Cost Management in Air Asia

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1.0INTRODUCTION

Background, History and the Business Concept
AirAsia is a brand of airlines operated by AirAsia Berhad. A Malaysian based low-fare company. AirAsia established in 1993 and start the operations on 18 November 1996 (Wikipedia, 2011)

Inspired by the success of Ryanair and EasyJet as low cost carrier, Toni Fernandes saw the potential of having the same concept in Asia. Air Asia executed the cost leadership strategy with introduced ticketless travelling, one type cabin, free seating, and online booking trough internet that able slash the price into 40% - 60% cheaper than regular airlines (Declanegan, 2012)

“Now Everyone Can Fly” described AirAsia’s value. Operational effectiveness and cost advantages created efficiency go directly to end user. Customer enjoy more surplus with price falls, and encourage more air travel among Malaysians (Khoo et all, 2005)

The study purpose is to analyse how AirAsia and its strategic cost management able to operate a business in low cost yet generate a profit, and able to sustain as one of the business leader in South East Asia.

2.0LITERATURE REVIEW

2.1What is Strategic Cost Management
Cost management is a process where entities have control, monitor and manage their own cost and expenses. It covers the whole budget of the business, inflow and outflow of cash and transactions in every certain of period. This is for the entity to keep track of their business transaction, and also to estimate budgets for the future. While strategic cost management is the overall recognition of the cost relationships among the activities in the value chain, and the process of managing those cost relationships to a firm’s advantage and also known as Cost Management Theory1.

2.2The importance of strategic cost management to the company

Strategic Cost Management is one of the key business strategic planning. Dr Kalyani Srinivas C defined strategic cost management as a tool for competitive advantage and value creation that does not focus on traditional cost reduction, which entails unnecessary cost elimination.

Meaney K, 2011 mentioned that cost management has purpose to ensure adequate supply of funds from the right source at the right cost, at the right time to the firm to meet its funding needs. At this point each company want to improve the profit as maximum without losing the business principle.

Strategic management can be considered as one of the strategic management technique for the company to succeed in their business.

2.3Key success factor to have good cost management in a company To have a good cost management, a company need to set a proper goal, long and short term planning. Clear target and align accountability to the target (Delloitte, 2010). Create a guide of principle was one of the critical factors of strategic cost-management-framework for the firm of foundation to achieve an effective cost management.

3.0STRATEGIC COST MANAGEMENT FOR AIR ASIA

3.1The background of Strategic Management for Air Asia (related to the concept of the business

Chan, D (2000) mentioned since 1970, Asian air travel competition has been intense. The intensity has increase very significant with economic growth in Japan, China and South East Asia. When the competition in the airlines industry become hard, complex, and uneven, AirAsia need to think strategically to win the market yet able to generate profit for shareholder.

With “Now Everybody Can Fly” as its tag line, AirAsia try hard to make the ticket price as low as possible to make the cost of flight affordable to almost everybody. AirAsia also expand the fly route to most of point where Malaysia Airlines (MAS) refuse to fly.

The concept of Low Cost Carrier (LCC) is based on the idea that people would fly a lot more often if they get an affordable fare. LCC make air travel the most simple, convenient and inexpensive form of transportation so that they can move maximum number of passenger at...
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