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International Business & Economics Research Journal – December 2005

Volume 4, Number 12

AirAsia In The Malaysian Domestic Airline Market: Empirical Analysis Of Strategy Mok Kim Man, (Email: mkimman@ums.edu.my),Universiti Malaysia - Sabah, Malaysia Jainurin Bin Justine, (Email: Jainurin@ums.edu.my), Universiti Malaysia - Sabah, Malaysia

ABSTRACT This paper will examine the results of the strategic actions of AirAsia in the Malaysian domestic airline market. Firstly, the paper will provide a general background of the airline industry, in particular the Malaysian domestic airline market and a summary of an analysis of the industry using Michael Porter’s Five Forces Analysis. Secondly, the paper will provide a brief background of AirAsia and Malaysia Airlines. Thirdly, the paper will analyse the results of AirAsia’s strategy vis-àvis operating and financial performance. Finally, the paper will conclude a summary of AirAsia’s achievement of the past and present and prospect for the future.

INDUSTRY BACKGROUND Airline Industry The airline industry is very competitive with existing airlines having to compete with each other as well as with new entrants from time to time. For every success such as Singapore Airlines and Southwest Airlines, there are plenty of failures such as Pan Am, TWA, Swissair, Sabena, Ansett, People Express, Go, Buzz and so on. Major Characteristics There are three major characteristics of the airline industry namely its product nature, its expenditure structure and its market entry conditions. Airlines’ product is homogeneous or undifferentiated, causing significant competition in markets, which are free from regulations and economic barriers. High capital and operating expenditure is another important characteristic of the airline industry. Aircrafts, airlines’ major capital expenditure, are very costly to acquire. For operating expenditures, aviation fuel and labour make up the two major costs in the industry. Another important characteristic of the industry is the conditions for market entry, which differs between international and domestic markets. In the international market, entry is very difficult as international flights and routes are the results of bilateral negotiations between governments. On the other hand, in the domestic and regional markets, entry depends on the level of deregulation or liberalisation. More and more countries, however, are opening up their domestic markets for more competition. In addition, government plays an important role to regulate the markets and existing players may have significant influence over new entrants. Forces Driving the Industry The major factors driving the industry are the global economy and safety issues. When the world or any region of it is in an economic downturn, the demand for airline services will fall. The late 1990’s Asian Financial Crisis, for example, resulted in minimal increase in the number of worldwide airline passengers increased only minimally from 1997 to 1998. Safety issues are also an important driver of the industry, which is subject to very stringent safety standards. In addition, there are also unexpected safety related events such as the 11 September 2001 tragedy in the US and the recent Severe Acute Respiratory Syndrome outbreak in East Asia, which caused reduction in passengers. 53

International Business & Economics Research Journal – December 2005 New Trend in the Industry

Volume 4, Number 12

The increasing popularity of low cost airlines is the newest trend in the airline industry. In the past few years, we have seen the rise of low cost airlines such as AmericaWest, JetBlue and AirTran in the US, Ryanair and easyJet in Europe and Virgin Blue in Australia. The new trend is an old concept pioneered by the US-based Southwest Airlines in the early 1970’s. From then onwards, the concept caught on with many airlines adopting it. The share of low cost airlines in the US and European markets is steadily increasing....
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