AIRASIA : FLYING LOW-COST WITH HIGH HOPES

         In the mid-1990s, Fernandes saw a great opportunity for no-frills LCCs in Asia after seeing the popularity of LCCs in the West. After the acquisition of AirAsia in 2001, Connor McCarthy, former director of the popular European LCC Ryanair, was invited to join AirAsia's executive team. No frills mean that the service or product is one for which the non-essential features have been omitted in order to keep the price down. Following that, they restructured AirAsia's business model and made it the first airline operator in Asia to embrace a low-fare, non-frill concept.

          With the LCC model, AirAsia offered only one standard cabin. It did not have in-flight entertainment or free meals, but it does have food and beverages available for sale onboard. Under the "Now Everyone Can Fly" tagline, airfares were 40% to 60% lower than their rivals. After seven months of service, AirAsia announced its first profit of approximately USD 6 million in December 2002. AirAsia is also the first airline in the world to allow its customers to book their tickets via the Short Messaging Service (SMS) mobile phone service in August 2003.

          At the beginning of 2007, AirAsia became the first airline in Malaysia to provide an Internet check-in service. This feature allowed the customer to enjoy an online check-in and print their own boarding passes. AirAsia allowed a small number of passengers who paid extra for their Xpress Boarding service to board first in order to select their seats easily.

          The LCC is also proud of its genuine 5-star offerings, such as its luxurious leather seats and tasty in-flight meals. Passengers may either purchase food onboard or choose to pre-order meals on the AirAsia website at a discounted rate. In addition, if passengers protested about AirAsia's punctuality, each passenger whose flight was delayed by more than three hours was given 61 US dollars worth of AirAsia e-gift vouchers.

          AirAsia has grown from a classic LCC to an integrated service provider providing not only air tickets but also financial services such as travel insurance, as well as other holiday items. It also launched a co-branded Citibank-AirAsia credit card that allows qualifying cardholders to win free flights by collecting points called AirAsia Ringgits.

          Fuel prices have had a big effect on AirAsia's bottom line. With oil prices showing high volatility and hitting record rates 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 reduced fuel consumption by almost 20% and doubled the number of landings. Also, Airbus A320-200 aircraft had been ordered to replace the Boeing 737-300 aircraft.

          AirAsia became a major challenge to the former monopoly operator with the advent of more value-conscious customers who were more receptive to the low-cost, non-frill idea.MAS had at times reduced its ticket price to fight back, but this move had not led to a major improvement in earnings. It wasn't until 2007 after the process of streamlining the route in 2006 that MAS started to make a profit.

          On 6 May 2008, MAS launched an unprecedented "Everyday Low Fare" campaign providing 1 million free seats for domestic flights and other short-haul routes throughout South East Asia. The campaign was a big success and received a positive response from the public. MAS consumers enjoy low fares and five-star amenities as the business fills the plane. 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 government 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.