AIR ASIA AIRLINES COMPANY

COMPANY BACKGROUND

Air Asia Berhad is an established in 1993 with commenced operations in 1996. In 2001,
Tune Air Sdn Bhd Tony Fernandes’s company purchased this airline from DRB-Hicom. Air Asia
never look back after that. Air Asia’s first and main base is the Low Cost Carrier Terminal
(LCCT) at Kuala Lumpur International Airport, while its secondary hubs are at Kota Kinabalu
International Airport, Senai International Airport and Penang International Airport.

Air Asia is well known as Malaysian low cost airline and even Asia’s largest low fare, no
frills airline. The airlines claims ‘No Admin Fee’, but has some fees for services which are free
on other airlines. Air Asia slogan is ‘Now Everyone Can Fly’. Being the home of Air Asia, the
LCCT is the budget terminal in KLIA, opened on 23 March 2006. LCCT is said to be carried
about 10 million passengers a year.

The Air Asia subsidiaries are the likes of Thai Air Asia, Indonesia Air Asia, Viet Jet Air
Asia and Air Asia Red Tix. Meanwhile, Air Asia associate companies are Air Asia X, Tune
Hotel and Tune Money.

MISSION AND VISION OF AIR ASIA

Vision

To be the largest low cost airline in Asia and serving the 3 billion people who are currently
underserved with poor connectivity and high fares.

Mission

To be the best company to work for whereby employees are treated as part of a big family

Create a globally recognized ASEAN brand

To attain the lowest cost so that everyone can fly with Air Asia

Maintain the highest quality product, embracing technology to reduce cost and enhance service
levels
SWOT ANALYSIS OF AIR ASIA

STRENGTS

Air Asia has a very strong management team with strong links with governments and airline
industry leaders. This is partly contributed by the diverse background of the executive
management teams which consists of industry experts and ex-top government officials. This has
helped Air Asia to open up and capture a sizeable market in Thailand. With their strong working
relationship with Airbus, they managed to get big discount for aircraft purchase which is also
more fuel efficient compared to Boeing 737 planes which is being used by many other airlines.
The management team is also very good in strategy formulation and execution. The strategy that
they have formulated at the beginnings was a clever blend of proven strategies by other low cost
airlines is US and Europe. Air Asia’s brand name is well established in Asia Pacific. Besides the
normal print media advertising & promotions, Air Asia’s top management also capitalized on
promotions through news by being very “media friendly” and freely sharing the latest
information on Air Asia as well as the airline industry. Their partnership with other service
providers such as hotels and hostels, car rental firms, hospitals (medical tourism), Citibank (Air
Asia Citibank card) has created a very unique image among travellers. Alliance with Galileo
GDS (Global Distribution System) that enables travel agents from around the world to check
flight details and make bookings have also contributed to their string brand name. Air Asia’s
local presence in few countries such as Indonesia (Indonesia Air Asia) and Thailand (Thai
AirAsia) have successfully “elevated” the brand to become a regional brand beyond just
Malaysia. The links with Manchester United (one of the world’s most famous football teams)
and AT&T Williams Formula One team have further boosted their image to a greater extend
beyond just the this region

Air Asia is the low cost leader in Asia. With the help of Air Asia Academy, Air Asia has
successfully created a “low-cost airline mentality” among their workforce. The workforce is very
flexible and high committed and very critical in making Air Asia the lowest cost airline in Asia.
WEAKNESS

Air Asia does not have its own maintenance, repair and overhaul (MRO) facility. It may be a
good strategy when they first started with only Malaysia as the hub and few planes to maintain.
But now, with few hubs (Malaysia, Thailand and Indonesia) and over 100 planes currently
owned and about another 100 planes to be received in the next few years, Air Asia have to
ensure proper and continuous maintenance of the planes which will also help to keep the overall
costs low. It is a competitive disadvantage not to have its own MRO facility

Air Asia receives lot complaints from customers on their service. Examples of complaints are
around flight delays, being charged for a lot of things and not able to change flight or get a
refund if customers could not make it. Good customer service and management is critical
especially when competition is getting intense.

OPPORTUNITY

There are 2 major events that are taking place now or going to take place in less than 6 months
from now. First, is the ever increasing oil price. Second, is the “ASEAN Open Skies” agreement
that has been reached.

The increasing oil price at the first glance may appear like a threat for AirAsia. But being a low
cost leader, Air Asia an upper hand because its cost will be still the lowest among all the regional
airlines. Thus, Air Asia has a great opportunity to capture some of the existing customers of full
service and other low cost airline’s customers. However, there will be also some reduction in
overall travel especially by casual or budget travellers.

The “ASEAN Open Skies” allows unlimited flights among ASEAN’s regional air carriers
beginning December 2008. This will definitely increase the competition among the regional
airlines. However, with the “first mover” advantage as well as its strengths in management,
strategy formulation, strategy execution, strong brand and “low-cost” culture among its
workforce, this agreement can be seen as more of an opportunity.

There is also some opportunity to partner with other low cost airlines as Virgin to tap into their
existing strengths or competitive advantages such as brand name, landing rights and landing slots
(time to land).The population of Asian middle class will be reaching almost 700 million by 2010.
This creates a larger market and a huge opportunity for all low cost airlines in this region
including Air Asia.
THREAT

Certain rates like airport departure, security charges and landing charges are beyond the control
of airline operators and this is a threat to all airlines especially low cost airlines which tries to
keep their cost as low as possible. For example, Changi airport in Singapore charges SGD21 for
every person who departs from Singapore.

Air Asia’s profit margin is about 30% and this has already attracted many competitors. Most of
the full service airlines have or planning to create a low cost subsidiary to compete directly with
Air Asia. For example, Singapore Airlines has created a low cost carrier Tiger Airways.

CORPORATE STRATEGY OF AIR ASIA

BUSINESS STRATEGY OF AIR ASIA

Air Asia wants to be the lowest short haul airline in every market it goes in. To achieve the goal,
it has some strategies such as lean cost structure, different ways of promotion, keeping safety,
satisfying guests, and developing human resources.

Air Asia always tries to keep the operations simple and efficient to keep the costs low, for
example by simple and efficient online ticket booking. Another Air Asia’s way to save costs is
not to provide food and drinks on the plane, as the goal of the airline is just to ‘move someone
from one to another place’ cheaply. It sells food, snacks and beverages on the plane, so
customers who want to eat or drink can just buy what they want. By implementing this strategy,
Air Asia can gain profit from the sales of the food and beverages because it sells the products for
higher price than supermarket or wholesaler price.

Air Asia also tries to keep the cost low by recruiting only numbers of workers needed and
selecting only capable and hard workers, so each worker will have works to do and the company
does not have to pay workers who do not work efficiently. The company also gives multiple task
to some of the employees, for example Air Asia does not hire cleaners to clean used planes that
stop in airports. Instead, the stewardess or stewards of the planes have to clean the used plane.
So, other than saving another amount of money, it also can make maximum use of the human
resources available.

Air Asia also maintains the safety of the airplanes by complying with the highest International
Aviation Safety Standards and practices. To guarantee the safety of the airplane, all Air Asia ‘s
airplanes machines are taken care by GE Engine Service since july 2002 for 5 years.
For airplanes that are parked in the airport, airline companies have to pay hourly rated fare. In
addition, to save money from paying airplanes parking fare. Hence, air asia tries to keep flight
schedule efficient and one time. The planes only stops for approximately 25 minutes for
cleaning,so everytime the airplanes stop in the airport, the planes will be cleaned before the
passengers come into the plane, and the airplanes will take off right away. Specifically, Air Asia
realized that satisfying customers is the key for long term success and that is why it always tries
to satisfy its customersd by flying on time to be friendly to every air asia customers. 90
percentages of air asia Indonesia’s flight in may 2007 flied on time.