The Low Cost Airline: Airasia 2

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The Low Cost Airline: AirAsia
A study of opportunities, challenges and critical success factors

LGT 3007 Air Transport Logistics

Introduction
History of low cost airlines
The low-cost concept became a moneymaker in the United States, where it was pioneered in the 1970s by Southwest Airlines, the model for budget carriers elsewhere like Ryanair and easyJet in Europe.

Definition of low cost airlines
A low cost airline generally has many features that differentiate it from the traditional carriers. These features include ticketless travel, online ticket sales, no international offices, no frequent flyer points, no free food and beverages, no inflight magazines, no club lounges, use of secondary city airports.

Not all low cost airlines have these features, and not all airlines that have some of these features are low cost airlines. For example, Virgin Express is a low cost airline, but it still offers complimentary coffee and inflight magazine, and they are based at Brussels primary airport.

Case Study-AirAsia
Story of AirAsia
Air Asia, as the second Malaysian National Airline, provides a totally different type of service in line with the nation's aspirations to benefit all citizens and worldwide travellers. Such service takes the form of a no frills - low airfares flight offering, 40%-60% lower than what is currently offered in this part of Asia. Their vision is "Now Everyone Can Fly" and their mission is to provide 'Affordable Airfares' without any compromise to Flight Safety Standards.

The story of emergence of AirAsia is similar to Ryanair, since both carriers underwent a remarkable transformation from a money-losing regional operator to a profitable, low cost airline.

AirAsia was initially launched in 1996 as a full-service regional airline offering slightly cheaper fares than its main competitor, Malaysia Airlines. Before 2001, AirAsia fail to either sufficiently stimulate the market or attract enough passengers from Malaysia Airlines to establish its own niche market. The turnaround point of AisAsia is in 2001, while it was up to sale and bought by Tony Fernandes. Tony Fernandes then enrolled some of the lending low-cost airline experts to restructure AirAsia's business model. He invited Connor McCarthy, the former director of group operation of Ryanair, to join the executive team. In late 2001, AirAsia was re-launched in Malaysia as a trendy, no-frills operation with three B737 aircraft as a low-fare, low-cost domestic airline.

Opportunities faced by AirAsia in light of external development 1.Low fare of Indonesia-Malaysia trip
The fare for a Jakarta-Johor Baru trip costs Rp 100,000 (RM 88.88 one way). And charge Rp 150,000 for a Bandung-Kuala Lumpur flight, and Rp 300,000 for a Surabaya-Kuala Lumpur trip, whereas a Jakarta-Kuala Lumpur air ticket from Malaysia Airlines available at travel agents cost Rp 1.4 million. Meanwhile, Lion Air on the same route, charged Rp 1.05 million. The low fare provided by AirAsia helps it open the Indonesia market.

2.Low fare of Singapore-Bangkok service
AirAsia will increase its services between Singapore & Bangkok by introducing a 2nd daily flight to its existing schedule. This recent development came barely a month after Thai AirAsia operations started its first international flight to Singapore in early February this year. AirAsia is offering its guests promotional fares to/from Singapore- Bangkok from SGD$23.99 (THB 499) one way from the 28th March to 30th Oct, 2004. It is much lower than the lowest fare SGD$56 offered by full-service carrier. This helps it open the Singapore market.

3.Political connections
AirAsia hold 49% of Thai AirAsia with 1% being held by a Thai individual. The remaining 50% is held by Shin Corp. which is owned by the family of Thailand's prime minister, Thaksin Shinawatra. Shin Corp. has financial strength, synergy in ingormation technology and telecommunications, which support AirAsia Internet...
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