Air Asia Strategic Report

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Strategic Management Project

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Strategies for Survival & Success

Introduction

Definition

A low-cost carrier or low-cost airline is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc.

The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. While the term is often applied to any carrier with low ticket prices and limited services, regardless of their operating models, low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares.

In due course, some airlines have actively sought to market and advertise themselves as low-cost, budget, or discount airlines while maintaining products usually associated with traditional mainline carrier's services which often result in increased operational complexity. Among these products which tend to increase complexity to reduce efficiency are preferred or assigned seating, catering other items rather than basic beverages, differentiated premium cabins, satellite or ground based wi-fi internet, and in-flight audio video entertainment. As such by advertising themselves as low-cost, this branch and category of airlines seek to gain a competitive marketing advantage over other similarly priced air transportation carrier's products; even though in actuality fare prices for the passenger may be parallel to that of other airlines.

History

While tour and package operators have been offering lower-priced, lower frilled traveling for a large part of modern airline history, not until during the post Vietnam War era did this business model really escalate and take off. Through various ticket consolidators, charter airlines and innovators in low frills airline business such as Channel Airways and Court Line, the traveling public had been conditioned to want to travel to new and increasingly further away and exotic locations on vacation, rather than short-haul trips to nearby beach resorts or resorts.

The first low-cost airline was Southwest Airlines which started flying in 1971.[8]

The first airline offering no-frills transatlantic service was Freddie Laker's Laker Airways, which operated its famous "Skytrain" service between London and New York City during the late 1970s. The service was suspended after Laker's competitors, British Airways and Pan Am, were able to price Skytrain out of the market.

In the United States, airline carriers such as America West Airlines which commenced operations after 1978, soon realized a cost of available seat mile advantage in relation to the traditional and established, legacy airlines such as Trans World Airlines and American Airlines. Often this CASM advantage has been attributed, solely to the lower labor costs of the newly hired and lower pay grade workers of new start up carriers, such as People Express Airlines, ValuJet, Midway Airlines, and their like. However, these lower costs, can also be attributed to the less complex aircraft fleets, and less complex route networks these new carriers began operations with, as well as the vastly less costly and freshly trained labor force.

To combat the new round of low cost and start up entrants into the very competitive and deregulated United States airline industry, the mainline major carriers and network legacy carriers strategically developed no frills divisions within the main airlines brand and corporate structures. Among these were Metro Jet and Continental Lite. These so-called airlines within an airline however, proved to be very short lived, for the most part and a financial burden which were quickly disposed off when economic rationalization or competitive...
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