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Air Asia:
An evaluation
6 December, 2010
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Behaviour
• Cognitive: Why does the customer choose Air
Asia? 
– Price
– Service: From buying preferred seat to checking in
online
• Affective: Does the customer feel good when flying
with Air Asia?
• Conative: What is the customer’s intentions? 
– To get from A to B quickly, economically, with little
hassle
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Background
• LCC – Malaysian Low Cost
Carrier formed in 2001
• Low cost = No frills
• Targets both ends of the market –
corporate people to low income
citizens
• Offer courier and cargo services
• Air Asia is the brand with 18 Adapting its
business model?
subsidiaries
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The Air Asia brand

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Facts
Today,
Today, there
there have
have over
over
In
In 2001
2001 Air
Air Asia
Asia held
held 22 80
80 planes
planes doing
doing nearly
nearly
planes
planes and
and had
had 66 routes
routes 3,700
3,700 flights
flights every
every week
week

•• 17
17 countries
countries
1st
1st successful
successful •• 130
130 routes
routes
low
low cost,
cost, ticket-
ticket- •• 66
66 destinations
destinations
less
less airline
airline in
in •• 99 hubs
hubs
South
South East
East Asia
Asia •• Main
Main hub
hub atat KL
KL
•• 25
25 minute
minute turn-
turn-
around
around time
time

44%
44% of
of flights
flights out
out of
of KL
KL are
are Air
Air Asia’s
Asia’s
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Objectives
Values
• To be the largest LCC in Asia, serving
3 billion people who are currently
underserved with poor connectivity
and high fares
Mission
• To be the best where employees are
treated as a family
• Create a global brand
• Attain the lowest cost
• Maintain the highest quality product,
embracing technology to reduce cost
and enhance service
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Strategy
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Tactics & Actions

SAFETY LOW FARE

SERVICE SIMPLICITY
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Tactics & Actions

Courteous,
Courteous, but
but
limited
limited passenger
passenger
service (no
service (no meals)
meals)
Productive
Productive and
and
skilful employees,
skilful employees, Short
Short haul,
haul, point-
point-
and simple,
and simple, to-point
to-point routes,
routes,
aggressive and
aggressive and often
often to
to secondary
secondary
focused management
focused management Competitive airports
airports
and structure
and structure Advantage

High
High Frequent,
Frequent,
aircraft utilisation
aircraft utilisation reliable schedules
reliable schedules
Standardised
Standardised
fleet of
fleet of aircraft
aircraft
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Control
Yield
Yield optimisation:
optimisation:
25-min
25-min turnaround
turnaround Operational
Operational
integration:
integration:
Network
Network synergy:
synergy: Maximisation
Maximisation
Leverage
Leverage onon the
the of
of ground
Strategically build, ground
subsidiaries
subsidiaries to
to handling
handling
cover
cover weaknesses
weaknesses
organise and sustain
operations
operations
the advantage

Response
Response to to environmental
environmental Related
Related
uncertainties:
uncertainties: diversification:
diversification:
Focus
Focus onon ancillary
ancillary businesses
businesses Air
Air courier
courier
as
as natural
natural hedge
hedge against
against fuel
fuel services
services
price
price increase
increase
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Risks & Issues

• Challenges in keeping costs down
Fuel Prices Inflation Price War
• Rising fuel prices • Affects exchange rate, • More LCCs may create
increase costs may throw company into unhealthy price war,
substantially, which if economic bubble and impacting the
too high will reduce may create complex cost company’s profits and
profit or even create a and profit calculation market share
loss-making situation
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Risks & Issues

• Ability to retain customers
Limited Service Uncompetitive Prices or Loss of Trust
Services
• The difference between • Need to balance • Air Asia has had
LCC and regular airlines between prices and reliability issues in the
are not only in price, but services – expensive past. For example, the
also the limited services tickets or bad services airline cancelled
provided, which may put may lose customers but Chengdu to Kuala
off some customers cheap tickets may mean Lumpur flight without
reduce services which satisfactory explanation
some customers may not and failed to compensate
like properly, resulting in
customers losing their
confidence
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Political Outlook
For Against

• ASEAN Open-sky Agreement to liberalise the
regional airspace by 2020 means easier access
to markets
• ASEAN establishing an integrated economic
market by 2015 means less procedural or tariff
hindrances thus propelling more travels
• ASEAN governments policy of encouraging
political stability would attract greater
investments
• More uniform labour laws across the region may
make it easier to move resources around
Score: +4
• Indonesia declared as not ready to freely
compete by imposing landing-rights limit to only
5 of its large airports
• China sets strict fly-zone corridors citing
national security reasons
• More awareness and regulations on worker’s
protections and rights may increase operational
costs
• Pressure for tighter environmental laws such as
“Carbon Footprint” could lead to higher
operational costs
Score: -4

Political
Political outlook:
outlook: 00
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Economic Outlook
For Against

• IMF predicted strong economic growth in the • As economies strengthen, labour cost will
next 2-3 years for ASEAN due to steady demands become more significant in the long-term
from North American and European countries as
well as strong growth in tourism related incomes
• Growth from India and China that flank the
region will create trickle-down effect into
ASEAN countries
• Leisure travels would increase as disposable
income increases and air travel becomes more
accessible
• The region offers some of the lowest labour cost
anywhere

Score: +4 Score: -1

Economic
Economic outlook:
outlook: +3
+3
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Social Outlook
For Against

• As prices fell, “new kinds of behaviour” are
established (McKinsey Quarterly, June 2010)
• More educated generations have different
attitudes towards travel and leisure activities
• Education, jobs and careers are less restricted by
national boundaries
• Skills shortage in highly competitive
environment means high investment in HR
training and development
• As education and income levels rise, so will
environmental consciousness that sees air travel
as less “green”

• Young population in the region gives good

prospect for long-term availability of workforce
and customers
Score: +4 Score: -2

Social
Social Outlook:
Outlook: +2
+2
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Technological Outlook
For Against

• The region has one of the highest Internet
penetration and mobile network growth in the
world, essential to the success of the business
model
• More use of automation reduces operational
costs (e.g. self check-in via mobile, web portal
and airport kiosks)
• Commitment to use modern aeroplanes with
better engines would help to reduce fuel
consumption, lower operational costs and
moderate the “green” oppositions
Score: +3
• As technology become more accessible, so
will barriers to entry, hence eroding competitive
advantage
• Alternative modes of transportation, such as
motorway networks and high-speed/bullet trains,
are in various stages of being built, planned or
studied for the region
Score: -2

Technological
Technological Outlook:
Outlook: +1
+1
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Conclusion
• The political outlook is neutral but, with better education
and economy, the socio-political landscape is changing to
be more open and democratic
• Other outlooks are positive, but particularly strong on the
economy and social aspects which have proven to be some
of the strongest drivers for change in the region
• Information gathered implied that most passengers do not
choose Air Asia because of Affective reasons but mainly
Cognitive and to some extent Conative
• Analysis made led to the conclusion that Air Asia has the
aptitude and attitude to sustain its business in the long-term