Air Asia: The World’s Lowest Cost Airline

Air Asia: The World’s Lowest Cost Airline

The case deals with the world’s most successful LCC which expanded its operations within only seven years from 2 aircrafts and about 200,000 passengers to 79 aircrafts and about 12 million passengers. Southwest’s business model is the role model for Air Asia’s re-launch in 2003 and was adapted to specific geographical circumstances given in South-East Asia. Air Asia combined the Ryanair operational strategy, the Southwest people strategy and the easyJet branding strategy. Its success was fueled by rising prosperity in Malaysia and a thus uprising large potential for leisure and business travels.

The success lays not only in Opportunities taken and Threats overcame, but also on internal Strengths which compensated Weaknesses by far. To evaluate this, one has to take a closer look at Air Asia’s operations and its management style:

I. Operations

Using a single aircraft offers economies in purchasing, maintenance, pilot training and aircraft utilization. Furthermore, offering only a single class allows more seats per flight. Customer services are brought to a minimum, flights are ticketless and there is no assigned seating which accelerates the turnaround on planes. Air Asia also succeeded in lowering costs by partnering with other firms by outsourcing activities which do not belong to their key activities and thus are not sufficiently effective conducted by Air Asia itself. Another key operational strength is Air Asia’s retention rate, which is exceptionally high. Its employees have to be multi-skilled in order to gain employee’s flexibility which will make the firm as a whole more productive.

II. Management Style

The company has no hierarchy which allows every employee to do anyone’s job in a strong, team-orientated corporate environment. Bonuses are awarded based upon employee’s contribution to Air Asia’s productivity which – although very unusual for Asia – encourages its employees to perform in an enthusiastically way.

The above mentioned methods and strategies contribute to Air Asia’s low cost strategy and count for short-haul operations. Re-launching Air Asia, Tony Fernandez wanted to start an airline that flew long-haul flights with low fares. Putting this as the firm’s mission brings up the question on how to transfer the comparative cost advantage gained through their short-haul operations to long-haul operations which underlie other criteria. The main challenges stressed in the case study are on the one hand that profit in long-haul flights is earned through business class travelers, which allows the airlines to subsidize its economy class fares. On the other hand, the firm had to take business away from incumbents which already introduced frequent flyer schemes with a bigger and more sophisticated network and

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