No Frills, Low Cost
The success of LCCs in the West in the mids-1990s, Fernandes saw this as great potential for a no-frills LLC in Asia. In order to restructured AirAsia’s business model, Connor McCarthy, the former director of successful European LCC Ryanair is invited to join AirAsia. The restructured of AirAsia’s is to made it to the first airline operator in Asia to adopt the low-fare, no-frills concept. AirAsia introduces fully ticketless travel, free seating policy, one standard -class cabin, food, and beverages ready for sale onboard, and lucky draw. “Now Everyone Can Fly” tagline offers airfares with 40% to 60% lower than those of its rivals and even costs less than bus fare. AirAsia encourages early booking by offered regular fare promotions in a specific period. AirAsia announced its first profit of approximately u$$6 million in December 2002 in seven months operation.
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Value-Added Services
AirAsia becomes the first airline in Malaysia to offer an internet check-in service. The domestic travelers are able to enjoy online check-in and to print out their own boarding pass. Another service is an unassigned-seat policy. AirAsia allowed a limited number of passengers who paid extra for its Xpress Boarding service to board first to choose their seas with ease. The LCC was also proud of its "Real 5 Star" offering with "on-time guarantee" The passenger could also pre-book their checked baggage for a lower rate and buy food on board, or opt pre-order meals on the AirAsia website at the discounted rate.
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 in AirAsia X. The difference between AirAsia and AirAsia X are in term of concept, flying range, aircraft, seat type, seat option, and in-flight dining. AirAsia are Low-cost, short-haul, no-frills, and Within four hours flying time from departing city while AirAsia X are low-cost, long-haul, no-frills and more than four flying times from departing city. The type of seat for AirAsia is single-seat and the seat option is free seating with Xpress boarding option. The type of seat for AirAsia X is economy seat and XL seat and the seat option is assigned seating with advance seat request option.
Price War with Malaysia Airlines
The price war with Malaysia Airlines is not real until MAS launched "Everyday Low Fare" campaign offering million free seats ( excluding fuel surcharge and taxes ) for its domestic flights and other short-haul routes within South-East Asia. The campaign received good feedback from the public. Fernandes opposed the campaign because of its unfair and unhealthy. He accused the premium airline of turning into LLC, concentrating its low-fare promotion on AirAsia routes, and subsidized by the government. Jala MAS defended that the zero campaign is not subsidized by the government and not directed to AirAsia. Rather, it is only a move to fill up to 30% surpluses seats that would otherwise have remained unsold. AirAsia fought back with its "Sub-Zero Fare" campaign, offering ticket prices below the prices offered by MAS. This can be shown in exhibit 12. AirAsia recorded its 25th consecutive quarter of profitability since 2002 on 29 May 2008.
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Domestic and Short-Haul Regional Services
In order to serve better the domestic market in Malaysia, AirAsia had set up three other hubs with its primary hubs at KLIA. AirAsia also started to provide regional flights to neighbouring countries in 2004. AirAsia joint venture subsidiary company, Thai AirAsia was formed in affiliation with Thailand's Shin Corporation for cheaper and easier access to other South-East Asian countries and the lucrative Chinese market. Next, the affiliation with Awair enables the establishment of Indonesia AirAsia in Jakarta and Bali. The number of AirAsia passengers grew significantly as a result of the joint ventures. AirAsia entered into a domestic-route rationalizing arrangement with MAS in August 2006. AirAsia also able to reducing costs for crew accommodation and other allowances at the arriving cities because AirAsia can return to original cities on the same day due to flight took less than four hours.
Moving Down the Value Chain
AirAsia has evolved from a classic LCC into an integrated service provider. There are also financial services such as travel insurance, as well as other holiday products. The benefits to sought out with various companies are able to offer online booking services for hotels, hostels, car rentals cruises, and medical care. AirAsia also launched the co-branded Citibank-AirAsia credit card which allows eligible cardholders to earn free flights by accumulating points named 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 ordered to replace the Boeing 737-300s.
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Distinctive Image and Leadership
In 2002, AirAsia having started with the three-aircraft operation, 72 aircraft in 2008, and serve 100 routes in the Asia-Pacific region with more than 300 flights per day. This speedy expansion is due to advertising strategy. For example in 2004, in order to advertise AirAsia from Singapore to Thailand, it's a full-page newspaper ad that shows AirAsia has a more relaxed and refreshing image than other airlines. AirAsia focused on low fares and high quality during the advertisement. This shown in exhibit 8.
Fernandes himself also in the advertisement. He was a walking advertisement for the company. He wore AirAsia's official red cap and T-shirt to every official function. In order for media representative to know the company news, he himself gives his phone number. AirAsia gained free publicity on many occasions. AirAsia also received several local and international accolades for services excellence and success in the brand building, and leadership between 2003 and 2008.