Airasia Case Study

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1. What factors led to the success of AirAsia as it grew and expanded from

Malaysia to other destinations in Southeast Asia and beyond? What value-based financial, marketing and organizational strategies did it adopt?

Success factors of AirAsia

The first factor, maybe the biggest one, is the fact that the CEO, Tony Fernandes, challenged the industry orthodoxies. He broke the normal travel norms and launched a low cost airline model to Malaysia, and ended up being the “World’s Best Low Cost Airline” in 2008.

Another important factor, is the AirAsia’s low cost business model and the idea of serving the mass market. The company wanted to change the marketplace and open up the skies for everyone, so “Everyone Can Fly!”. Before AirAsia entered the market, traveling by air was seen as a luxury.

The third important factor, is the fact that AirAsia gave the passengers the opportunity to pay for the products and services they actually wanted. Additionally, the airline used innovative thinking to get more out of their existing customers, they know exactly how to provide add on values to increase the customers willingness to pay for even more.

Value-based strategies

Value-based strategies is creating and deliver value through innovation, entrepreneurial marketing, value-based pricing, with the goal of increase shareholder value. By looking at AirAsia’s financial, organizational and marketing strategies we will better understand how the airline have been choosing the right customers and created a competitive advantage.

Financial strategies

AirAsia is known for differentiating around low costs within every activity of the company. The airline found an unserved segment in the market with lower but growing income, and reduced the price to suit this segment. To make profit and offer low fares, at a point as low as US$3.00, the company used an ultra-lean company structure. For example, they only hired a bare minimum number of staff to achieve safety, used human resources with low labor costs and didn’t invest in any non-airplane related products.

Organizational strategies

The airline established their own training academy for new employees to develop a specific and unique AirAsia mindset. Additionally, to this AirAsia mindset, the airline also created their own special company culture without any form of hierarchy.

Marketing strategies

AirAsia is known for its effectively differentiating around low costs, and building this into its branding and customer engagement. The company was so committed to social media, that they developed their own social platform: KoolRed. AirAsia also come up with the slogan “Everyone can fly” to target their segment, support the brand and create customer loyalty

(appendices 1.0 and 1.1 for the strategies above).

2. What broad elements of AirAsia’s original business model had to be revisited as it introduced X and moved beyond short to medium haul service to longer haul service? How did its industry and competitive environment change during this expansion?

AirAsia’s revisited business model (AirAsia X)

When AirAsia introduced AirAsia X the original business model had to be revisited. One relevant broad element is the big difference in flying time. The short haul routes are no longer than five hours, while the long haul flights could have a non-stop route on more than 13 hours. The decision process to buy a one-hour domestic flight vs. an eight-hour international flight is also drastically different.

AirAsia X operated with the same low cost focus as AirAsia, with the same “low fares with no frills” concept. The difference here is the passenger needs on these different fly distances, normally passengers tend to expect a higher comfort level on longer flights. To meet those expectations X introduced a fixed price list with different frills where the passengers could pay for checked baggage, pillows, food and beverages, entertainment etc. In this way, the customers could pay exactly for the products and services they felt necessary.

Another important broad element is the way X used its airplane capacity to reduce costs. A known wisdom in this market is that an airline could not be profitable by charge low fares for long haul flights, because of too high operating costs per flight and too low average bookings. Before, AirAsia had not been an issue because the airline only was flying short haul. To operate in a profitable way, X started to use airplanes with approximately 20 per cent higher seating capacity than most of its competitors. This allowed the airline to charge up to 20 percent lower fees and at the same time earn the same revenue without lower other expenses.