SANYAM PUNJANI

ROLL NO. 59
GBO IV SEM

Air Asia Case Study

Q1 What are the strategies that have led to the success of Air Asia?
Air Asia primarily adopted a cost-leadership strategy to gain a competitive advantage
primarily by reducing its economic costs below its competitors. To achieve this, the strategic
actions were focussed on reducing costs and improving productivity. Some strategic actions
adopted by AirAsia to support its cost leadership strategy are :
a) Low Fare, No Frills
AirAsias intense focus on providing air travel with no frills leads to substantial costs saving.
The absence of in-flight services reduced pre-flight preparations such as the loading of food
and drinks, cleaning time and the cost of meals and administration. Investment in kitchens
and equipment for storing, heating and serving of meals can be avoided all together.
b) Investment in Latest Technologies & Efficient Operations
AirAsia has heavily invested in purchasing the most modern aircraft A-320s. The new aircraft
allow AirAsia to enjoy substantial lower fuel cost as these modern airplanes had lower fuel
usage by as much as 12%. Fuel accounted for almost 50% of the total operating costs and
thus it is an important component of cost saving for AirAsia. By operating a single aircraft
type allows AirAsia to achieve efficiency in executing its primary and secondary activities.
Consequently, this leads to higher productivity which in turn allows the company the option
to expand their operations with the same number of employees and right size its manpower
requirement. Improved productivity means more revenue for AirAsia. The extreme drive to
achieve high efficiency in operations allows AirAsia to clock the fastest turnaround time of
25 minutes. This invariably leads to comparatively better productivity as the company was
able to utilise its aircraft for an average of 13 hours per day as opposed to 10.5 hours by other
airlines. Again, improved productivity means more revenue for AirAsia.
c) Low Fixed Costs
AirAsias ability to acquire low rates for long-term maintenance contracts and aircraft leases
led to substantial cost savings. It was reported that AirAsias average contractual lease charge
per aircraft decreased by more than 60% from 2001 to 2004. Similarly, its aircraft
maintenance contract costs were also reported to be substantially lower than any other
airlines. In view of the airlines high safety and maintenance standards, AirAsia was also able
to procure favourable rates on its insurance policies. All these help lower fixed costs.
d) Lean Distribution System
The use of e-ticketing helps to save the cost of issuing hardcopy tickets, which were
estimated at US$10 per ticket. The company also saved on agents commissions and avoided
the need for large and expensive booking and reservation systems. This too helps lower the
overall costs.

e) Minimise Personnel Expenses

AirAsia implemented flexible work rules and streamlined administrative functions which
allowed employees to perform multiple roles. This human resource policy facilitated AirAsia
in lowering its personnel costs. In 2004, it was reported that AirAsia had the lowest staff-toper aircraft ratio (106 staff per aircraft as compared to 110 employees per aircraft registered
by other low cost carriers) and this helps lower staff cost.
f) Use of Secondary Airports
Typically, AirAsia operates out of secondary airports, which involve lower landing, parking
and ground handling fees. These airports were also less busy and had shorter runways, thus
helped reduce fuel consumption while aircraft queue for takeoff or taxy on the ground. As
many secondary airports were older, they were often close to urban areas and were thus more
attractive to some travellers. In short, the use of secondary airports can increase sales and
help to keep operating costs low.

Q2 Are the strategies replicable by other airlines?

The strategies although efficient and cost effective can be replicated. However Air Asia has
certain enjoys certain advantages that make the replication difficult for other airlines.

1. First Mover Advantage :

AirAsia has the advantage of being the first low cost airline in Asia. This allows it to
establish itself before competition increases in this low cost segment, apart from competition
that already exists across segments (low cost vs full service carriers). This is a major strength
as AirAsia will be laying down the rules and frameworks for the industry in a manner that
suits its business and operational model.

2. Brand Equity :
AirAsia will most certainly have a sustained mind share in the Asia Region consumers
psyche. They will always be remembered as the airline that took the initiative (and the risk)
to reshape an industry inside out. AirAsia was the first airline that made air travel affordable
to all Asians. This brand equity is a major strength that AirAsia must successfully capitalize.

In the long run low cost Carriers will compete by building routes, innovative pricing and
creating reputations for safety and on-time performance. Maintaining strategic Cost
differentiation is critical to long term success.

Q3 What should Air Asia do to retain its position?

A. To maintain the high level of profitability it should :

Act on the prices :

- Expensive tickets to be distributed when the demand is high (week-end).
- Prices increasing according to the demand.
- Cheap tickets available during the middle of the week.
Act on the cost :
- Offer more on board services to the passengers like internet WIFI and newspapers.
- Place advertisings on the plane's cabin.
B. Fund-raising
Fresh money could be used to finance strategic projects.
C. Invest in joint ventures.
Maintain international development across Asia in association with local budget airlines.
D. Diversification
Acquire new know-how in a view to offer more service to the consumer.
E.g. To take over an online travel agency.
E. Pursue regional expansion & expand business on existing platform (ancillary)
- Expand network to new countries
- Develop strategic partnership for mutual benefits
- Use strong brand to drive new business
F. Pursue regional market domination. Optimise routes and development of new
secondary hubs
- Further enhance route network, venture destinations previously uncovered
- Yield enhancement due to benefits of maturity

Q4 What it should do to succeed in India?

India is currently the 9th largest aviation market in the world. Indigo has the largest market
share of about 30% followed Jet airways and Air India with 19.7% and 19.2% respectively.
Following measures along with its its usual strategy should be adopted to capture a larger
share of the Indian market :
1. Promotions:
Major challenge here is spreading awareness in the untapped Indian market and reaching first
time fliers and educating them. To achieve this initially Air Asia has to go for costly
advertising like in movies, sports and tourism.
Also it should have tie ups with hotels and banks, social networking etc
2. Marketing
Targeting untapped market would require educating the customer and hence cost escalating.
Market should be segmented on geographic and demographic basis. It should target people in
income group of 3-10 lacs, small & medium businessmen, migratory workforce, tourists, and
price sensitive customers.
3. Sales
Higher sales means higher occupancy rates. Air Asia will have to gain more first time fliers
per year and develop cost effective yet profitable channels to sell. It should have tie ups with
travel agents, travel agencies and business organisations.