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Limitation Of The Historical Cost Essay

3417 words - 14 pages

The Low Cost Airline: AirAsia

A study of opportunities, challenges and critical success factors

LGT 3007 Air Transport Logistics

History of low cost airlines
The low-cost concept became a moneymaker in the United States, where it was pioneered in the 1970s by Southwest Airlines, the model for budget carriers elsewhere like Ryanair and easyJet in Europe.

Definition of low cost airlines
A low cost airline generally has many features that differentiate it from the traditional carriers. These features include ticketless travel, online ticket sales, no international offices, no frequent flyer points, no free food and beverages, no inflight magazines, no club ...view middle of the document...

The turnaround point of AisAsia is in 2001, while it was up to sale and bought by Tony Fernandes. Tony Fernandes then enrolled some of the lending low-cost airline experts to restructure AirAsia’s business model. He invited Connor McCarthy, the former director of group operation of Ryanair, to join the executive team. In late 2001, AirAsia was re-launched in Malaysia as a trendy, no-frills operation with three B737 aircraft as a low-fare, low-cost domestic airline.

Opportunities faced by AirAsia in light of external development
1. Low fare of Indonesia-Malaysia trip
The fare for a Jakarta-Johor Baru trip costs Rp 100,000 (RM 88.88 one way). And charge Rp 150,000 for a Bandung-Kuala Lumpur flight, and Rp 300,000 for a Surabaya-Kuala Lumpur trip, whereas a Jakarta-Kuala Lumpur air ticket from Malaysia Airlines available at travel agents cost Rp 1.4 million. Meanwhile, Lion Air on the same route, charged Rp 1.05 million. The low fare provided by AirAsia helps it open the Indonesia market.

2. Low fare of Singapore-Bangkok service
AirAsia will increase its services between Singapore & Bangkok by introducing a 2nd daily flight to its existing schedule. This recent development came barely a month after Thai AirAsia operations started its first international flight to Singapore in early February this year. AirAsia is offering its guests promotional fares to/from Singapore- Bangkok from SGD$23.99 (THB 499) one way from the 28th March to 30th Oct, 2004. It is much lower than the lowest fare SGD$56 offered by full-service carrier. This helps it open the Singapore market.

3. Political connections
AirAsia hold 49% of Thai AirAsia with 1% being held by a Thai individual. The remaining 50% is held by Shin Corp. which is owned by the family of Thailand’s prime minister, Thaksin Shinawatra. Shin Corp. has financial strength, synergy in ingormation technology and telecommunications, which support AirAsia Internet and mobile phone bookings. Shin Corp. allows subscribers of the Shin mobile phone flagship, Advanced Information Service, being able to reserve tickets through its short-messaging service (SMS). AirAsia with its politically powerful backer may well grow up to bite. This helps it open the Thailand market.

4. Malaysian government support
The Malaysian government supported the establishment of AirAsia in 2001 to help boost the under-used Kuala Lumpur International Airport. AirAsia’s flights from Senai are meant to develop Johor into a transport hub to rival Singapore. AirAsia, therefore, can provide an alternative route to travel to Bangkok, by using Senai Airport in Johor Bahru, in southern Malaysia.

Opportunities faced by AirAsia in light of internal development
1. Issue of IPO
Kamarudin Meranun, AirAsia's Executive Director announced the appointment of Credit Suisse First Boston (CSFB) and RHB Sakura Merchant Bankers (RHB) as the bookrunners for the company's upcoming Initial Public Offering (IPO).

The IPO...

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