Air Asia Ibs Case Study
AirAsia – from obscurity to international prominence
WRITTEN BY RACHNA KUMARI, ERN LI KOH, ONAISEE SYED, & EDITED BY SEOW KIAN TAN
Background
In December 2001, 5 years after its founder DRB-Hicom failed to establish profitability as a full-service regional airline, AirAsia was acquired by an eager maverick Tony Fernandes who had just left his executive position in Warner Music. This proved to be the turning point for the Malaysian airline industry.
With the help of Conor McCarthy, the Irish low cost carrier Ryanair’s former director, a new business model for AirAsia was developed. The low cost carrier (“LCC”) model involves providing a no-frills flight offering, which involves cutting off value added services such as in-flight meals, allocated seating, and in-flight entertainment. This cost reduction is then passed on to customers, in tandem with AirAsia’s slogan, “Now everyone can fly.”
The Malaysian airline industry
Many critics, in and outside of the airline industry, were sceptical of the new comer’s chances of success. Here was a man with zero experience and knowledge of the aviation industry, who mortgaged his home to purchase and finance a debt-ridden firm which at that time only owned two planes. Its formidable competitor, an experienced world-class national carrier supported by the government, posed an immediate looming threat to its survival. The barrier to entry was indeed high. It was an against-all-odd, David versus Goliath scenario.
The situation was further compounded by the fact that AirAsia’s new business model was put into operation only mere months after the 11 September 2001 attacks on the World Trade Centre in the United States. Airlines worldwide were driven to enforce stricter aviation policy and protocols, which more often than not translated into added costs. Consumer confidence dwindled, causing a drop in up to 70 percent in global airline load and a 25 percent drop in air traffic (Travel Research Ltd, 2001).
This
WRITTEN BY RACHNA KUMARI, ERN LI KOH, ONAISEE SYED, & EDITED BY SEOW KIAN TAN
Background
In December 2001, 5 years after its founder DRB-Hicom failed to establish profitability as a full-service regional airline, AirAsia was acquired by an eager maverick Tony Fernandes who had just left his executive position in Warner Music. This proved to be the turning point for the Malaysian airline industry.
With the help of Conor McCarthy, the Irish low cost carrier Ryanair’s former director, a new business model for AirAsia was developed. The low cost carrier (“LCC”) model involves providing a no-frills flight offering, which involves cutting off value added services such as in-flight meals, allocated seating, and in-flight entertainment. This cost reduction is then passed on to customers, in tandem with AirAsia’s slogan, “Now everyone can fly.”
The Malaysian airline industry
Many critics, in and outside of the airline industry, were sceptical of the new comer’s chances of success. Here was a man with zero experience and knowledge of the aviation industry, who mortgaged his home to purchase and finance a debt-ridden firm which at that time only owned two planes. Its formidable competitor, an experienced world-class national carrier supported by the government, posed an immediate looming threat to its survival. The barrier to entry was indeed high. It was an against-all-odd, David versus Goliath scenario.
The situation was further compounded by the fact that AirAsia’s new business model was put into operation only mere months after the 11 September 2001 attacks on the World Trade Centre in the United States. Airlines worldwide were driven to enforce stricter aviation policy and protocols, which more often than not translated into added costs. Consumer confidence dwindled, causing a drop in up to 70 percent in global airline load and a 25 percent drop in air traffic (Travel Research Ltd, 2001).
This
References: AirAsia (2009). ‘AirAsia Annual Report: 2008’, Investor Relations, AirAsia. Retrieved from: http://www.airasia.com/my/en/aboutus/irannualreport.html Bendahara, A. & Ranai, M. (2010). ‘One week for air passenger backlog to clear’, NST Online, April 21. Retrieved from: http://www.nst.com.my/Current_News/NST/articles/20100421214146/Article/index_html Business Times Malaysia (2000). ‘MAS expected to get nod for 20pc fare increase’, Business Times, Malaysia. Retrieved from: http://www.accessmylibrary.com/article-1G1-63087906/mas-expected-get-nod.html IATA (2010a). ‘Impact of Ash Plume – May 10’, IATA. Retrieved from: http://www.iata.org/whatwedo/Documents/economics/Volcanic-Ash-Plume-May2010.pdf IATA (2010b). ‘Traffic and capacity Analysis’, IATA. Retrieved from: http://www.iata.org/whatwedo/economics/Pages/traffic_analysis.aspx Malaysia Airlines (2006). ‘The MAS Way: Business Turnaround Plan’, Malaysia Airlines. Retrieved from: http://www.malaysiaairlines.com/uploads/en/downloads/common/BusinessTurnaroundPlan(BTP1).pdf Poon, T. S., & Waring P. (2010), ‘The lowest of low cost carriers: the case of AirAsia’, The International Journal of Human Resource Management, 21(2), pp. 197-213. Travel Research Ltd (2001). ‘Latest information on the impact of 11 September on the hotels and tourism sector’, International Labour Office, Geneva. Retrieved from: http://www.ilo.org/public/english/dialogue/sector/techmeet/imhct01/ update3.pdf