After acquiring Air Asia from the Malaysian government in 2002, Tony Fernandes completely altered the business model of its previous owners and re-established the company with just 3 air planes. Owing debts of about 11 million U.S, this move was very risky; however by offering low cost prices, the company was able to attract sufficient travellers. After acquisition, 5 years later Air Asia became renowned globally as the least expensive airline in terms of cost per seat available. In 2008, Air Asia was one of the most profitable airlines; the company was not even affected by the economic crises as it was comfortably earning a return on assets of 4% It came as no surprise as Air Asia won skytrax award as the world’s best low cost airline. Well deserving as well because in just 7 years it had efficiently expanded stretching over south East Asia, amassing an outstanding 11.8 million customers from an initial 200,000, Air Asia created an empire for itself. In 2007, the company embarked on a new journey. They were trying to get into the long haul market, having achieved tremendous success in the short haul market using a simple basic model air craft, the low-cost carrier (LLC) they wanted to gain market share in the long haul market, using the same basic model, the LLC, which in times past previous airlines that tried the same strategy had failed. But having success in the previous market, Air Asia believed that by sticking to their pricing strategy, the only significant problem they would encounter in the long haul market would be competition.
There are 2 key strategic issues
1. Air Asia must choose between going into the competitive long haul market vs. remaining in the short haul market, therefore cancelling Air Asia X 2. Their ability to compete against already established long haul airlines who have efficient and working business models that give them competitive advantages like baggage- handling, frequent...