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Introduction

What Air Asia X did differently


Operational Expertise

Faster turnaround time


Improving Aircraft utilization
Crew efficiency
Aircraft Selection
Seat Configuration
A la carte In-Flight experience

Alternate Revenue Streams


Cabin crew trained to push sales
Fees for baggage
Online Business through Airasia.com
Flat bed, thumb drive and battery
source

Culture and Marketing

Air
Asia

Company Culture
Training and Development
Non Traditional Marketing- KoolRed
Free Journalist Trips
Improving brand recognition
Innovative Advertising

Questions faced
How best to leverage on the extensive network
of the regiona sister company Airasiain
selecting new destinations for Airasia X?

How to increase the revenue without increasing


the ticket price?

How best to globally position the airlines brand


in non-Asian markets?

How to shift the marketing teams mentality


from a start-up mindset?

How to prepare for a global initial public offering


within the next 12 months?

Air
Asia

Selection of New and


Profitable Route for Air
Asia X
Leveraging the extensive local network of Air Asia

Factors influencing the Route


Planning Decision

Expe
cted
Resp
onse
of
Com
petit
ors

Long
term
com
petiti
ve
and
mark
et
Prese
nce

Pass
enge
r
Prefe
renc
e for
multi
ple
conn
ectin
g

Air
Asia

Air
Existing Short Haul Network of Air
Asia
Asia
Feeder Network
Dense Network in South Asia.
More than 78 destinations can
feed passengers to Air Asia X
flights
Air Asia X passenger
profile
60% Malaysian nationals
40% originating from X
destination or transfer from
Air Asia or other flights in KL
Major focus on less
affluent Malaysian
passenger base
Between 1991 and 2011, the number of foreign tourist arrivals to Southeast Asia increased by
nearly
Rapidly300%.
growing new middle class through Asia. ( Income of low population group growing at
around 7% at this time)

Route Evaluation
Aircraft Specs
A330 : short medium range aircraft
Maximum range when full approx. 7000
km
Fuel Usage approx.3,000 gallons per hour
Cruise speed approx. 850 km/hr

Other Info
Aviation fuel Price : - approx. $2 per gallon
Industry Aircraft Utilization :- 11 hours a day vs Air
Asia Xs 16 hours a day
Load Factor Industry average for break even 65%69% (target should be around 80% for profitability)

Air
Asia

Route Evaluation
China

Air
Asia

Destination Appeal : High


China ranks number 1 in tourist arrival, Malaysia ranks 3 in Asia
Number of tourists : approx. 16,10,000 in an year
Propensity to travel on this route : High (tourist arrival sustained over a period of years)
Incentives and Support from Chinese Tourism and AA : Majority od international airports supportive in terms of
tax benefits and airport charges

Japan
Destination Appeal : High
Japan ranks 6th in tourist arrival, Malaysia ranks 3 in Asia
Number of tourists : approx. 12,18,400 in an year
Propensity to travel on this route : High (tourist arrival sustained over a period of years)
Incentives and Support from Japanese Tourism and AA : Industry Rates for taxes and airport charges

Australia
Destination Appeal : High
Australia ranks 9 in the world for international tourism receipts
Number of tourists : approx. 8,06,700 in an year
Propensity to travel is also High
Incentives and Support : No tax benefits but support by waiving off 50% of R&D tax expense. Industry rate of
airport charge

Profitability of the Route


China
Beijing to Kuala Lumpur (4350
Kms)
Time of flight at cruise speed : approx.
5 hours

Fuel Consumption : 15000 gallons

Air
Asia

Revenue per trip:

Number of available seats: - 377


(12 business + 365 economy)
At 90% load factor
(achievable as daily number of tourist from to
China/from Malaysia is about 380) :
Number of passengers : about 339

Amount that can be charged for break


even :- approx. $265
Can be further lowered by charging
higher for 12 business class seats

Fuel Expense : $30000

Business class seats : $1000


Economy Class seats : $237

Fuel Charge contributes to about 1/3 of the operating cost for an airline. Hence total
expense for one trip is around $90000 for this route

Profitability of Routes

Air
Asia

Japan
Tokyo <-> KL
Ticket price: approx. $331 (without differentiating business and economy; assuming 90% load factor)

Australia
Darwin <-> KL
Ticket Price: approx. $192 (without differentiating business and economy; assuming 90% load factor)

Saudi Arabia
Jeddha <-> KL
Ticket Price: approx. $437 (without differentiating business and economy; assuming 90% load factor)

Europe
London<-> KL
Ticket Price: approx. $400 (without differentiating business and economy; assuming 90% load factor)

These prices are on average lower than those charged by other airlines for
economic class the same route.

Air
Asia

ow Cost Model of AirAsia X

Operating income (as


percentage of
revenue)
Passenger Load
factor
AirCraft Utilization
per day
Avg Passanger fair

SouthWest
(low cost,
short haul)

AirAsia
X

JetSar

8.59

3.5

1.52

79.30%

76.50%

60%

10.48 hr

15.7 hr

11 hr

130.2 USD

160.71
193.2 USD
USD

AirAsia X In 2009: Lowest cost Avg US Budget airline - US$0.09 per mile, AirAsia$0.02 per mile

Low cost model Vs Traditional model

Air
Asia

How did AirAsia-X achieve it?

Air
Asia

Things AirAsia could consider at


operational level
AirAsia missed but Indigo Implemented

Air
Asia

2 Expansion Options For Airasia X

two-class, large, existing aircraft, or smaller


latest technology types to match their seatkm costs
very large high density all-economy aircraft
(A380)
The success rate is not very good
it relies on high volume city pairs to generate
sufficient traffic to fill the aircraft
The advantages of requiring less volume and
offers feed from existing bases, but depends
crucially on obtaining new aircraft very
cheaply. COST SAVING
POTENTIAL

No frills
Faster turnaround of aircraft
Point-to-point markets only
Higher productivity with increased seat
density
Passenger load factor

Air
Asia

very high volume routes.

On short/medium haul the large


cuts in fares might generate
additional traffic that might
make the route viable. But on
long-hauls the disadvantages
of travel time, jet lag and total
cost

Cost Saving
Comparison

Air
Asia

Fuel is a much larger part of long-haul costs,


and there is less scope for large reductions in
fuel burn per passenger
There is less opportunity for greater labour
and aircraft productivity
Seat factors are already very high on longhaul routes
Some aspects of the simplified product would
become more complex in Long haul

High density long-haul services should offer at least 300 seats per flight
Need daily or five weekly frequencies.
a market share of at least 175,000 passengers.
Otherwise they would be restricted to leisure markets
LCCs have played a smaller role in stimulating traffic than attracting
passengers from other modes
Using economic sized aircraft, 80% loading factor would be possible because
of the simplified fare structure, one-way pricing and very transparent webbased distribution.

Corporate Entrepreneurship The creation of new value of a


corporation, through investments that create either new sources
of competitive advantage or renewal of the value proposition

Corporate
culture

Factors

Leadership
Structural
features that
guide and
constrain
action
Organization
al systems
that foster
learning and
manage
rewards

The use of teams in


strategic decision making
Whether the company is
product or service oriented

Product or process
improvement

The extent to which it is


high-tech or low-tech

Shifting a marketing team mentality from start-up mind-set

Building the Global


single brand identity

Xs sponsorship of Manchester
United
Sponsoring Oakland Raiders
National Football League team
in 2009
Sponsoring Lotus Formula One
Racing Team
Sponsoring Asian Basket Ball
League

Distinctive advertising

Explicit advertising
Sarcastic or humorous in
nature
No-Pro tour
Television commercials for
CNN

Focused Approaches to Corporate


Entrepreneurship

New Venture
Groups

Business
Incubators
Funding
Physical
Space
Business
services
Mentoring
Networkin
g

Long Haul Vs Short Haul and the Challenge of Single Brand

Same customer
demographic expected
a different comfort
level on long haul
flights compared to
short haul flights
Opening Up Skies
to Everyone

Business travellers
who book Xs flat
bed seats know X
only as Air Asia.
Customers didnt
understand that X is
a separate airline.

Global IPO
Decision to list in Stock Exchange
Credibility to Xs business model as Singapore airline announced its plan
to launch long haul budget carrier
KLSE
Pros:
Good books of Malaysian Govt and Ministry of Transport
Easier to get approvals and licenses to operate in different
routes
Credibility to Xs business model way to attract Malaysian
Investors
Projected Growth Figures of 56% by 2014 for air travel in Asian
Market
Cons:
Little value for Malaysian investors holding shares of Air Asia
Even after listing on KLSE, Govt may impose restrictions on
certain routes and exercise monopoly

Hong Kong Exchange/New York Exchange


Pros:
Likely to have new investors on board
Due to the success of parent brand
First mover advantage of long haul low cost carrier
Strong brand presence and brand awareness programmes
such as sponsorship agreement with Manchester United
Cons:
Likely disputes with Malaysian Govt.
Could slow down expansion plans
Prohibit the carrier to service lucrative foreign destinations

USD2.3 million operating


profit at a margin of 0.5%
in the year 2010.

Global IPO
Xs IPO scheduled for Late 2011 or Early 2012
Strategic action AirAsia X must tackle in order to effectively prepare for a global IPO

Meeting Revenue Targets


Increase fares
Increase number of passengers
Focus on high volume yielding routes
Revenue from Cargo
Decreasing cost by operational excellence
Light weight seats
Lean Crews
Cross training to take up multiple jobs
Focus on secondary airports for operation

Balancing Domestic Political Relationships


Success of X helped the Malaysian economy
Limiting factor to growth Malaysain Govt.
Analyzing vital routes and a plan to share
equal rights or sharing of rights in some
mutually agreed ratio
Decreasing cost by operational excellence
Light weight seats
Lean Crews
Cross training to take up multiple jobs

Improving Financial Ratios


By improved inventory system

Focus on secondary airports for operations

Thank You