy. Malaysia Airlines began slashing fares by 50 per cent on 14. Business Week. to extend and equalize the age of retirement for its cabin crew to fiftyfive years. ‘I was also tired of turning unknowns into stars and then having to put up with obnoxious behaviour. The public embraced the new budget carrier immediately. In early 2001. In a revealing comment he added. AirAsia aimed to eliminate gender discrimination that existed in other national companies such as Malaysia Airlines. In response. 13 NOW EVERYONE CAN FLY: AIRASIA 237 Downloaded from http://ajc. after consulting with McCarthy. when he caught the airline bug. a forty-fiveyear-old mother whose former job was First Officer at AirAsia. 12 July 2004. 12 The Star. He got contracts to fly Muslim pilgrims to Mecca and to ferry Malaysian soldiers between military postings. He also attacked the government in media interviews. The country’s chief airline regulator. implemented in 2003. FERNANDES: BATTLING WITH RED TAPE Identified by Business Week as one of the ‘25 Leaders at the Forefront of Change in Asia’.com by lukas sapto aji on October 10. including Ling Liong Sik who was then the transportation minister. he pursued a career in the entertainment industry. In August 2002. 15 August 2003. 2008 . Through this policy. He explained that he quit the music business over his frustration with copyright piracy.8 billion debt. who had the authority to approve the routes. was also a member of the Malaysia Airlines board. and set up Tune Air. 14 Air Transport World. a strategy that people felt was aimed at killing off AirAsia. Fernandes improvised actively for the fledgling airline. became the first Malaysian woman to fly a commercial aircraft in September 2003. 1 May 2004. Planes do what you want!’14 The Case of Malaysia After taking over AirAsia.13 Fernandes’s path into the airline business was a most unlikely one. Malaysia Airlines first accused AirAsia of robbing its best domestic routes and then the Malaysian government banlked at granting these routes. mortgaged his house. Graduating in accountancy from the UK in 1987. a perennial problem in Asia.000 seats a week. shortly after the Malaysian government assumed its US $1. serving as Vice-President Asia for Time Warner’s music business.sagepub. Fernandes wrote a blistering letter to Prime Minister Mahathir. for new domestic routes. He successfully lobbied government officials. who had just left Ryanair. raising alarm at the staterun Malaysia Airlines.

low-priced flights are still legal’. She’s twice the fun and half the price’. For Fernandes. like parents dropping off or picking 238 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc. skimming Singapore traffic for the first time. Bangkok.’ Fernandes responded to the snub with a newspaper ad campaign that poked fun at the government’s tight regulation. Soon afterwards. Asia’s sixth busiest hub after Tokyo Haneda. the government ordered Malaysia Airlines to end the steep fare cuts.’ Fernandes asked. Although it took fifteen more minutes from downtown Singapore to Senai than to Changi Airport. AirAsia began flying between Senai International Airport and Kuala Lumpur International Airport.sagepub. Failing to get the sanction. Taking a dig at Singapore International Airlines’ kebaya-clad Singapore Girl. but also a symbol that could put AirAsia in league with no-frills giants like Ryanair. the government impounded the bus with the excuse that. before flying between the two countries. Tokyo Narita. When Fernandes hired a separate company to offer rides to the passengers. in December 2003 AirAsia set up its own hub at Senai at a privately owned airport about an hour’s drive from Singapore. the government rejected their proposal. ‘Such services are not ideal. Close to the end of 2003. ‘How can we compete with an airline that doesn’t have to worry about its finances. and Beijing. ‘We didn’t want to give any reason for the people to become angry with us. with the result that reciprocal landing rights were given only to Malaysia Airlines and Singapore International Airlines. ‘A lot of people are being dropped off at the Senai airport. A key target was Singapore Changi Airport. The Singaporean government took other steps to block AirAsia.’ Ling later conceded. Singapore was not only a hub which allowed him to carry passengers.com by lukas sapto aji on October 10. no jaywalking. as they are inconvenient for both Singaporeans and Malaysians. Enthusiastic Singaporeans found their own way to Senai. The Case of Singapore When trying to expand beyond Malaysia and into regional markets. AirAsia served six destinations out of Senai. When AirAsia asked for permission to provide bus services between Singapore and Senai. and cordial relations with politicians were considered vital to business success. Fernandes even crashed an exclusive cocktail party in Kuala Lumpur and confronted the party’s guest of honour—Ling Liong Sik. 2008 . the 50 per cent price reduction was a strong pull for travellers. One ad read: ‘No chewing gum. and about 40 per cent of the passengers were from Singapore. The bilateral agreement between Malaysia and Singapore stated that all carriers must be granted dual government approval. AirAsia faced fresh obstacles. He accused the government-supported carrier of trying to drive AirAsia out of business. and no shuttles to Senai. AirAsia’s ads went: ‘There’s a new girl in town. Hong Kong.a daring move in a country where criticism of the government was muted. Fortunately.

If we don’t get it from the Malaysian side. officials of the Malaysian Ministry of Transport did not respond for three months. the region’s foremost aviation research institution. ‘The Land and Transport Authority of Singapore cannot stop Singaporeans from coming. Chan Kong Choy. ‘Fernandes has had remarkable influence in shaping government and airline thinking in South-east Asia and beyond. 8 December 2003. ‘I do sense that the government is not used to having two national airlines. by then Malaysia had a new transportation minister. Indonesia.com by lukas sapto aji on October 10.’ said Peter Harbison. It’s still very protective….up their kids. NOW EVERYONE CAN FLY: AIRASIA 239 Downloaded from http://ajc. Chan intervened. Fernandes won the ‘International Herald Tribune Visionaries and Leaders 2003’ award and ‘Malaysia’s CEO of the Year 2003’ from American Express Corporation Services and Business Times. In recognition of his achievements. 2008 . Managing Director of the Centre for Asia Pacific Aviation. and the liberalization of the industry. 8 December 2003. who was part of a growing cadre of politicians who admired the entrepreneurial aplomb. They then approved just one flight per day to each destination. driven in large part by economic growth. increasing urbanization in the region. and ‘Developing Airline of the Year 2003’ by Airfinance Journal.’ said Fernandes proudly. despite the fact that AirAsia had already been given second national airline status.’16 Fortunately. and Singapore. we could now just get it from the Thai side. Before Fernandes arrived on the scene. But I don’t believe that’s the right way. Fernandes’s lobbying pushed Mahathir to raise the idea of such an agreement with the leaders of neighbouring Thailand. We are a Malaysian airline and we should get it in our home territory. countries in the region seldom had any kind of open-skies agreement. Regional passenger activity between 1985 and 2002 increased at an average annual rate 15 16 The Edge.sagepub. AirAsia was honoured as the ‘Asia Pacific Airline of the year 2003’ by the Centre for Asia Pacific Aviation. The Edge. RESTRICTIVE BILATERAL AVIATION AGREEMENTS The South-east Asian aviation industry grew rapidly. When bureaucrats delayed processing AirAsia’s applications for a second flight to Bangkok and one to Jakarta. In mid-2003. these nations granted landing rights to AirAsia and other budget carriers.’15 The Case of Thailand When AirAsia applied to fly from Kuala Lumpur to Bangkok and Phuket in August 2003. As a result of this.

As opposed to the US aviation industry. flight and passenger numbers. Private Thai airlines were permitted to operate on all domestic routes by September 2000 and certain international routes by September 2001. the regulations of international routes in Asia were governed by a series of bilateral agreements and remained restrictive. Australia. and allowed airlines to exercise their Fifth Freedom Rights between Thailand and India. The S-A-P Group is a San Francisco-based consulting firm that provides advisory services to airports worldwide.sagepub. Regulatory Liberalization in theThai Aviation Industry Since 1996. On different occasions. intra-regional passenger volumes grew at 8.2 per cent for its international routes and 6. compared with the world average of 4. This trend was expected to continue through to 2008. Korea.6 per cent per year from 2003 onwards.5 per cent. Eight different freedoms were generally considered since the 1944 Chicago Convention. Europe became a single aviation market with few barriers to adding destinations and flight frequencies. S-A-P report. Other countries wishing to increase connectivity with India would receive similar rights. while the growth rate for Malaysia was estimated at 9. China. Sweden.com/freedom. and then fly on to another country. Thailand entered an ‘open skies’ agreement with India in October 2003 and with China in January 2004. Finland.6 per cent for its domestic routes18 (see Exhibit 6).com by lukas sapto aji on October 10. This agreement lifted restrictions on airlines. Kenya. 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.19 Post deregulation. Some of the optimism for rapid growth in Asian aviation was a result of China and India’s continued economic expansion and liberalization of travel policies for their citizens. For details: http://www. and the Slovak Republic.html. 2008 .17 According to S-A-P.of 7. 20 Fifth Freedom Right: The freedom that enabled an airline to carry passengers to one country. India also expressed a commitment to grant reciprocal air rights to designated airlines from nine countries. 23 July 2004. according to which restrictions that capped the number of inter-capital flights would be lifted by 2008. 19 The nine countries included Austria.20 17 Boeing Report. As part of a move towards an ‘open skies’ framework by 2015. respectively. liberalization of the air industry in Thailand had accelerated after early deregulation efforts in 1988. ASEAN countries reached an informal agreement. Kyrgyzstan. 18 240 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc.4 per cent.thaitechnics. and Thailand and China. The United States was its own vast domestic market.

IHT. 12 July 2004. In July 2004. with a price of about US $184 for a round-trip ticket. For example. However. 19 July 2004. There were signs that this situation might be on the point of changing. and Jakarta. they also added that the ‘open sky’ agreement could only gradually materialize by 2008. and 380 between Singapore and Bangkok. A bilateral agreement gave Malaysia Airlines and Singapore Airlines. David Bonderman. a flock of imitators scrambled to copy AirAsia’s formula.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. Singapore International Airlines and Temasek. 2008 .9 million passengers travelled this route between April 2002 and March 2003. 1.21 Malaysia Airlines said that it was staying focused on its core business and felt no need to set up a budget airline.com by lukas sapto aji on October 10. there were 188 flights between Singapore and Hong Kong. but it would review that policy if market conditions made it necessary. It began operations in May 2004 with two 180-seat Airbus A320s to serve Hong Kong. per week. THE EMERGENCE OF BUDGET AIRLINES IN THE REGION From ValuAir in Singapore to Nok Air in Thailand.22 Singapore A former Singapore Airlines executive set up ValuAir in June 2003. there were thirteen budget carriers operating or due to launch later in the year. According to the Association of Asia Pacific Airlines. In July 2004. Destinations within a five-hour radius from Singapore were its focus. set up Tiger Airways in a joint venture with the US airline financier and the founder of Ryanair.The Much Awaited ‘Open Skies’ between Singapore and Malaysia The Kuala Lumpur–Singapore route was considered to be Asia’s fourth-busiest and most protected. 22 NOW EVERYONE CAN FLY: AIRASIA 241 Downloaded from http://ajc. 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. 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. Limited competition resulted in a decline in the number of flights on this route as opposed to other routes. Bangkok. the investment arm of the Singapore government.sagepub. virtual monopoly over flights between Kuala Lumpur and Singapore. They operated 154 out of the 184 flights per week.

although only Thai AirAsia had been granted scheduled daily flight rights under the agreement of ‘one carrier per country’. and Udon Thani. expressed an interest in setting up budget carrier operations in Singapore. Virgin Blue had 242 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc. the upmarket low-cost US carrier. and Hat Yai. bringing Thailand. Hong Kong. Hat Yai.com by lukas sapto aji on October 10. One-Two-Go was established by Orient Thai in December 2003 after AirAsia ‘invaded’ the Thai market. and Madras within reach. One-Two-Go offered ‘One price on every seat and every flight’. The company received two Airbus A320s and expected to get another two by the end of 2004. flying to Chiang Mai. As for the route from Bangkok to Macau. Indonesia Lion Air. If Thailand and Macau authorities approved a proposed open sky agreement. had fifty domestic routes and certain destinations to and from the Asia Pacific region. it had a fleet of eight Boeing 747s and four Boeing 757s offering services from Bangkok to Chiang Mai.year. In contrast to AirAsia’s strategy. Nok Air became the third no-frills carrier in Thailand. following Thai AirAsia and One-Two-Go. Virgin Blue was also eyeing the region. One-Two-Go received permission to open a twice per week charter service. it was providing services from Bangkok to Singapore and Kuala Lumpur. Flights from Bangkok to Surat Thani and other destinations were also planned. with its headquarters in Jakarta. and cheap fares. Like Jet Blue. By 2004. OneTwo-Go would increase operations to four flights per week. Phuket and Kon Kean were added to the list in the fourth quarter of 2004. Australia Launched in September 2000 and later voted as the world’s best low-cost carrier by Aviation Magazine. timely departures. One-Two-Go was also flying between Macau and Phuket on a charter basis. Nok Air started with two 737-400s (149 seats). Phuket. which promoted differential pricing. Lion Air had a fleet of twenty-four aircraft comprising eighteen MD80 series and five DHC-8-301 feeder aircraft. By August 2004. By 2004. Four other airlines. Additionally. Overseas. 2008 . Udon Thani.sagepub. Four more were planned for 2005 and 2006. Thailand Emerging in July 2004. it made money by running a tight ship and earning customer loyalty through quality. including personal televisions in economy class. It offered services with frills. Founded by THAI. Chiang Rai. including Australian carrier Qantas.

and Singapore International Airlines—accounted for approximately half of the total seats for regional destinations (see Exhibits 7. They were resumed later on a limited number of tickets. 24 25 Asian Wall Street Journal. and with Garuda and Lion Air for its Indonesian destinations.com by lukas sapto aji on October 10. Anthony Ryan. Malaysian Hubs AirAsia’s largest competitor for its domestic flights at Kuala Lumpur International Airport was Malaysia Airlines. AirAsia had to compete mainly with Malaysia Airlines and THAI for its Thailand destinations. between 2002 and 2004. and route map of these airlines).24 Robert Martin.captured 30 per cent of Australia’s domestic market. Malaysia Airlines offered ‘SuperSaver fares’ on almost all of its routes within Malaysia. NOW EVERYONE CAN FLY: AIRASIA 243 Downloaded from http://ajc. foresaw that this niche would claim 25 per cent of the market within five years. Garuda. while nonlocal carriers such as European airlines only competed on a small number of routes. Air Deccan in India and Cebu Pacific Air in the Philippines were good examples. 2008 . the airline generated US $920 million revenue in the financial year ending 31 March 2004. Malaysia Airlines provided multi-class scheduled services to a broad network of more than 100 domestic and international destinations. These discounted fares were 50 per cent of the domestic economy class fares. Malaysia did not have any antitrust laws that prohibited monopoly or predatory pricing. The competition within the intra-regional routes was primarily between these flagship airlines and other local airlines. 10 per cent of the Asian air traffic would comprise budget carriers.sagepub. Asia Times Online. The number of budget airlines was increasing rapidly. it planned to complete Asia’s first dedicated terminal for budget carriers by 2006.25 The push for China and India to set up budget airlines was fuelled by market demand and profitability. Managing Director of Singapore Aircraft Leasing Enterprise. With over 10 million passengers. fretted over the potential threat that discount carriers posed to state-controlled Singapore Airlines. THE COMPETITIVE THREAT Four full-service carriers in South-east Asia—Malaysia Airlines. 10 December 2003. 8 and 9 for the operating statistics. founder of Ryanair. Its parent airline Qantas planned to bring out a budget airline called Jetstar by the end of 2004. THAI. On three occasions. Even as Singapore. Internationally. financial performance. predicted that within ten years. 4 December 2003.

By June 2004. One-Two-Go sold a Baht 999 (US $25. In addition to this. as well as in South China—Hainan and Kunming. Managing Director of One-Two-Go.27 But Udom had already wreacked revenge by purchasing as many of the cheapest tickets on AirAsia flights as he could. International competition pitted Thai AirAsia against Orient Thai Airways and Singapore Airlines. to slash the fare on this service to 30 per cent less than planned. In Asia.28 By June 2004. to keep the low-price tickets out of the hands of potential AirAsia customers. These fare wars forced Udom.sagepub. budget carrier rivalry was also turning lethal. often spending more than US $3. THAI welcomed the Year of the Monkey (Chinese New Year) by 40% fare reduction on that route. In February 2004. thus resulting in revenue losses. a day after Thai AirAsia announced its ‘less than Baht 1. Yet Thai AirAsia maintained a load factor of 70 per cent on this route. Hanoi and Yangoon. The first sign was Ryanair’s winter promotion of one million seats for 99p in July 2004.000 (US $25. 13 November 2003.com by lukas sapto aji on October 10.26 For example. Annually some eighty airlines operated 160.000 flights that hauled 30 million passengers and 700.40)’ deal for a Bangkok to Chang Mai flight.Thailand Hub Don Muang International Airport was the busiest airport in Thailand. the growing low-cost airline sector triggered survival battles amongst its top fifty carriers. 12 July 2004. Fostering ill will between One-Two-Go and AirAsia was a small price to pay. Thai AirAsia applied for landing rights to Phnom Penh.’ said Udom. From day one. Based on the latest ‘open-skies’ agreements. Thai AirAsia’s largest competitor was THAI.000).37) ticket for the same route (THAI’s full service charge was Baht 2. The Bangkok-Singapore route locked twelve full-service airlines and two low-cost carriers in fierce competition. AirAsia.000 tons of cargo. ‘I buy them and throw them away.500 a day. Thai AirAsia and Nok Air retained 20 per cent of the domestic air service in Thailand. Thai AirAsia and ValuAir claimed 2 per cent of the international passenger travel at Don Muang International Airport. which had shown profits for thirty-nine successive years. One-Two-Go had been poised to match any fare that was offered by AirAsia. 28 Time Asia Magazine. he argued. One-Two-Go had accumulated US $760 thousand losses in its first 26 Bangkok Post. Challenges from Budget Airlines In Europe. 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). 2008 . 27 244 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc.

Jim Eckes. With a US $1. ‘In addition to low fares. SilkAir’s chief executive Mike Barclay announced. One hundred and thirty cities had more than 1 million. 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. a full bar service.six months of operation. more than 8 per cent was predicted in China. This promotion became effective the same day that Tiger Airways launched its services.31 Rising incomes and economic growth were empowering a greater number of Asians to rely on air travel.34) promotional fare for over 3. NOW EVERYONE CAN FLY: AIRASIA 245 Downloaded from http://ajc.000 29-cent (US $0. Meanwhile. hot meals.’29 Tiger Airways announced a 59-cent (US $0. and Hatyai.30 There were more than 235 cities in Asia with populations of over half a million.sagepub. Analysts expected an annual growth of regional air travel at 5 per cent over the next two decades. Responding in kind. particularly in those parts of the region where the road and rail infrastructures were poor. Amongst the latter. 12 July 2004.34) seats on these routes during a September promotion. 12 July 2004. saw an opportunity in connecting Asia’s disparate 29 30 31 Report of Xeno-Thai Law & Consulting Ltd. ‘Once that line is crossed. Phuket. His goals included 6 million guests annually by 2005 and fleet expansion to eighty new planes by 2012. ‘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. seat assignment and many extras at no additional cost. Thai AirAsia offered 5. Time Asia Magazine.000 one-way tickets to three Thai destinations: Bangkok. a veteran chief at Indo-Swiss Aviation. the company would have to decide whether to continue or throw in the towel altogether. an airline expert at ING Financial. forty-three cities were in China and thirty-seven in India.’ THE FUTURE: A PAN-ASIA VISION? Soon after its emergence. Udom said. 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). SilkAir. in-flight entertainment. Business Week. the Thai government awarded Thai AirAsia two daily flights to Singapore and landing rights for flights to Macau. 2008 .com by lukas sapto aji on October 10. Touting amenities.52 million breakpoint. 4 June 2004. we offer excellent in-flight service. 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.’ said Philip Wickham. the regional wing of Singapore Airlines.

Singapore was a centre for transportation in South-east Asia. giving AirAsia access to China’s market. Over-expansion. A third terminal and a dedicated low-cost terminal for budget airlines were constructed to expand the airport. 246 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc.com by lukas sapto aji on October 10. The Times of India. Examples of failing airlines were Ciao Fly in Italy.36 Analysts already wondered if AirAsia had drawn enough attention. Changi Airport was a regional aviation hub served by sixty-eight international airlines. Although Fernandes believed that only two budget airlines could survive on the Singaporean soil. and it increased its capacity by 16 per cent per year on average. 30 July 2003. no less than fierce competition. A preliminary agreement to acquire a 49 per cent share in AWAir. ‘There is no question here that the geography is different. CNN. he did not by any means give up his ambition to ‘invade’. Fernandes was also involved in similar talks with the state-owned Chinese National Aviation Corporation. There are no fast railways or superhighway networks as in Europe or the USA. which owned China’s two largest carriers. 2008 . Both terminals would be ready for use by 2006.34 In addition to this. Located at the crossroads of international shipping and air routes. AirAsia expected to expand its fleet size with three purchased and thirty-three leased carriers. If AirAsia continued to expand to countries with different cultures and languages. killed many promising airlines. and Debonair in France. The immediate next step for the Pan-Asian network saw AirAsia implementing its joint venture business model in Indonesia. Goodjet in Sweden. Orient Aviation.towns and cities. Forty would be purchase obligations and forty purchase options from Airbus or Boeing. A code-sharing agreement with Air Macau allowed the two airlines to book tickets on each other’s flights. February 2004. AirAsia’s long-range acquisition plans included eighty new aircraft over a seven-year span. would allow AirAsia to operate its low-cost carrier model from a hub at Soekarno-Hatta International Airport in Jakarta. but only wanted to cater to the south Indian population in Malaysia.sagepub. A capital expenditure of US $26 million was needed to support this expansion.35 He did not plan to fly to all points across India. etc. A purchase agreement was reached as early as December 2004 and delivery would commence in January 2006. The 49 per cent interest would cost US $2 plus liabilities. AirAsia had set up a company in Singapore and applied for a licence to operate from there. 4 December 2003. 27 April 2004.’ said Eckes. an Indonesian company that suspended services in March 2002. 32 33 34 35 36 Asia Times Online. with 70 per cent cheaper fares than the normal ticket prices on this route. Fernandes would undoubtedly confront a number of challenges.33 Soon. Fernandes was planning to commence flights between Malaysia and India in 2005.32 By June 2005. Southwest Airlines acquired just six aircraft in its first five years of operation.

11 1.150 0 12.55 0.276 1.766 0 9.401 0 3.077 0 513 5.458 1.42 1.How to turn the Pan-Asia plan into a reality and how to maintain AirAsia’s established advantages were the foremost thoughts on Fernandes’s mind.05 0.151 989 487 817 31.220 181 8.974 42.699 51 1.04 0.986 53 17. Exhibit 2 AirAsia’s Financial Statement1 (1) Balance Sheet (US $’000) As on 31 March Non-current assets Property.006 2.42 0.993 1.53 0.26 Source: S-A-P report.659 0 696 2. Forcing himself to concentrate he got back to work.941 0 3.206 721 1.679 1.com by lukas sapto aji on October 10. Another sleepless night ahead of him! Exhibit 1 Per Capita GDP and Air Travel in Asia-Pacific Countries (2002) Per Capita GDP (in US$) Country Australia Brunei China India Indonesia Japan Malaysia New Zealand Pakistan Philippines Singapore South Korea Thailand Passenger Round trips (Per Capita) 20.817 49.822 18.30 0.01 0.900 41.764 0 1.921 5. 2008 .086 10.623 21.579 0 728 2.905 14. bank and cash balances 2000 2001 382 382 0 0 0 6.407 3.sagepub.039 29.694 0 10.08 3.886 10. 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.563 As on 30 June 2002 2003 2004 385 385 0 0 0 3.407 (Exhibit 2 contd) NOW EVERYONE CAN FLY: AIRASIA 247 Downloaded from http://ajc.872 408 975 20.060 1.29 0.795 0 577 12.02 0.

293) 2.776 16.452 27.692 2.262 9.182 14.365 22 19 1.738 2.069 2.560 (2) (22.703 0 0 (41.566 54.704 6.416 1.173 4.887 168 753 395 358 108 927 484 443 394 2.925 103.143 945 1.913 4.026 579 Non-current liabilities Deferred tax liabilities Hire purchase payables Loan from related parties Borrowings Shareholder’s Equity Share capital Share application monies Share premium Accumulated losses Minority interest As on 30 June 2002 2003 2004 16.837 19.681 86.441 10.590 31.853 51.128 4.918 24.389 (Exhibit 2 contd) 248 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc.438 10.334 5.643 26.899 19.268 0 (36.915 42.394 Cost of Sales Fuel expenses Operating lease expenses Maintenance and overhaul Staff costs User charges and station expenses Others 45.073 18.709 19.160 1.408 0 7 24.796 6.643 3 22 191 0 19.444 0 0 (41.809) 12 39.402 0 0 0 0 0 0 92 0 92 0 0 12.197 579 12.603 3.040 4.881 34 116 53 12.709 5.854 595 44.384 2.896) 0 2000 2001 2002 (15 months) Revenue Passenger seat sales Chartered flight revenue Other revenue 39.144 11.171 6.881 0 29 16.sagepub.976) (2.900 293 63 0 12.157 2.444 7.627 20.339 91.(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 12.858 12.028 11.356 3.602 Gross Profit (2) Income Statements (US $’000) Sales and Marketing expenses Administration expenses G&A expenses Staff costs 2003 2004 57.328) 0 678 42.131 5.415 12.703 0 0 (36.088 1.560 16.934 29.086 0 17.766) 0 12.120 32.571 6.837 27.651 4.261 19.357 (23.451 5.286 10. 2008 .633 2.572 75.317 46.547 46.106 22 16 1.589) 13.543 32.713 2.626) 13.195 4.216 23.148 6.749 11.292) 0 (27.852 0 24.com by lukas sapto aji on October 10.786 14.654 22 33 0 0 39.477 9.521 490 (5.747 3.346 73.

Among them. US $25 million were from secured bank borrowings. years ending 30 June 2003 and 30 June 2004.5 million were from a term loan facility up to the maximum principal US $13.5 million of available credit facilities for the following financial year.5 million were drawn from a US $13.2 million. Translate exchange rate at: US $1 = RM 3. The financial statements of the company are for the years ending 31 March 2000 and 31 March 2001.(Exhibit 2 contd) 2000 2001 2002 (15 months) 677) 149) 539) 36) 380) 81) 989) 309) 3.038) 22) 16.623) 8.sagepub.001) 7.854))) 1.564) 15.235) 9) (5.462) 4.8. According to the agreement. US $26 million were used to buy four airplanes during the year.563) 9.2 million (RM 50 million) revolving facility.855) (3) 6.com by lukas sapto aji on October 10.610))) (7) (167) (1.941) 15. 2. 15-month period ending 30 June 2002.201 Operating profits (EBIT) Finance costs Loss of associated companies (7.435 1.862) (37.153) 4.931) (699) (3.136 824 31 Profit before taxation Taxation (8.523) –5.563) 9.564))) 3.086) 3.878) 3. 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. 4.802) 37.200) (342) 81) 3.418))) 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.622) 6.623) 8.016) (1. Notes: 1.426) 809) (3.031) 6) (423) 15) 3.382 Profit after taxation (8.685) 5. 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.388) (585) 6. Specifically. Among them.036) (438) 4. 3. Another US $12.086) 3. As of 30 June 2004.099(4)) 1. US $12. The maturity period of the non-current borrowing does not exceed two years. NOW EVERYONE CAN FLY: AIRASIA 249 Downloaded from http://ajc. 2008 .282 2.831) 1. the company has an aggregate of US $3.940) 6.957) 12.725) (5.900 2000)) 2001) 2002) (15 months) 2003 2004 (4.244) (5.

The statistics are for the years ending 31 March 2000 and 31 March 2001.387 2.238 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. 2.042 1.018 66 48 3 1.sagepub. In the year 2004. Revenue Passenger Kilometres = number of paying passengers * number of kilometres the passengers were flown. and six months ending 30 June 2004.054 Revenue per RPK(4) (US$) Revenue per ASK(5) (US$) 0.029 0.033 0.118 339 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. 15-month period ending 30 June 2002.2 0.327 N/A 241 11.033 0. 5. Representing the average number of kilometres flown per flight.687 363 586 62 53 2 610.025 967 23. estimated by S-A-P. The number of passengers as a proportion to the number of seats available. 2008 . The number is for the years ending 31 December 2002 and 2003.128 10. Translate exchange rate at US $1 = Baht 39. 9. 3.034 1. 30 June 2004. and 30 June 2005. Non-scheduled.086 74 39 7 N/A 4 77 6 161 10 301 22 119 10 10.032 0. 90. 8.0% 463 2.050 Cost per ASK(6) (US$) 1. Notes: 1.8 0.539 2.1% 648 12.481.com by lukas sapto aji on October 10.5 0.5 million passengers were flown within six months.2 per cent were on international routes to or from KLIA and Senai.1 0. 250 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc. 4.838.029 0.8. For Thai AirAsia.054 0. years ending 30 June 2003.5 0. chartered flight revenue was subtracted from the total revenue for the purpose of this calculation. 7.1% 1.097 1.033 0.040 0.034 798 8.048 0.Exhibit 3 Operating Statistics of AirAsia Flights to and from KLIA and Senai 2000 Passengers carried 271. chartered flight cost was subtracted from the total operating expenses for the purpose of this calculation. 6. Non-scheduled.037 0.822(9) 380. Available Seat Kilometres = total number of seats available * number of kilometres the seats were flown. it refers to Thailand’s market share.37 = RM 3.025 0.2 0.738 672 1.8 per cent were within Malaysia and 9.771 300 3.382 12. 1.029 975 17.1% 322 12.592 395 77 77 34 25 13 4 Source: Company report.

957 17.010.128 8.201 770. 2008 .1% 1. (2) At Don Muang International Airport (2004) Thai AirAsia Others Total Thai AirAsia share January February March April May June – 885.0% 42.3% 80.857.1% 1. and Company report of AirAsia.109 830.435. Exhibit 5 AirAsia’s Route Map (as of August 2004) NOW EVERYONE CAN FLY: AIRASIA 251 Downloaded from http://ajc.414 806.038.582 9.348 885.303 10. Senai Airport.920 23.1% Source: Malaysia Airport.1% 60.179 5.236 6.655.363 10.3% 48.Exhibit 4 Domestic Passenger Movements (1) At Airports of Malaysia (2002 to June 2004) AirAsia Others Total AirAsia share 2002 2003 2004 (January–June) 1.9% Source: DMA and Company report of AirAsia.351.7% 79.991 593.780.080 5.433 673.741 4.195 759.sagepub.048.com by lukas sapto aji on October 10.829 10.007 666.296 746.310 7.424 11.822 757.885 802.506.945 10.348 0.

2% 9.Exhibit 6 Average Annual Passenger Growth Rate in South-east Asia 1985–2002 Domestic South-east Asia Malaysia Thailand Indonesia (1) 2003–08 (forecasted) International 7.5 years.com by lukas sapto aji on October 10.2 N/A 70% 73. Notes: 1.803 64.278.2% 7.370.60% Staff number 18.0% 7. Industry average age of fleet is 12.9% 9.800) ASK (million) 55.000 7.8 16 14 8 12.75% 67 86% 13 N/A 4 N/A N/A 14 63 10.010 9.6 13.710.5 N/A 7 3 Source: Company report.6% (2) Domestic 9.659 Passenger load factor 67.000 13.6 5.000 (domestic) (8.387 (329.8 Average age of fleet(2) Destinations: Domestic 32 International 82 THAI (Jan–June 2004) SIA Garuda (2003) 8.930 88.6% 9.356.447 14. India and other South-east Asian countries only. 2.022) 3.685. MAS and SIA fiscal year ending 31 March.9% 7.892.712 Average on-time performance 91.253 N/A 24.5% Source: Boeing Company reports and S-A-P forecast.8% 10.838.382 380. AirAsia’s fiscal year ending 30 June.822 (2. To and from China. For Singapore.6% 6. 2.6% 25. Notes: 1.2% 10. Exhibit 7 Operating Statistics of Major Airlines in South-east Asia (Financial Year 2003–04) 1 MAS Passengers carried 15.796) 395 300 77% 436 N/A 83 N/A 95 84. THAI fiscal year ending 30 September.000 AirAsia Thai AirAsia (Feb–June 2004) 2.692 RPK (million) 37. and Garuda fiscal year ending 31 December each year.6% 10.1% 13.78% Fleet 109 Aircraft utilization (block hours per day) 9. domestic routes refer to East Asia.771 77% 1.592 2.6% International 8. For South-east Asia: ‘Domestic’ means the region. 3.000(3)) (5.3% 69.586) 34.072 (N/A) (1.6 1 60 N/A N/A 30 24 12. 2008 .sagepub.229.299.5% 11.3% 8.516. 252 JOAN ENRIC RICART AND DAXUE WANG Downloaded from http://ajc.

426) 275.37 = IDR (Indonesian Rupiah) 9. MAS and SIA’s fiscal year ended on 31 March 2004.440) 825.659 6.289) 541. 1.422) THAI 1.140) 87.580) 191.481) 715.160) 547.086) 252. Financial Year 2003–04) MAS Total revenue 1. THAI’s data is for half a year from 1 January 2004.872.974) 113.860) 264. After adjustment for reduction in Singapore statutory tax rate. Notes: 1.766) 156.sagepub.838) SIA 4.882) 239. Translate exchange rate at US $1 = RM 3.715 = Thai Baht 39.076. Exhibit 9 Route Map of Major Airlines in South-east Asia (1) Malaysia Airlines (MAS) Domestic Routes Asian Routes NOW EVERYONE CAN FLY: AIRASIA 253 Downloaded from http://ajc.493 299 Source: Company report of each airline.329) 482.940) Fuel and oil 535. parking costs and other airport charges 412.430 as on 30 June 2004.737) 152.227) Sales commission and other marketing costs 194.com by lukas sapto aji on October 10.381) (Asian routes) (356.487) 250.265) 238.140) 4.939) Aircraft operating costs 347.329) In-flight meals and other passenger costs N/A) Operating profits 34.103.895) Total cost 1.649) Landing. Garuda’s fiscal year ended on 31 December 2003.619.057 (N/A) 921.264) Maintenance and overhaul costs 204.096) (1.622) Staff costs 395.224) 443.622) 148.424.Exhibit 8 Income Statement of Major Airlines in South-east Asia (US $’000. 2.321(2) Garuda 928.441) Profit before taxation 154.191.702) Depreciation 42. Sum of fuel costs and staff costs.845) 219.020) (1.398 26.967.555) Profit after taxation 152. 2008 .421) 273.932.937) 1.8 = SGD 1.091(1) 86.

com by lukas sapto aji on October 10.sagepub. 2008 .(2) Thai Airways International (THAI) Domestic Routes International Routes (3) Singapore Airlines (SIA) North & South-east Asia Routes 254 JOAN ENRIC RICART International Routes AND DAXUE WANG Downloaded from http://ajc.

2008 .sagepub.(4) Garuda Domestic Routes International Routes Exhibit 10 Map of South-east Asia and Asia (a) South-east Asia ( b) Asia NOW EVERYONE CAN FLY: AIRASIA 255 Downloaded from http://ajc.com by lukas sapto aji on October 10.

Textiles. is trying to gain advantages with its Pan-Asia plan. Competitive advantages Discussion Questions • State your views about the airlines industry. competitive advantages. a Malaysian airline. It details how AirAsia transformed itself into a successful low-cost airline through its well-defined business model. AirAsia. Strategy. Such a plan would no doubt expose the low-cost carrier to the risk of over-expansion.com by lukas sapto aji on September 25. then what should be its ring diameter? • Would a change in the product-mix affect Ayesha Woollen Mill’s inventory carrying costs? • In Nauman’s place how would you present your case (i) to your father. Keywords: AirAsia.sagepub. 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. 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 AirAsia’s expansion plan? What will be the effect of this expansion on its core competencies? SUMMARIES AND DISCUSSION QUESTIONS 135 Downloaded from http://ajc. and expansion strategy. Low-cost airlines. Process analysis.Keywords: Capacity. Spinning Discussion Questions • Should Ayesha Woollen Mills produce 48-count yarn? Why? • Should Ayesha Woollen Mills purchase another spinning frame? If yes. 2008 . By forming joint ventures across Asia. This case study explores AirAsia’s business model. Business model.