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Anne Zhang (A13364419)

MGT112, Zimmerman

Assignment 1

“Red Ocean Traps” are crowded market spaces where companies engage in intense

competitions for market share, which end up preventing them from entering ‘blue oceans’. ‘Blue

oceans’ are unknown and uncontested areas with lots of potential for growth (Chan). Six

assumptions for mental models contribute to this ideology: seeing market-creating strategies as

customer-oriented approaches, treating market-creating strategies as niche strategies, confusing

technological innovation with market-creating strategies, equating creative destruction with

market creation, equating market-creating strategies with differentiation, and equating market-

creating strategies with low-cost strategies (Chan). Though these approaches are not necessarily

incorrect or harmful, it is important to ensure that the models and assumptions are aligned with

the ‘intended strategic purpose of new market creation’ (Chan).

AirAsia X is a long-haul budget airline that is based in Malaysia, and serves mainly

Southeast Asia. AirAsia X owes its success to several factors. Its low airline ticket prices

attracted many customers, and CEO Azran Osman-Rani utilized existing routes and

infrastructures so that AirAsia X could build upon it in a more cost-efficient manner, instead of

starting anew. The company targeted the lower levels of the wealth pyramid, and excluded all of

the ‘extra’ costs such as ‘seat assignments, checked baggage, onboard food and beverages,

inflight entertainment, flight transfers or changes, pillows and blankets’, of which were available

for additional costs on a menu (Forrey). The company also did not have fixed departure and

arrival times, as did other major airlines. Furthermore, AirAsia X offered an a la carte dining
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experience, contrary to most airlines. Usually, the meal is covered by the airline ticket. However,

this limits the amount of meals to each passenger. With AirAsia X, a passenger can order as

many meals as they would like, at an extra cost outside of their plane ticket. AirAsia X also had

the minimum possible number of employees and kept labor costs to a minimum because

Malaysia had cheap labor. It was also able to survive the financial crisis in 2008 because it was

able to rely on its parent company. AirAsia X planes still offered premium amenities, such as

lay-down beds, but for a much cheaper price and more flexibility with costs.

Internally, the work culture at AirAsia X was more lax than the traditional Malaysian

work culture. Forrey shares, “Everybody was addressed by first name, even the CEO. All

employees were referred to officially as ‘All Stars’” (Forrey). This work environment rewarded

hard work and instilled a ‘work hard-play hard’ mentality that encouraged all the employees to

put in their best effort. Furthermore, even though AirAsia X has been an extremely popular flight

choice for many, it does not have good favor with the Malaysian government’s obligations. The

Malaysian government is supposed to support Malaysian Airlines, the national airline. However,

the overwhelming profit and popularity shed positive light on AirAsiaX even in this tension.

Hence, AirAsiaX was able to expand into other countries such as Australia.

Forrey mentions that “historically, long haul operations targeted either business travelers

or affluent individual travelers, competing on service differentiation and route network

integration” (Forrey). Most airline companies agreed that customers would most likely not fly

long distances if the cost and availability of amenities were not included in the airline ticket.

However, when the AirAsia X began to offer long-haul service, it needed to adjust the way they

marketed their low-cost tickets. While adhering to the base price of the seat without adding
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amenities, they made a separate list of amenities available to those who were willing to pay an

extra cost for the trip.