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AirAsia-Sustaining Competitve Advantage Essay

AirAsia was established in 1993 and began operations on 18 November 1996. It was originally founded by a government-owned conglomerate, DRB-Hicom. By ‘Flying Low-Cost With High Hopes’, AirAsia started out as a Malaysian government-controlled, full-service regional airline that offered slightly lower fares than its number-one competitor, Malaysia Airlines (“MAS”). On December 2, 2001 the heavily-indebted airline was bought by former Time Warner executive Tony Fernandes’s company Tune Air Sdn Bhd .

He took over the debt-ridden airline for the symbolic sum of US$0. 26. Despite the air-travel downturn following the 11 September 2001 terrorist attacks, Fernandes believed that the timing for entering the airline market was just right, as aircraft leasing costs had dropped sharply and experienced staff were readily available due to airline layoffs. Moreover, the acquisition was welcomed by the Malaysian government, which hoped to boost the under-used Kuala Lumpur International Airport (“KLIA”). Fernandes restructured AirAsia into the first no-frills, low-cost carrier (“LCC”) in Asia, and the new business model was a huge success. The company is a Malaysian low-cost airline headquartered in Kuala Lumpur.

It is Asia’s largest, and the world’s best, low-fare, no-frills airline and a pioneer of low-cost travel in Asia. AirAsia group operates scheduled domestic and international flights to 78 destinations spanning 25 countries. Its main hub is the Low-Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA). Its affiliate airlines Thai AirAsia, Indonesia AirAsia, AirAsia Philippines and AirAsia Japan have hubs in Don Mueang International Airport, Soekarno–Hatta International Airport, Clark International Airport and Narita International Airport respectively.

AirAsia’s registered office is in Petaling Jaya, Selangor while its head office is at Kuala Lumpur International Airport. Asia’s leading airline was established with the dream of making flying possible for everyone. Since 2001, AirAsia has swiftly broken travel norms around the globe and has risen to become the world’s best. With a route network that spans through to over 20 countries, AirAsia continues to pave the way for low-cost aviation through their innovative solutions, efficient processes and a passionate approach to business.

Together with their associate companies, AirAsia X, Thai AirAsia, Indonesia AirAsia, Philippines’ AirAsia Inc and AirAsia Japan , AirAsia is set to take low-cost flying to an all new high with our belief, “Now Everyone Can Fly”. Focusing on the low-cost, long-haul segment – AirAsia X was established in 2007 to provide high-frequency and point-to-point networks to the long-haul business. AirAsia X’s cost efficiencies are derived from maintaining a simple aircraft fleet and a route network based on low-cost airports, without complex code-sharing and other legacy overheads that weigh down traditional airlines without compromising on safety.

Guests continue to enjoy low fares, through cost savings that they pass on to their guests. AirAsia X’s efficient and reliable operations are fully licensed and monitored by Malaysian and international regulators, and adhere to full international standards. AirAsia X is committed in offering X-citing low fares, X-emplary levels of safety and care, and an X-traordinary in-flight and service experience to all our guests – spreading the amazing AirAsia experience to X-citing destinations in Australia and Greater Asia.

In August 2011, AirAsia agreed to form an alliance with Malaysia Airlines by means of a share swap. The alliance was struck down by the Malaysian government, in effect voiding the agreement of both airlines. On 2 April 2012 Air Asia had their first flight from Sydney to Kuala Lumpur. By early 2013, AirAsia had seen a steep increase in its profitability. The year-on-year comparison had shown a 168% increase in profits as compared to 2012. For the quarter ending 31 December 2012, the airline’s net profit stood at 350. 65 million ringgit (US$114. 08 million).

Despite a 1% rise in the average fuel price, the airline had recorded profits of 1. 88 billion ringgit for the full financial year 2012. In February 2013, AirAsia submitted an application to the Indian Foreign Investment Promotion Board, through its investment arm, AirAsia Investment Limited, to seek approval for commencing its operations in India. AirAsia wanted to take up a stake of 49% in the airline, which was the maximum allowed by the Indian government at that time. AirAsia initially invested an amount of 50 million United States dollars in the airline.

The airline wished to begin operations from Chennai and expand it’s network in South India, to where AirAsia already operated flights from Malaysia and Thailand. AirAsia’s Strategy [pic] AirAsia’s success has taken flight through the continued confidence of the company’s guests who prefer a no-frills, hasslefree, low fare and convenient option in air travel. The key to delivering low fares is to consistently keep cost low. Attaining low cost requires high efficiency in every part of the business and maintaining simplicity. Therefore every system process must incorporate best industry practices.

In order to make this possible, AirAsia do implementing several key strategies. First is stressing on Safety. Safety is the single most important criteria in every aspect of the operations, an area that AirAsia will never compromise on. AirAsia complies with the conditions set by regulators in all the countries where the airline operates. In addition, AirAsia partners with the world’s most renowned maintenance providers to ensure that its fleet is always in the best condition. AirAsia has committed itself to a program of reducing risks and hazards normally associated with our industry through a Safety Management System.

This commitment is extended to ensure the full integration of a safety culture, safety policy and safety objectives in a proactive approach to aviation safety. In short, AirAsia’s Safety Management System is not just an add-on but a core part of its business process. It is the way the company’s do business. The critical safety functions of senior management are in the areas of strategy and leadership. Senior management will provide a vision for safety management and provide adequate resources to achieve this level of safety. Second is ensuring high aircraft utilization.

AirAsia’s high frequency flights have made it more convenient for guests to travel as the airline implements a quick turnaround of 25 minutes, which is the fastest in the region. This has resulted in high aircraft utilisation, lower costs and greater airline and staff productivity. Efficient Fleet, AirAsia continues to invest in new aircraft. As of the end of 2008, the Group received a total of 56 Airbus A320 aircraft and the deployment is as follows. Malaysian operations has received 46 and is now a fully Airbus A320 aircraft feet. Thailand operations has received six and Indonesian operation, four.

AirAisa’s fleet is among the youngest in Asia and they will get even younger as they take delivery of 14 Airbus A320 aircraft and retire nine older Boeing 737-300 “Classics” aircraft in 2009. These Airbus A320 are ultra modern, more fuel efficient and environmentally friendly aircraft with unparalleled levels of passenger comfort, serviceability and reliability. They have received positive feedback that that passengers love this aircraft. These aircraft have reduced operational cost significantly and helped to deliver strong profits. Third is offering low fare but no frills.

AirAsia targets guests who are prepared to do away with frills such as meals, frequent flyer miles or airport lounges in exchange for fares lower than those currently offered without comprising on quality and service. Guests have the choice of buying exclusively prepared meals, snacks and drinks from their in-flight service at an affordable price. While onboard AirAsia the best thing to do, of course, is to eat and drink. They are offering a vast selection of food and drinks without punching a hole in your wallet. Fourth is ensuring streamline operations. Making the process as simple as possible is the key to AirAsia’s success.

The company is working towards a single aircraft fleet, which greatly reduces duplicating manpower requirements as well as stocking of maintenance parts. There is only one class seating, which is first class, and passengers are free to sit where they choose. Fifth is ensuring lean distribution system. AirAsia offers a wide and innovative range of distribution channels to make booking and traveling easier for its guests. AirAsia’s ticketless service provides a low cost alternative to issuing printed tickets. The company have worked very hard through countless hours of research and development to ensure that their istribution system is, simple. ‘Simple’ is a relative word when you are catering to the needs of millions of people across the world. AirAsia have developed a comprehensive, yet simple distribution system. One that is capable of handling the most technologically savvy customer to the most technologically deprived. The company’s website www. airasia. com is available in seven languages and their call centre is conversant in the major spoken Asian languages. For those always on the go, they can book a flight using mobile phone at www. mobile. airasia. com.

The company have recently upgraded their self check-in machines with a simpler and more powerful version. The transaction takes not more than two minutes to complete. This new machine also has an advanced security feature which effectively cuts the risk of fraud. Other than that, the company have also expanded their web check-in facility to all stations and destinations. Customer can now use the web check-in facility even if they have baggage (previously web check-in was only for passengers without baggage). Sixth is point to point network. The Low Cost Carrier model shuns the hub-and spoke system and adopts the simple point to-point network.

All AirAsia flights are shorthaul (four hour flight or less). The underlying business is to get a person from point A to B. On Time Performance, nothing irks airline passengers more than a delay. Often, these delays are caused by factors beyond the company’s control. This leading low fare airline in the Asia has been expanding rapidly since 2001, to become an award winning and the largest low cost carrier in Asia. With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand and Indonesia.

To date, AirAsia has flown over 55 million guests across the region and continues to spread its wings to create more extensive route network through its associate companies, Thai AirAsia and Indonesia AirAsia. AirAsia with the ordinary symbol but with strong brand, “now everyone can fly” nowadays has been phenomena in Airlines industry especially in Asia region. AirAsia is one of the airline companies who more focused with the strategy how to reduce inefficiency and make it low possible fare in the world.

With the cost-efficiency, low complexity and profitability are always the cornerstones of building a strong business. According to Dawna and Blaise (2005), the most successful carriers came to dominate their hub markets allowing them to exert greater control over pricing and capacity. This is what AirAisa successfully done. Till date, AirAsia had received many awards and recognition form various parties. The achievement was not only given to the company itself, but also to Ybhg. Dato’ Tony Fernandez as well. In 2010, he was awarded as Masterclass Global CEO of the year. (See Appendices).


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