The Low Cost Airline: AirAsia
A study of opportunities, challenges and critical
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 lounges, use of ...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 strengthens AirAsia balance sheet,...