Airasia Succesful transformation Cost leadership and strategic management Airasia has been one of the award winning

and largest lost cost travel carrier in the region ,rapidly expanding the year 2001. With a fleet of 72 aircraft (as of yearend 2011 ) , Airasia flies to over 61 domestic with 108 routes and operates over 400 dailly flights from its hub at Kuala lumpur,Jakarta, and Thailand. AirAsia concept has been in the no-frills,low fare,and hassle free business concept and they feel that keeping costs low is a major part in a low cost carrier and in order to achieve their goal, high efficiency in every part of the business is needed. Through their corporate slogan of Now Everyone Can Fly, AirAsia has sparked a somewhat revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice ofairline.

Below are Airasia Vision which has brought that much success over the past year:

To be established as the leading low-cost carrier in the Asian region

Below are their missions: A low cost airline carrier that offers five-star service with 95% of on-time performance. To be able to provide affordable airfares, at the same time promoting Malaysian hospitality and the local food. To focus on customers needs by stimulating demand and offers the lowest fares,

comprehensive distribution channel and developing various products and services.

Below are AirAsias objective :

Aims to carry 70 million passengers a year, within six years starting from 2014. Turn the low-cost carrier terminal at the KL International Airport into the regional hub for budget travel. Plans to introduce more routes add frequencies and develop the existing ones.

Cost Leadership

The objective and success of Airasia has always been cost leadership . This means they believe in achieveing higher return in the most cost affective way. With cost leadership, a set of actions are integrated to produce goods/services with features that are acceptable to customers at the lowest cost, relative to that of competitors. Although AirAsias business strategy is centered on cost leadership, it targets specific markets (i.e. price sensitive customers needing short-haul fights), selling its product/services below the average industry prices to gain market share. Hence, it can be categorized into focused cost leadership. AirAsia modified the low-cost airline model and adopted the following strategic actions to lower their costs relatively to competitors, while maintaining competitive levels of differentiation.

We look at some of their most important factors that has been done to achieve the goal of being the leader in cost control:

1. One class (economy / promo) , No added extras (frills) service

As the other low-cost airlines, AirAsia also adopted a single class-service as their mode of business, without any frills and at substantially lower prices. Apart from that,passengers were not allocated seats, did not receive meals, entertainment, amenities (i.e. pillows or blanks), loyalty program points, or access to airport lounges with their purchased tickets.All their airacrafts were designed to reduce time in cleaning and cost.They were also made to minimize wear and tear. This on the other hand reduced cleaning and maintenance expenses, loading and unloading times and costs, and allowed quicker turnarounds between flights, improving process efficiencies (differentiation) and having lower costs (cost advantage).

2. High Operations efficiency and full aircraft utilization

Compared with its competitors and full carriers, AirAsias usage of its aircraft and employees are more efficient. This high efficiency and utilization means that the overhead associated with an aircraft were lower on a per flight basis. Such examples can be seen in the seating configurations to AirAsias Boeing 737-300 aircraft which are maximized to having 16 more seats than the standard configuration adopted by full-service competitors such as MAS or Singapore Airlines.

In addition, AirAsias aircraft which does point-to-point services kept flights to no more than 4 hours which means they are minimizing the turnaround time of the aircraft. Apart from that the employees whom are encouraged and trained to perform multiple roles, were used more effectively and intensively than any other competitors. For example, its point-to-point services (in 2004) enabled AirAsia to operate its aircraft an average of approximately 13 hours/day. It was 2.5 hours more efficient then any other full-services airlines, which only managed to use their aircraft for an average 9.5 hours/day. Apart from that, the average turnaround time for AirAsias aircraft was lesser (e.g. 25 minutes), as compared to full-service airlines (e.g. 45-120 minutes). This itself created the advantage for Airasia as longer turnaround time means higher airport parking charges which they are keen to avoid.

3. Single Aircraft Type

Having a fleet of aircraft of different model makes you have more spare parts and inventory. This is the reason when Tony Fernandez took over the airlines, all the airlines that were bought from there on was the similar model. This was done to enable lower maintenance fee as all the aircraft used the same spare parts.Apart from that, infrastructure and equipment needs were reduced, staff and training needs were lowered (i.e. easy for pilot dispatch), and better purchase terms could be negotiated.

For instance, its large purchase of A-320s would make AirAsia one of the relatively few low cost airlines operating this aircraft. With fuel accounting for almost 50% of the total operating costs for the airline, the A-320s would provide an important cost saving of lower fuel usage by about 12%; increasing the airlines profitability.

4. Lower Fixed Costs and higher return

One of the major factors that brought AirAsia much lower fixed cost then its competitorts are through successful negotiations for low lease rates for its aircraft. Apart from that, it also managed to get low rates for its long-term maintenance contracts, and substantially lower airport fees. This enabled them to reduce their overheads and investments in equipments. This together with the absence of additional services which does not bring any profit to the company brought the cost down.

As a result of its successful negotiation skills, AirAsias contractual lease charges per aircraft decreased by more than 60% from 2001 to 2005. Aircraft maintenance contract costs were also reported to be substantially lower than other airlines, giving AirAsia a competitive advantage, which was further compounded by its young fleet. Furthermore, the airlines high safety and maintenance standards allowed AirAsia to procure rates that were favorable on its insurance policies.With the new academy producing more engineers and pilots , cost of hiring also have reduced and talent are immediately available when needed.

5. Lower Distribution Costs

Airasia also made few number one in the industry. They became one of the first aircraft in the world to fully utilize the boom of Information technology. They were the first airline in south east asia to use e-ticketing system . This system which became the core of Airasia later on, bypassed the traditional travel agents which were eating into most of ticketing sales profit by airlines. This move by Airasia is believed to save them an estimated US 10 per ticket in revenue.

6. Minimizing Personnel Expenses

As many companies did and are still doing,Airasia tried to be different with its employee.Being an Asian company.many expected them to be less innovative but they proved otherwise in this department as they realised having employees perform multiple roles will enable them to deploy fewer employees per aircraft (i.e. ratio of 106 per aircraft versus 110 employees or more for competitors), saving on overhead costs and maximizing employees productivity, as process efficiencies are improved.Apart from that, they also implemented flexible work time and a flat organizational structure which made their management look more simple and easier to work with.

AirAsias employees were not unionized, hence its rumination policy focused on maximizing efficiency and productivity, whilst keeping staff costs at levels consistent with low-cost carrier industry standards. Although salaries offered to employees were below that of rivals, all employees were offered a wide range of incentives (i.e. productivity and performance-based bonuses, share offers, and stock options).

In addition, rather than an hourly pay scale for its pilots, AirAsia adopted a sector pay policy: pilots were provided incentives to enhance flight operation efficacies by keeping flight and operating times to a minimum, and to cover as many flight sectors as possible within a day. The absence of in-flight services made it possible for the airline to reduce the number of cabin crew per light, saving on employee cost.

7. Maximizing Media Coverage

Media is the best way to reach your target audience especially if your target market is big and you are a new and emerging company in the industry. But spending in the media is very expensive and doesnt guarantee imiadiate return. Knowing this, Airasia being the leader in its industry in South east asia always received many free media coverage. With this free publicity, Airasia manage to promote its brand without incurring high cost. Their CEO, Tony Fernandez also always takes the opportunity to promote his airline when he is interviwed ( always wears red Airasia baseball cap and always mention the mission of the airline is to enable everyone to fly )

However,saying this, AirAsia also invested heavily where they feel is worth the money spent. AirAsias major sponsorship includes for Manchester United.This gave them global sponsorship and advertising opportunity and promoted the brand beyond the region.

8. Use of Secondary Airports

When Airasia first started its service , it serviced its custmomers through Subang airport and KLIA. Tony Fernandez, upon taking over saw the high parking charge and airport tax which was involved and started pushing for a secondary LCCT for Airasia flights. After one year his wish was granted, a temporary LCCT was done. This helped to reduce in parking charges, more parking slots, faster turnaround time and reduce operation cost as a whole

9. Philosophy of making everyone can fly a reality

In order to become a leader in the low cost aircraft market and also to achieve that in the current market scenario is not an easy task. This said, it was achieved by Airasia. AirAsia instilled a low-cost culture, emphasizing on cost avoidance and less cost wastage. Simple issues that were brushed aside in major aircraft were pointed out and emphasized in Airasia.Example the elimanition of tag costing (despite reach tag costing less than US$0.05), turning off cabin lights at appropriate times, and not overheating in-flight ovens. Such cost saving measures enabled AirAsia to achieve costs per average seat kilometer of US$0.0213 (the lowest for any airline in the world), with its margins of 38% (before taxes, interests, depreciation, and amortization) being the highest in the world in 2004

Therefore, by eliminating the provision of costly in-flight services, flying a standard fleet, selling tickets to passengers, and minimizing labor, facilities and overhead costs, AirAsia has managed to achieve a successful low-cost structure, which enables it to charge lower prices to achieve high passenger loads, market share, and profitability.This enabled Airasia to have cost

leadership strategy in its structure. This made them stronger and ready to face the volatile market that they are in.

Below are the SWOT analysis for Airasia :