Business Strategy

MBA 2023-25 – Term 1

Assignment Submission

Case/Assignment: AIR ASIA

COHORT: AFTERNOON

Team Number: 3
…

#NOW EVERYONE CAN FLY

 History and Background
Founding Expansion
Air Asia was founded in Fast forward 20+ years,
1993 by Tony Fernandes and we now operate over
and his partners, with just 350 aircrafts and serve
3 planes serving local over 150 destinations
Malaysian routes. globally.
Corporate Coaching
We're headquartered in
Kuala Lumpur and employ
over 20,000 people across
the globe.
 Air Asia – Bought from the Dead (financially)
• Bought Debt-ridden AIRASIA in 2001 with a vision to make flying accessible to everyone – TONY

{It’s essential to run at an opportunity when you see it, especially if it’s unexpected- reason for TONY buying air Asia}
• Strength like High focus on technology and innovation by Air Asia made them successful in aviation industry after
clearing the entire debts within 2 yrs.
• The competitive advantage of Air Asia was low cost and they are achieving
This by efficiently designing and managing the operations
• In September 2001, Fernandes bought Air Asia brand from an Malaysian government owned conglomerate for 30
cents
• Air Asia is one of the big airline services in aviation industry which served 56.6 million passengers to over an 165
destinations and 25 countries.
• Strategies implemented by Air Asia for surviving the financial crisis:
1. Capital rising for short term liability and business expansion
2. Business expansion through diversion
Trends like globalization, rising incomes, the expansion of low cost
Carriers, and technological improvements influence the aviation industry
globally.. Like change in price of the service results in changes in the
Demand curve; changes in the prices of other services of a substitution
Characters.; customer expectations as to the future price of services.
Air Asia – The Cost Leader

• AirAsia primarily achieved cost leadership, while it incorporated some aspects of

differentiation, its core identity was centered around providing affordable air travel
options.

How did we achieve it?

• Operational Efficiency and Low Operating Costs

• Single aircraft – Airbus A320 resulting in streamlined maintenance hence cost saving
• Less TAT – High aircraft utilization and reducing idle time
• Efficient flight scheduling – reducing parking and maintenance costs

• No frills Service

• Focused more on essentials of air travel to keep costs low

• Point to Point Service
Air Asia – The Cost Leader

• Ancillary Revenue Streams

• Multiple revenue streams – Baggage fees, inflight meals, seat selection and travel
insurance
• Customization

• Direct Sales & online booking

• Encouraged consumers to use website directly bypassing 3rd party commissions

• Marketing & Branding

• Value for money resonating with cost conscious travelers

• Marketing in a way to build budget friendly carrier.
 Air Asia – The Risky Approach

Air Asia has been successful in attracting customers with lower fares until now, however
achieving sustainable advantage with this strategy in todays world does come with risks ..

 Advantages –

• Price-sensitive : during economic downturns like the one caused by the COVID-19 pandemic, travelers
became conscious about spending money resulting in Air Asia swooping those customer.
• Operation Efficiency

 Risks –

• Intense Competition: Lion Air and IndiGo. As these competitors also adopt cost leadership strategies,
there's a risk of price wars that can significantly impact profit margins.
• Engage in a price war to attract customers, results in reduced revenue for all player.

• Quality and Service: Cost-cutting measures could lead to reduced quality & service. If passengers find
that the service quality is compromised, it could result in negative reviews and a decline in customer loyalty.
This happened to Ryanair, another low-cost carrier, when it faced criticism for its service quality.
Air Asia – The Risky Approach

Risks –

• Commoditization: Relying solely on low prices can lead to commoditization of the airline's
offerings. Passengers view all low-cost carriers as interchangeable, making it difficult for AirAsia
to differentiate itself and build brand loyalty beyond affordability.

• Evolving Customer Expectation : Value for Money. Passengers expect certain basic
comforts, on-time performance, and hassle-free experiences. AirAsia's cost-cutting measures
hinder its ability to meet these evolving expectations, passengers might choose competitors
offering a better balance between affordability and service quality.

• Regulatory & Safety Pressures : Cutting corners to reduce costs could result in safety
violations and regulatory issues. As AirAsia compromises on maintenance schedules or safety
procedures to save money, it could face fines, legal challenges, and reputational damage. This
scenario is exemplified by the controversies faced by many airlines in the past due to safety
concerns including Air Asia.
Air Asia – A peak into the Future

Suggestions–(few from many)

• Lean Management: Ryanair, a European budget airline, follows a lean approach to

management. They consistently seek ways to reduce waste and improve operational efficiency.

• Digital Innovation: Expand online and mobile services to reduce costs associated with
traditional ticketing and check-in methods. IndiGo, an Indian budget airline, emphasizes digital
services to minimize overhead costs and streamline customer interactions.

• Employee Training : Skill Enhancement: Invest in training and development programs to

enhance employee skills, leading to improved customer service and operational efficiency.
Example: EasyJet in the United Kingdom invests in training programs to empower employees to
make decisions that align with the company's cost leadership strategy.

By implementing a few of these recommendations and drawing insights from successful

examples in the airline industry, AirAsia can sustain its competitiveness and further
solidify its position as a cost leader in the market.
 THANK YOU

05/02/2024 10