Air Asia Economic Analysis -Mba

Topics: Airline, Low-cost carrier, AirAsia Pages: 18 (6907 words) Published: January 16, 2010
Table of Contents
{text:bookmark-start} {text:bookmark-start} Background {text:bookmark-end} {text:bookmark-end} A successful example of a Malaysian no frills airline is Air Asia. Revolutionized and Reinvented by Tony Fernandez in 2001. It is based on the low-cost, no-frills model of the US carrier Southwest. The concept of Air Asia is based on the belief that demands for short-haul air transport is price flexible. That means, if prices for flights are being reduced, more people will fly. Traditionally, airline concepts are based on the assumption that airline traffic grows in line with the economy and that cutting prices will only lead to a decrease in revenues. With the introduction of the ‘no-frills’ concept to the Malaysian market, Air Asia has proven this theory wrong and goes from strength to strength by actually increasing the size of the market and more recently by taking away passengers from the major airline competitors. With its expanding strategy as objectives to reach excellent standard around the world, marketing in Asia has been the key player to achieve success. Air Asia is one of the businesses that have successfully adopted cost leadership through operational effectiveness and efficiency. The cost advantages have enabled Air Asia to become the Asia’s leading low fare airline. Air Asia has successfully positioned itself in customers’ mind. Its net profit for the second quarter ending 31 December 2004 was reported RM 44.4 million, a 323% increase over the previous quarter. AirAsia until today has flown more than 55 million passengers in and around Asia (Air Asia, 2005). AirAsia has also ventured into other market that complements with the airlines business. It has started franchises like the tunes hotels and red box couriers to gain maximum efficiency in and around the airline business. {text:bookmark-start} {text:bookmark-start} The Business Environment Needed for the Firm to Adapt {text:bookmark-end} {text:bookmark-end} AirAsia is an Oligopoly market as there are only a few major players in the airline industry with substantial barriers to entry .they are non-cooperative and pursue profit-maximizing strategies based on the assumptions on competitor action. The major players in the airline industry in Malaysia are Malaysian airline, firefly, who a combined own 40% of the market share. In order to maintain its competitiveness in this dynamic oligopoly market, AirAsia has positioned itself as one of the low cost no frills airline that focus on providing traveler a cheap and efficient way to travel from once place to another. To survive in a long run AirAsia has ventured into newer services that complements their airline, also they have ventured with airlines in other countries to expand their market share around the ASEAN region. According to IATA (International Air Transport Association), the estimated business for airline in Asia is about 847Million per annum, whereby AirAsia owns about 40% of the market share for low cost airline in Asian region. With Air Asia’s plan to expand, more in the Asian sector there is certainly a lot of opportunity for AirAsia to gain high income. The main goal of AirAsia is to focus on improving the customer and to expand in and out of Asia. The major customer base of AirAsia is the middle and low-income group whose main preference is to get from one place to another in a efficient and cost efficient manner. AirAsia has adapted to the economic situation in such a way that 50% of their customer can help them break even and the remain percentage are all profit. The fuel crisis that happened was one of the major effects that affected many airlines, which lead them to shutdown. Oasis airline of Hong Kong, Zoom airlines were some of airlines that were forced to shut down due to the overwhelming fuel cost. AirAsia on the other hand has an adapted to this situation via its operational model, and by using a series of fuel-efficient fleet...

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