Introduction to AirAsia
AirAsia started out as a Malaysia government-controlled, full-service regional airline that offered slightly lower fares than its number-one competitor which is Malaysia Airlines (MAS). In December 2011, private entrepreneur Tony Fernandes took over the debt-ridden airline for the symbolic sum of US$0.26. Despite the tragic event on 11 September 2011 terrorist attack, Fernandes believe that it was the right timing to build his own airline company since the aircraft leasing costs had dropped sharply. Malaysian government also seem to welcome Fernandes idea which hoped to boost the under-used Kuala Lumpur International Airport (KLIA). AirAsia then restructed to a low-cost carrier (LCC) first in Asia and it was a huge success.
No Frills, Low Cost
In the mid-1990s, Fernandes saw great potential for a no-frills LCC in Asia after witnessing the success of LCCs in the West. Upon acquisition of AirAsia in 2001, he invited Connor McCarthy, the former director of successful European LCC Ryanair to join AirAsia'a executive team. No frills means that the service or product is one for which the non-essential features have been removed to keep the price low. after that, they restructured AirAsia's business model and made it the first airline operator in Asia to adopt the low-fare, no-frills concept.
With the LCC model, AirAsia offered only one standard-class cabin. It did not provide in-flight entertainment or free meals but it has food and beverages ready for sale on board. Under the tagline "Now Everyone Can Fly", the airfares were 40% to 60% lower than its rivals. After seven month of its service, AirAsia announced its first profit of approximately 6 million US dollar in December 2002. AirAsia also the first airline in the world that enable its customer to book their ticket by using mobile phone through Short Messaging Service (SMS) in August 2003.
Domestic and Short-Haul Regional Services
In 2004, while continuing to expand its domestic business, AirAsia started to provide regional flights to neighbouring countries.
Thai AirAsia : Formed in affiliation with Thailand's Shin Corporation with the hub set up in Bangkok. Enable AirAsia to gain easier and cheaper access to other South-East Asian countries. Besides, Shin Corporation also helped support AirAsia's electronic booking system.
Indonesia AirAsia : Established in 2005 through affiliation with the Indonesian airline and the hubs set up at Jakarta and Bali. This joint ventures broadened the destination selection fro domestic consumers in Malaysia and the number of passengers grew significantly.
Long-Haul Regional Service : AirAsia X
AirAsia launched its first long-haul flight to Australia's Gold Coast in late 2007 through its sister airline, AirAsia X. Sir Richard Branson was the key individual investor with a 20% stake of AirAsia X. There sere a little bit of different between AirAsia and AirAsia X in term of its services :
| AirAsia | AirAsia X | |
| Concept | Low-cost, short-haul, no-frills | Low-cost, long-haul, no-frills |
| Flying Range | Within four hours flying time from departing city | More than four flying time from departing city |
| Aircraft | Airbus A320 with 180 seats | Airbus A330 with more than 330 seats |
| Seat Type | Single seat | Economy seat and XL seat |
| Seat Option | Free seating with Xpress Boarding option | Assigned seating with advance seat request option |
| In-flight Dining | Wide range of light meals and snacks available for purchase onboard the aircraft | Pre-ordered full meals available including asian, western, vegetarian and kid's meal.Light snacks are also available for purchase onboard. |
Value-Added Services
In early 2007, AirAsia became the first airline in Malaysia to offer an internet check-in service. This feature allowed their customer to enjoy online check-in and to print their own boarding passes. AirAsia allowed a limited number of passengers who paid extra for its Xpress Boarding service to board first so as to choose their seats with ease.
The LCC also proud of its real 5 star offerings such as its cosy leather seats and in-flight hot meals. Passengers could either buy the food on board or opt to pre-order meals on th AirAsia website at a discounted rate. Besides, if the passengers complaints about AirAsia's punctuality, each passenger whose flight was delayed by more than three hours was awarded 61 US dollar worth of AirAsia e-gift vouchers.
Moving Down the Value Chain
AirAsia has evolved from a classic LCC into an integrated service provider, offering not only no-frills air tickets but also financial services such as travel insurance, as well as other holiday products. Its also has launched the co-branded Citibank-AirAsia credit card which allow eligible cardholders to earn free flights by accumulating points named as AirAsia Ringgits.
Fuel costs had a significant impact on AirAsia's bottom line. with oil prices showing high volatility and reaching record levels by mid 2008, AirAsia opted for a dynamic, layered-hedge strategy to pay for fuel in advance and to qualify for low prices. Their pilots successfully cut fuel consumption by nearly 20% and doubled the number of landings. Moreover, Airbus A320-200 aircraft had been order to replaced the Boeing 737-300s.
Distinctive Image and Leadership
AirAsia started with three operational aircraft and its expanding gradually. On 2008, AirAsia owned 72 aircraft and served over 100 routes in the Asia-Pacific region with more than 300 flights per day. Thanks to its advertising strategy, AirAsia successfully expanding its aircraft fleet gradually. Flight attendant in their company could style their hair and apply makeup however they liked, composing a much more relaxed and refreshing image than the other airline. Fernandes himself is a walking advertisement for his company when he always wore AirAsia's official red cap and T-shirt to almost every official function.
Other than that, Fernandes always approach the media in very simplest way. He gave his phone number to the media representatives, making it easier for them to approach him for any company news. Between 2003 and 2008, AirAsia received several local and international accolades for its service excellence and success brand-building. In 2008, AirAsia was maintained the lowest cost structure among all listed airlines in the world.
Price War with Malaysia Airline
AirAsia became a real threat to the former monopoly operator with the emergence of more value-conscious consumers who were more receptive to the low-cost, no-frills concept. MAS had at times lowered its ticket price to fight back but this effort had not produced a significant profit turnaround. It was not until 2007 after the route rationalisation process in 2006, MAS began to turn a profit.
On 6 May 2008, MAS launched its unexpected "Everyday Low Fare" campaign by offering 1 million free seats for its domestic flights and the other short-haul routes within South-East Asia. The campaign was a huge success and received overwhelming response from the public. MAS's customers enjoy low fares and five-star services while the company fill up the planes. Fernandes by the way opposed this campaign and said that it was unhealthy and unfair.
AirAsia's chief executive officer told that MAS was funded by the goverment and urged the government to remove the subsidies of MAS. However, Idris Jala at that time was the managing director of MAS defended that the zero-fare campaign was not directed against AirAsia and not funded by the government. AirAsia fought back with its "Sub-Zero Fare" campaign by offering ticket prices below the prices offered by MAS. As of May 2008, AirAsia recorded its 25th consecutive quarter of profitability since 2002.