Case study: Airasia, what's next? - WordPress.com

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Park, Tae Sung; Yap, Lik Hang;Lee, Ja Young; Ebel Khoo

MONASH UNIVERSITY

CASE STUDY: AIRASIA, WHAT’S NEXT?

TaeSung Park ([email protected]) Page | 1

Table of Contents Executive Summary…………………………………………………………………………………..i

1. Introduction ................................................................................................................................... 4

2. Analysis ......................................................................................................................................... 4

2.1. Environmental scanning: Macro and Industry .................................................................... 4

2.1.1. Political ...................................................................................................................... 4

2.1.2. Economical ................................................................................................................ 5

2.1.3. Social ......................................................................................................................... 5

2.1.4. Technological ............................................................................................................ 5

2.1.5. Legal .......................................................................................................................... 6

2.1.6. Environmental ........................................................................................................... 6

2.2. Differing Demand Compared To North America and Europe ............................................ 6

2.3. AirAsia’s generic strategy ................................................................................................... 7

2.3.1. Strategic similarities and differences between AirAsia and Incumbent Low Cost

Carrier (LCC). ...................................................................................................................... 7

2.4. Overlooked risks.................................................................................................................. 8

2.4.1. Singapore government’s rejection ............................................................................. 8

2.5. Fernandes’s entrepreneurial strategy ................................................................................... 9

2.6. AirAsia Strategy against potential and existing competitors ............................................ 10

2.7. Outlook of Asian passenger air transport marketplace and lessons can be drawn from the

North American and European. ................................................................................................. 10

2.8. Assessment of AirAsia moving beyond its historic strength. ........................................... 11

3. Recommendation ........................................................................................................................ 13

3.1. Expand the market towards Pakistan................................................................................. 13

3.2. Strategic alliance with Pakistan International Airlines ..................................................... 14

3.3. Benefits that could be gained ............................................................................................ 14

3.4. Cost analysis ...................................................................................................................... 15

4. Conclusion .................................................................................................................................. 16

Reference List .................................................................................................................................... 17

Annex................................................................................................................................................. 20

mailto:[email protected]


List of Table TABLE 1. GDP PER CAPITA (US$), WORLD DEVELOPMENT INDICATORS, WORLD BANK, 2014 ................................ 5 TABLE 2. PAKISTAN’S ECONOMIC INDICATIONS 2007-2012, WORLD DEVELOPMENT INDICATIONS, WORLD BANK,

2014 ........................................................................................................................................................ 13 TABLE 3. COST PER AVAILABLE-SEAT-KILOMETER (ASK) ANALYSIS. BY OWN WORK. ............................................ 15



List of Figure FIGURE 1. COMPETITIVE ADVANTAGE OF NATIONS: CREATING AND SUSTAINING SUPERIOR PERFORMANCE, PORTER,

M. E., 2011. ............................................................................................................................................... 7 FIGURE 2. SOUTHWEST AIRLINES’ ORIGINAL LOW-COST BUSINESS MODEL, ALAMDARI & FAGAN, 2005. .................. 11


i

Executive summary

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 failed 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. AirAsia, 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

travelers. 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.

It may be foreseeable that some of budget airlines faces the challenge when they attempted to

expand the market fast. Also, the regulations and legal factors of institutions such as governments

may be the constraints for AirAsia to expand further into new markets even though there have been

some form of open sky agreements in the world. In addition, the demands and values of consumers

in different markets may be not identical that thorough consideration of AirAsia is required.

It is recommended that

enter into Pakistan as a new market since the pattern of regulation for opening their sky to

foreign operators is detected;

take care of customer satisfaction in Pakistan market with careful management of employee

as the influence of direct contact of staffs are found to be significant;

Form strategic alliance with Pakistan International Airline for the benefits of having

political backup and pursuing cost leadership strategy,

assuming that no behavior of bad faith will be occurred (e.g. bribery, take-over) by competitors,

governments, that demand of consumers in Pakistan will be similar with those whom AirAsia used

to cater.


1. Introduction

Fernandes had a dream to own the airline since he was young. He earned accounting degree, worked

at Virgin Group, and left the group coming back to Malaysia in 1992. He was tired of it and decided

to own his airline, and ultimately purchased AirAsia with a symbolic one ringgit which was

financially struggling in 2001. He persuaded McCarthy, Ryanair’s former director of group, to invest

and be executive team of AirAsia in where their value proposition was described as “Ryanair

operational strategy”, even Malaysian government was favorable to its strategy that possibly brought

tremendous opportunity, with the slogan of “Now everyone can fly”. Fernandes’ vision has turned

AirAsia to become one of the well-known airline brands in the world. AirAsia focused on very lost

cost structure, and finally achieved the lowest cost among the airline industry in the world, which

brought themselves the enormous expansion of business. However, there is arising concerns that other

airlines which attempted fast expansion faced serious challenge. Even though he succeed to expand

AirAsia into 42 international city as of 2009, rigorous scanning of political and demands of regions

are required. He treats the employees as the family member in non-hierarchical atmosphere which

lead the company into good integration and working environments (King, 2013). Fernandes believed

openness, creativeness, and passion of his employees, therefore, he valued on inspiring his people,

by which himself can be described as transformational leader together with the entrepreneurship,

charisma, and innovation (King, 2013).

2. Analysis

2.1.Environmental scanning: Macro and Industry

To evaluate the macro environment in the Southeast Asia region for budget airline, PESTLE analysis

were conducted to gain a greater insight. PESTLE framework assesses the 1) Political, 2) Economical,

3) Social, 4) Technological, 5) Legal and 6) Environmental issues among the region.

2.1.1. Political

Budget airlines grows rapidly in the Southeast Asia region after the the liberalisation of the industry.

Countries including Thailand, Malaysia, Cambodia, Philippines and Singapore underwent

deregulation of the budget airline industry. Moreover, reciprocal access agreement were implement

among Southeast Asia countries with the United States to embrace the liberalisation of the industry.

This implies the open skies services agreement encourage more air traffic to enter and exit the region



domestically and internationally. Finally, governments in these countries allow more new private

budget airlines were introduced to the industry to increase competition.

2.1.2. Economical

Table 1. GDP per Capita (US$), World Development Indicators, World Bank, 2014

Table 1 shows the GDP per capita for several countries in Southeast Asia from 2004 to 2013. There

is a obvious increase of GDP per capita among these countries, which indicated that the purchasing

power of the region had gone up. In general, due to the strong economic growth in this region, budget

airline’s ticket are now more affordable among middle income population.

2.1.3. Social

The large population base of the Southeast Asia region creates a large market for aviation travel.

Among those, Indonesia that with 235 million potential passengers fuels the growth of budget airline

industry. However, there is an perception of Asian passengers values quality more than price. Hence,

despite the low price strategy, certain inflight quality standards will have to met the expectations of

Asian passengers.

2.1.4. Technological

Infrastructures such as international and domestic airports, public transports to the terminal are quite

sophisticated in the region. Malaysia for example, every states at least has a domestic airport, while

bigger cities might have a combination of international and domestic terminals. Internet coverage are

usually adequate for the purpose of purchasing online ticket, which lower the operating cost in budget

airline.

Country

Name 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Brunei

Darussalam 21819 25914 30613 32109 37094 27212 30880 41060 41127 38563

Cambodia 406 471 537 628 743 735 783 878 945 1008

Indonesia 1161 1273 1601 1871 2178 2272 2947 3470 3551 3475

Malaysia 4918 5554 6180 7218 8460 7278 8754 10058 10432 10514

Philippines 1085 1201 1399 1681 1921 1832 2136 2358 2587 2765

Singapore 27405 29870 33579 39224 39722 38577 46570 52871 54007 55182

Vietnam 607 699 797 919 1165 1232 1334 1543 1755 1911



2.1.5. Legal

Competition regulation implemented in several countries such as Malaysia, major merger or

acquisitions were mostly prohibited by the local government to ensures the industry’s competition.

Foreign direct investment were also limited to joint ventures or alliances by several countries in the

region. Moreover, regulatory systems in some of these countries are quite weak, which might affect

the business planning in this region.

2.1.6. Environmental

Environment is really a big advantage for the airline industry, particularly to budget airlines. This is

due the lack of high speed cross countries railways or highways, which make land travelling among

countries difficult. Moreover, most the countries are separated by sea which pave ways to the budget

airlines in the region as either travelling in business or pleasure have to take a flight to another

country. Additionally, tourism industry are a major industry in the Southeast Asia countries. The

spilled over of the growth tourism industry also increases the demand for budget airline, as more

passengers demand for more low cost and fast travel options while travelling in the region. Finally,

the countries were located near to each other, within 3 hours flight, few countries can be reached from

Malaysia to Singapore, Indonesia, Philippines, Brunei and Thailand. Which budget airline can

achieve a cost benefit from their fuel consumption.

2.2.Differing Demand Compared To North America and Europe

Firstly, although having huge pool of potential passengers, as mention above, the Asian regulatory

systems are deemed to unable to keep pace on the uncertain demand for low fare service (Lawton &

Solombo, 2005). Which creates a more volatile and uncertain business environment in Southeast Asia

market compared to the western markets. Moreover, nature of demand for low fare services might be

different in Asia Pacific than the western countries due to the existence of high speed rail across

countries. As mention in the analysis above, passengers European countries can choose to travel by

land transports, which make them less sensitive to price offered by the budget airlines. Conversely,

in Asia pacific region, the only efficient way to travel across countries is limited mainly to air travel.

Hence, price level of the fares plays a major influences to the demand for the budget airline industry.

To conclude, in North American and European markets, demand differs from the type of transport



due to the abundant substitution of cross countries transport. In Asia pacific region, demand differs

in the selection of airline companies according to the price.

2.3.AirAsia’s generic strategy

Aligned with the mission statement, AirAsia business strategy centered on cost leadership from

Porter’s generic strategies (2011), since they are mainly targeting the customers who are sensitive in

pricing. AirAsia pursue its competitive advantage by providing services at a lower price compare to

its competitors price. Operation effectiveness and outstanding efficiency are the two main

characteristics of low cost business including in AirAsia to achieve bigger cost advantages (AirAsia,

2014).

Figure 1. Competitive advantage of nations: creating and sustaining superior performance, Porter, M. E., 2011.

2.3.1. Strategic similarities and differences between AirAsia and Incumbent Low Cost

Carrier (LCC).

As it is written from the case, AirAsia, Southwest and Ryanair are all known as low cost airlines

which are all currently acting as a strong cost leaders in their region, respectively. Despite they are

all in low cost carrier (LCC) industry and known as using cost leadership as their business strategy,

there are some similarities and differences to note. Firstly, Similarity is the way of pursing cost

leader ship strategy. AirAsia resembles Southwest’s successful people-oriented strategies in the way

of treating their employees and Ryanair’s efficient operational strategies such as no frills, landing in

secondary airport (Kling & Smith, 1995; O’Connell & Williams, 2005; AirAsia, 2014). Secondly,

differences would be the reason of pursuing those strategies such as people oriented strategy and

efficient oriented strategies. Southwest and Ryanair emphasize those strategies in order to



differentiate themselves from other low-cost competitors in their fierce competitive and relatively

saturated American and European markets. Thus, for Southwest and Ryanair are hard to position

themselves as just pursuing cost leadership but could be argued that they are using differentiation as

well (Kling & Smith, 1995; Baroto & Abdullah, 2011). It implies that the Porter model does not

appropriately account for firms like Southwest and Ryaniair that achieve both low costs and

positive differentiation (Kling & Smith, 1995). However, AirAsia is operating its business in a

Southeast Asian market with limited competition and growing demand as a new market segment

compared to saturated America and European market.

2.4.Overlooked risks

The case indicates that Fernandes was concerned of most of the risks, especially having worked in a

decision making capacity in the same geographic region. Fernandes also invited Connor McCarthy,

the former director of group operation of Ryanair for seeking advice from professional low cost

carrier industry. These effort to avoid risk could be noticed from the strategies which resembles

other successful low cost airlines such as Southwest, Ryanair. However, one area that have

overlooked is macro political risks. Nations differ in political risk, which affects the stability of

their markets (Simon, 1984). Perception of foreign businesses entering to their country also differ

by governments that some of countries welcome as foreign capital comes in and some shows

negative respond as fierce of losing their market share (Peng, Wang & Jiang, 2008). These diverse

aspect implies the organization that understanding of political environment and domestic and

foreign government’s attitude is crucial part of building international business strategic planning

since doing business internationally could be seen as dealing with both domestic and different types

of governments, relationships, and levels of risk which country possess (Boddewyn, & Brewer,

1994; Holburn & Zelner, 2010). Political risk refers to government’s activities that negatively

affects the organizations such as forcing unjust law with changing policy or regulation (Simon,

1984). It would link to political instability that refers to likeability of sudden change from war,

revolution, democratic changes in government or other political turmoil (Peng, Wang & Jiang,

2008).

2.4.1. Singapore government’s rejection

Initially, AirAsia wanted to locate their flights from the southern state of Johor, near Singapore, in

order to operate the business in lower cost than operate in Singapore. Furthermore, to attract the

customers, AirAsia attempted to operate a convenient bus service which links the city to state.



However, Singapore government rejected the idea that mentioned as ‘bus link for AirAsia would

never be approved’ (Kaur, 2012). It reflects the fears that Singapore’s Changi airport would lose

business to Johor’s new Senai airport. Therefore, AirAsia had to use Changi airport, which led to

burden of high cost in operation by SGD$21 departure and security tax of Changi.

2.5. Fernandes’s entrepreneurial strategy

According to Boyett (1996), entrepreneur is an individual who have the resources to own a private

firm and at the same time expecting to be benefited directly from the labors. By looking at the case,

Fernandes does possess entrepreneurial traits such as flexibility, insightful, perceptiveness, and the

ability to accept change as he has succeeded in making his dream come true which is having his own

airline.

To become an entrepreneur, risk is always present and Fernandes who is also a risk taker, has tackled

it head on by purchasing AirAsia for one Ringgit even though previously AirAsia is failing. As

Fernandes is independent minded person who trust his guts, Fernandes who is a first timer has the

confidence to purchase AirAsia without prior knowledge on airplane industry. By becoming

independent minded person, Fernandes has the power to obtain something new and huge when

nobody else believe or dare to do it.

The other strategy that Fernandes took is opportunity. Through meeting Conor McCarthy in a trip to

Europe, it helps Fernandes to make a better decision. One of Conor McCarthy advice is to focus closer

to home which is believed the reason behind it was to try whether you can compete with country that

has the similar culture. By having the opportunity to meet and talk with Conor McCarthy, Fernandes

succeeded to persuade Conor McCarthy to become part of AirAsia’s team as soon as Fernandes

bought AirAsia. Fernandes strategy in inviting Conor McCarthy to join the team is a great idea, as

Conor McCarthy was once a director of Ryanair which by having him in the team, it indirectly will

help AirAsia easier to be handled. Thus, Ryanair operational strategy was used by AirAsia to compete

as well as survive in airline competition.



2.6. AirAsia Strategy against potential and existing competitors

AirAsia was launched in 2002 which is more than a decade ago. If there is a new competitor, AirAsia

have a lot of advantages compared to the new opponent. AirAsia has the advantages in terms of brand

image, customer loyalty as well as government support as AirAsia is the first low fare airlines in Asia.

AirAsia also has the advantage to compete with multinational competitors such as knowledge of

Asian culture, technology know-how, and experience in the field of airlines. Hence, to reduce the risk

as well as secure the position, AirAsia can start to identify the weaknesses and overcome it as most

of the new competitor will imitate AirAsia strategy as well as improve it. The other way is by going

for more international markets as AirAsia seems to have the resources and capability to do so.

2.7.Outlook of Asian passenger air transport marketplace and lessons can be drawn from the

North American and European.

The Asian passenger air transport marketplace could shakeout if Asian governments fail to deregulate

or, for those that have already deregulated, impose strict competitive regulations in the airline

industry. Moreover, if another economic recession is to hit, business trips will decline due to

weakened purchasing power. However, since there is lack of alternative transportation such as high-

speed railways, highways which connects internationally, and target consumers in most of South-East

Asian countries are ‘relatively less affluent with increasing disposable income’, thereby demand for

low-cost air transport will continue to grow.

From the deregulation in the 1970’s till the early 2000’s the transformation of the low cost concept

in the United States can only be described as a series of innovations, proliferations and consolidations

where many other low cost airlines such as Pacific Southwest, New York Air, Jet America entered

the market of which, some survived the competition and others did not. This also caused some of the

major carriers to start their own subsidiaries under the low cost banner in order to regain their lost

market share (Francis, Humphreys, Ison & Aicken, 2006).

In Europe the low cost concept was originated in the UK and Ireland based on the Southwest model

with the introduction of easyJet and Ryanair in 1995. Their success was attributed to the favourable

economic framework that encouraged the low cost airline industry. For example, the deregulation

allowed airlines of member states to operate domestically within the European Union. Another

Example is low charges at underused airports which increased the passenger numbers going into those

airports and finally, their direct sales approach using the internet and call centers (Francis et al, 2006).



Lesson that can be drawn from the North American and European experience and be applicable in

the Asian setting is Low cost model. The success of low cost airlines can be derived from what is

called a low-cost leadership position strategy. According to (Flouris & Oswald, 2006), the goal of a

low-cost leader is to include the costs to the lowest relative to industry rivals and, to create a

sustainable cost advantage over the competition. The most important concept to this strategy is that

cost is not equal to price. The original low cost model is designed based on this concept and as

outlined in Alamdari & Fagan (2005), the original “South West Low Cost Model” which consists of

key factors below:

Figure 2. Southwest Airlines’ original low-cost business model, Alamdari & Fagan, 2005.

2.8. Assessment of AirAsia moving beyond its historic strength.

It may be a challenging idea that AirAsia moves beyond its historic strength. Firstly, to deliver on

nonstop service to Europe and a one-stop service to the United States, AirAsia X would need to rely

on its small A340 fleet, and replacing these and growing fleets of the new aircraft. As it was currently

not scheduled to receive its first new aircraft until 2016, it may take time. Secondly, Asia’s regulatory

environment and uncertain demand for low-fair services created uncertainty. Some analysts predicted

that budget airlines will continuously cater the demand for less affluent consumers and the other said

lower average income should boost demand rather than constraints for the budget airline. This implies

the doubts that the concept of AirAsia can also be successful beyond its historical strength into Europe

and other regions because of difference in level of average income. Other analysts added that there is

lack of bilateral agreements that allows new low-fare carriers to fly between countries, and lack of

satellites airport for cutting costs.



However, it is prospect that there are a lot of factors that indicate the future success of AirAsia. Due

to regulatory restrictions from country to country, competition for tourist revenue is pushing more

countries to open up their sky, according to Fernandes, with an example of open skies agreements of

ASEAN in 2008 although it is expected to be fully implemented in 2015. Also, 2007 AirAsia made

an agreement with the cargo management company as cargo plays a key part of AirAsia’s additional

income, capital raised by IPO enabled it to create opportunity for future expansion.

Overall, it is known from the case that AirAsia should focus not only on cost saving, but also on

profits. They should capitalize on their accomplishments by expanding into comparable markets.

With their expansion into these new markets, they will create additional revenue helping the company

reduce their dependence on existing markets. However, the decision-making should be made

rigorously and thoroughly due to raising factors that may take AirAsia into dangers.



3. Recommendation

3.1.Expand the market towards Pakistan

Table 2 above shows some of the economic indications that were relevant for the budget airline

companies such as AirAsia, while considering the market potential of the country. Firstly, Pakistan

shows positive annual economic growth after the global financial crisis at 2008, GDP growth shows

that Pakistan is growing steadily at 1% per year. Moreover, to better assess the purchasing power of

the people in Pakistan, GDP per capita ($) in the nation also shows a stable increase since 2007, which

implies budget airline are more affordable compared to premium service provider.

Being a budget airline company, online ticket booking is crucial for cost saving, hence the data also

presents the internet users in Pakistan to show the internet usage among the people. This shows that

Pakistani’s internet usage were also increasing over the years, meaning that, air ticket booking

through online are suitable in Pakistan. Last but not least, the number of arrivals to Pakistan for

international tourism shows a gradual climb since 2007. This implies, the tourist flow to Pakistan

have been increase, making Pakistan a favourable tourism destination. AirAsia should capture this

market to maximise the brand presence in Pakistan while other international budget airline are still

absent.

Furthermore, in a research done by Ahmad, Wasay and Malik (2012) about satisfaction of customers

in Pakistan airline industry, it is found that employee, especially who deals directly with the customers,

has a major contribution to customer satisfaction in airline industry. As a hierarchical society, people

in Pakistan tend to be satisfied when they feel they are respected and treated well (Kwintessential,

2014). Therefore, AirAsia is recommended that it needs to focus on not only cost cutting, but also on

training its employees for profitable customer satisfaction.

Series Name 2007 2008 2009 2010 2011 2012

GDP growth (annual %) 5 2 3 2 3 4

GDP per capita, PPP ($) 4195 4187 4228 4220 4263 4360

Internet users

(per 100 people) 7 7 8 8 9 10

International tourism,

number of arrivals 840000 823000 855000 907000 1161000 966000

Table 2. Pakistan’s Economic Indications 2007-2012, World Development Indications, World Bank, 2014



Also, based on “National Aviation Policy” of Pakistan Civil Aviation Authority, it says “Unlimited

Open Skies Policy may not be adopted for the present. However, selective Open Skies Policy may be

implemented by having agreements on the principle of reciprocity” in Section 2, “Pakistan should

continue to allow open skies policy for foreign airlines, while simultaneously trying to convert the

unilateral policy into bilateral open skies with major destinations of the world” in Section 9(i), in

where AirAsia would not have foreseeable legal problems. Even though Pakistan air seems quite

opened to foreign carriers, there is possibility of changes in aviate policy of government due to poor

aviation facility and weakened competitiveness of local airlines in Pakistan (Deen & Arshad, 2007).

Should thorough monitoring be conducted so on despite of attractive factors that may bring another

success to AirAsia.

3.2.Strategic alliance with Pakistan International Airlines

Due to the globalization, companies are now days strongly required to collaborate with local and

overseas partners for market efficiency and responsiveness (Ghoshal, 1987; Ireland, Hoskisson &

Hitt 2009). Furthermore, Achrol and Kotler (1999) argue that firms in strategic networks will gain

significant market advantages. Therefore, followed by the statements from researchers, alliances

between airlines have become a dominant feature in air transport, and a new global phenomenon as

well (Goh & Uncles, 2003). Since, AirAsia has decided to expand their market in Pakistan due to the

benefit followings from high demand, regional and political stability, AirAsia is highly recommended

to go alliance with the airline company as well, specifically, Pakistan International Airlines

Coporation (PIAC). In fact, one consideration would be arise that PIAC is facing many challenges to

its profitability such as staffing levels and overall management issues, currently (BBC News, 2011).

However, in other perspective, it gives more chances for both AirAsia and PIAC to form a strategic

alliance that AirAsia can easily offer a joint venture with PIAC since they may want to learn the

AirAisa’s operation effectiveness and outstanding efficiency.

3.3.Benefits that could be gained

There are several things that could benefit both AirAsia and PIAC from strategic alliance in airline

joint venture. Firstly, Strategic alliance with PIAC would firstly ensure the safety from political risk

as it is owned by government and operated under the administration of Ministry of Defence of

which the chairman is Muhammad Mian Nawaz Sharif. Furthermore, it would allow market access

to overcome restrictions in route access and airline ownership imposed by national governments



(Goh & Uncles, 2003). Secondly, code sharing between two airlines would benefit both airlines that

code sharing can decrease in ticket prices when linking cities to each other. Glisson et al. (1996)

argue that code sharing would increase the passengers as the airline offers the lower ticket prices.

Thirdly, by schedule coordination and marketing and pricing cooperation, both airlines will benefit

once more that they can optimize the demand and capacity of each flight (Goh & Uncles, 2003).

Lastly, AirAsia would benefit in the cost from sharing offices and airport facilities (Glisson et al.,

1996; Morrish & Hamilton, 2002).

Thus, followed by the benefits, AirAsia would able to extend their market and pursue the cost

leadership strategy at the same time without the concern of political risk by alliance with PIAC.

Moreover, PIAC may welcome the offer that strategic alliance would be a chance to increase their

profitability and to restructure their organization to get over the issues which they are currently

facing (Goh & Uncles, 2003).

3.4.Cost analysis

COST BREAKDOWN 2014 2009 % CHANGE REASONS

Staff 0.36 0.34 + 6% Assistance in Pakistan

Fuel and Oil 1.20 1.04 + 15% More destinations

Maintenance 0.19 0.17 + 12%

Cost of aircraft 0.03 0.25 - 88% Use existing aircrafts

Others 0.24 0.20 + 20%

Table 3. Cost per Available-Seat-Kilometer (ASK) Analysis. By own work.

In every company, the main purpose is to earn profit as much as possible. In order to increase

profit, the only way is to minimize the use of equipment by choosing a proper type and characteristics

of the aircraft as well as using cheaper products with the same quality so that costs reduction can be

achieved (Eller & Moreira, 2014). In the case of airlines industry, cost reduction is determined by

staff, fuel and oil, cost of aircraft, maintenance, and many more. By having a strategic alliance with

Pakistan International Airline, it helps AirAsia to have more benefits while staying with low cost

strategy. The benefits are AirAsia can penetrate to a new market with new customer in Pakistan by

using existing aircrafts. As shown in Table 3, there are extra costs in all aspects except for cost of

aircraft which has reduced by 88%. However, all of the extra costs needed will not be as much as the

profit earned by AirAsia in the long run which can be seen in the table 3 whereby the profit earned

by using an existing aircraft can cover up all the lost from other factors.



4. Conclusion

Overall, AirAsia is a successful budget airline industry located in Asia compare to Europe and

America Airlines industry. As stated above, Asia is mostly covered by the sea where the most efficient

transportation is by air. However, countries in Europe and America are not separated by the sea which

has created a lot of transportation substitute such as trains, buses, high speed railway, and many more.

The other reason is because Asian people are more sensitive in terms of price, therefore by having a

budget airline such as AirAsia, it will be easier to grow.

Although it seems easy for AirAsia to enter Asian market, in the process, risk as well as downturn

including when Singapore government rejected AirAsia bus link project is present. However, due to

the entrepreneurial skills such as independently minded person within Fernandes, risks can be carried

out perfectly. Thus, with the help of Conor McCarthy, AirAsia can finally be the first budget airline

in Asia that implements Ryanair’s operational strategy. Hence, to improve growth of AirAsia as well

as compete with new and existing competitor, penetrating to Pakistan market through alliance with

PIAC may be one of the options that AirAsia can consider as it has the similar culture and it give

benefits in terms of customers, new market, and European market as well.



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the perceptions of business travelers. Transportation Research Part A: Policy and

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King, B. E. (2013). Transactional and Transformational Leadership: A Comparative Study of the

Difference between Tony Fernandes (AirAsia) and Idris Jala (Malaysia Airlines)

Leadership Styles from 2005-2009. International Journal of Business and

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355–362. doi: 10.1016/j.jairtraman.2005.03.001

Morrish, S. C., & Hamilton, R. T. (2002). Airline alliances—who benefits?. Journal of Air

Transport Management, 8(6), 401-407.

O’Connell, J. F., & Williams, G. (2005). Passengers’ perceptions of low cost airlines and full

service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia

Airlines. Journal of Air Transport Management, 11(4), 259-272.

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strategy: A focus on emerging economies. Journal of International Business Studies, 39(5),

920-936.

Porter, M. E. (2011). Competitive advantage of nations: creating and sustaining superior

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Simon, J. D. (1984). A theoretical perspective on political risk. Journal of International Business

Studies, 15(3), 123-143.


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Annex

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DIFFERENTIATION AND HYBRID STRATEGY IN BUSINESS OPERATIONS: WILL

HYBRID STRATEGY BECOME THE NEW COMPETITIVE STRATEGY?.



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Deen, H. U., & Arshad, S. (2007). Challenges for the commercial airline industry in

Pakistan. Market Forces, 2(4), 1-9.



Eller, R.A.G., & Moreira, M. (2014). The main cost-related factors in airlines management. Journal

of Transport Literature, 8(1), 8-23.



Flouris, T. G., & Oswald, S. L. (2006). Designing and executing strategy in aviation management.

Ashgate Publishing, Ltd.



Francis, G., Humphreys, I., Ison, S., & Aicken, M. (2006). Where next for low cost airlines? A

spatial and temporal comparative study. Journal of Transport Geography, 14(2), 83-94.



Ghoshal, S. (1987). Global strategy: An organizing framework. Strategic management

journal, 8(5), 425-440.



Glisson, L. M., Cunningham, W. A., Harris, J. R., & Di Lorenzo-Aiss, J. (1996). Airline industry

strategic alliances: marketing and policy implications.International Journal of Physical

Distribution & Logistics Management, 26(3), 26-34.



Goh, K., & Uncles, M. (2003). The benefits of airline global alliances: an empirical assessment of

the perceptions of business travelers. Transportation Research Part A: Policy and

Practice, 37(6), 479-497.



Holburn, G. L., & Zelner, B. A. (2010). Political capabilities, policy risk, and international

investment strategy: Evidence from the global electric power generation industry. Strategic

Management Journal, 31(12), 1290-1315.



Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2009). The management of strategy. Mason, OH:

South-Western Cengage Learning.



Kaur, K. (2012, December 25). No reason to say no to shuttle now. Retrieved from

http://www.asiaone.com/print/News/Latest%2BNews/Singapore/Story/A1Story20121224-

391336.html





King, B. E. (2013). Transactional and Transformational Leadership: A Comparative Study of the

Difference between Tony Fernandes (AirAsia) and Idris Jala (Malaysia Airlines)

Leadership Styles from 2005-2009. International Journal of Business and

Management, 8(24), p107.



Kling, J. A., & Smith, K. A. (1995). Identifying strategic groups in the US airline industry: an

application of the Porter model. Transportation Journal, 26-34.



Kwintessential. (2014). Pakistan – Language, Religion, culture customs and etiquette. Retrieved

from http://www.kwintessential.co.uk/resources/global-etiquette/pakistan.html.


http://www.kwintessential.co.uk/resources/global-etiquette/pakistan.html


Lawton, T.C., Solombo, S. (2005). When being the lowest cost is not enough: Building a successful

low-fare airline business model in Asia. Journal of Air Transport Management, 11(6),

355–362. doi: 10.1016/j.jairtraman.2005.03.001



Morrish, S. C., & Hamilton, R. T. (2002). Airline alliances—who benefits?.Journal of Air

Transport Management, 8(6), 401-407.



O’Connell, J. F., & Williams, G. (2005). Passengers’ perceptions of low cost airlines and full

service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia

Airlines. Journal of Air Transport Management, 11(4), 259-272



Peng, M. W., Wang, D. Y., & Jiang, Y. (2008). An institution-based view of international business

strategy: A focus on emerging economies. Journal of International Business Studies, 39(5),

920-936.



Porter, M. E. (2011). Competitive advantage of nations: creating and sustaining superior

performance. Simon and Schuster.



Simon, J. D. (1984). A theoretical perspective on political risk. Journal of International Business

Studies, 15(3), 123-143.


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