CASE
HKU833
STEPHEN KO
AIRASIA: FLYING LOW-COST WITH
HIGH HOPES
AirAsia started out as a Malaysian government-controlled, full-service regional airline that offered slightly lower fares than its number-one competitor, Malaysia Airlines (“MAS”). In
December 2001, private entrepreneur Tony Fernandes took over the debt-ridden airline for the symbolic sum of US$0.26. Despite the air-travel downturn following the 11 September 2001 terrorist attacks, Fernandes believed that the timing for entering the airline market was just right, as aircraft leasing costs had dropped sharply and experienced staff were readily available due to airline layoffs. Moreover, the acquisition was welcomed by the Malaysian government, which hoped to boost the under-used Kuala Lumpur International Airport
(“KLIA”). Fernandes restructured AirAsia into the first no-frills, low-cost carrier (“LCC”) in
Asia, and the new business model was a huge success. The company generated impressive profits after its relaunch in January 2002, and soon inspired many LCC followers in the region. Being innovative down to the corporate bone, AirAsia pioneered several new services for its operation and threatened the well-being of full-service operators. In mid-2008, amid surging oil prices and intense competition, how could AirAsia increase its competitiveness?
No Frills, Low Cost
In the mid-1990s, Fernandes saw great potential for a no-frills LCC in Asia after witnessing the success of LCCs in the West. Upon acquisition of AirAsia in 2001, he invited Connor
McCarthy, the former director of successful European LCC Ryanair, to join AirAsia’s executive team. They restructured AirAsia’s business model [see Exhibit 1] and made it the first airline operator in Asia to adopt the low-fare, no-frills concept. AirAsia also became the region’s first airline to introduce fully ticketless travel and implement a free seating policy.
With the LCC model, AirAsia offered only one standard-class cabin. It
STEPHEN KO
AIRASIA: FLYING LOW-COST WITH
HIGH HOPES
AirAsia started out as a Malaysian government-controlled, full-service regional airline that offered slightly lower fares than its number-one competitor, Malaysia Airlines (“MAS”). In
December 2001, private entrepreneur Tony Fernandes took over the debt-ridden airline for the symbolic sum of US$0.26. Despite the air-travel downturn following the 11 September 2001 terrorist attacks, Fernandes believed that the timing for entering the airline market was just right, as aircraft leasing costs had dropped sharply and experienced staff were readily available due to airline layoffs. Moreover, the acquisition was welcomed by the Malaysian government, which hoped to boost the under-used Kuala Lumpur International Airport
(“KLIA”). Fernandes restructured AirAsia into the first no-frills, low-cost carrier (“LCC”) in
Asia, and the new business model was a huge success. The company generated impressive profits after its relaunch in January 2002, and soon inspired many LCC followers in the region. Being innovative down to the corporate bone, AirAsia pioneered several new services for its operation and threatened the well-being of full-service operators. In mid-2008, amid surging oil prices and intense competition, how could AirAsia increase its competitiveness?
No Frills, Low Cost
In the mid-1990s, Fernandes saw great potential for a no-frills LCC in Asia after witnessing the success of LCCs in the West. Upon acquisition of AirAsia in 2001, he invited Connor
McCarthy, the former director of successful European LCC Ryanair, to join AirAsia’s executive team. They restructured AirAsia’s business model [see Exhibit 1] and made it the first airline operator in Asia to adopt the low-fare, no-frills concept. AirAsia also became the region’s first airline to introduce fully ticketless travel and implement a free seating policy.
With the LCC model, AirAsia offered only one standard-class cabin. It