A BRIEF CASE STUDY

1. A BRIEF CASE STUDY

2. History and Growth

3. “Aviation is for the common man. My goal is to enable everyone to fly. It shouldn’t be only for the rich.” Tony Fernandes: AirAsia

4. Introduction • AirAsia is the highest profiting privately owned airline in the world. • AirAsia is based in Kuala Lumpur Malaysia. • Aireen Omar is the CEO of AirAsia. • Tony Fernandes is the founder and director of AirAsia. • A few of AirAsia subsidiaries are: • AirAsia India • Indonesia AirAsia • Thai AirAsia • AirAsia recently created AirIndia. In which Ratan Tata is a Chief Advisor! (Tata owns 30% of AirAsia) • AirAsia India is headquartered in Bengaluru

5. Competitors • Thai Airways International • Southwest Airlines • Tiger Airways • Ryan Air • Singapore Airlines • Malaysian Airline • Easyjet

6. HISTORY - GOVERNMENT OWNERSHIP • To put things into perspective AirAsia was sold to Mr. Fernandes for a mere $00.50 USD. (He paid off the debt of the company which was estimated to be $11 Million USD.) • The Government of Malaysia started the company to provide low cost air travel to its citizens. • They had a very hands off approach to management, with mentions of corruption. • They refused to align themselves with other major airlines which caused an issue with where the airlines could land and transport people. • They fell into debt when their planes became obsolete and ineffective at traveling long distances. • They soon sold their industry to a private investor.

7. HISTORY - AFTER GOVERNMENT OWNERSHIP • AirAsia was established in 1993 but first started its operations in 1996. • It was originally founded as a government owned conglomerate but later became privately owned. In 2001 Tony Fernandes (Time Warner Exec.) purchased the company, paying more because of the debt accumulated rather than the business itself. • The noteworthy story of AirAsia comes from Mr. Fernandes’ ownership, in which he turned the airline into a budget friendly alternative to the monopoly like Malaysia Airlines. • Before Tony came to operate AirAsia, governmental issues such as not taking on any affiliates meant low profit margins. • Tony created a 5 year plan to turn a profit, by opening up flights in surrounding countries. • Tony generated massive profits by creating sister companies like Thai AirAsia and Indonesia AirAsia. • While the government of of Malaysia was never able to generate any profit, AirAsia’s profits rose a staggering 168% in 2013 as compared to their 2012 profit for a profit of 114.08 million dollars.

8. THE AIRLINE FOR EVERYONE! • What makes AirAsia so profitable? • For starters, there are no “classes” - only one standard class with the flight costing around 48$ • High aircraft usage - every plane operated by AirAsia spends roughly 25 minutes on the ground. Which means more flights per day. • No luxuries - No cheap frills, no in seat entertainment, no massaging chair, Point A to Point B, that’s all. • Standardized Operations - All their planes are the same, meaning singular mechanics and singular parts. Nothing is wasted. • Basic Amenities - Even their airports are no frill, meaning less rent for their space used. • When flying AirAsia really offers the bare minimum, but at a great price (which makes them so profitable!)

9. Company Strengths... AirAsia made direct efforts towards building a successful budget airline in Asia and to become a competitive player within the airline industry.

10. AirAsia’s Management Team • Strong team w/ strong links with governments & airline industry leaders • Diverse background of executives • Government support; competitive domestic markets • Sufficient in strategy formulation & execution • Clever blend of proven strategies

11. Low cost leader in Asia • Cost per available-seat-kilometer (ASK) early on of 2.5 cents • Continually pushed cost down per year • Brand name well established in Asia Pacific • Targeting cross-border markets • Local presence • Sport sponsorship • Excellent utilization of IT • Bookings kept via Web • Online discussion site • Billing and Settlement Plans (BSP) • Computer Reservation System (CRS)

12. Company Weaknesses • Not owning their own MRO facility • (Maintenance, Repair, Overhaul) • Bad publicity from online discussion site • Deprive future business • Industrial challenges & Airline merge • Jetstar

13. AirAsia Opportunities • Taking Advantage of Increasing Oil Prices • What at first may come across as a threat, can actually be a major opportunity. • Strategic Partnerships with Commercial Airlines • Partnership with someone like Virgin would allow AirAsia major benefits • Growing Asian Middle Class

14. AirAsia Threats • Expenses associated with Airports • 30% profit margin attracts major competition • The large profit margin is attractive to full service, commercial airlines. Many, in fact, created their own low cost, subsidiaries that compete directly with AirAsia • Stigma associated with low cost, budget airlines • Many flyers believe that budget airlines are able to keep prices by compromising safety

15. Corporate Strategy

16. Business Strategy Low Cost Carrier • Basic Aircrafts • Low Overhead Costs • Quick Turnaround • No “Frills”

17. Business Strategy Basic aircraft • Maintenance cost • Engineer cost • Inventory and parts • Pilot training Quick turnaround • Secondary Airports • Flight Schedules Overhead costs low • Few sales offices • Internet sales • Oil • Airport fees • Secondary Airports No “frills” • Beverage and food • Seats • Paperless • No refund

18. Implementation of AirAsia’s Strategies • Provide high number seating, small flights, and low fares. • Had the lowest fares and pushed past their cost prices in 2007. • Took 96 Malaysian airlines routes • Able to fly out of Malaysia by targeting cross borders, by joining ventures with small airlines, negotiating pilot hours, endorsing Malaysia Airlines, and building the first terminal in Kuala Lumpur. • Took on the international market by offering more international routes. • Other airlines created spin off airlines to compete with AirAsia.

19. Implementation of AirAsia’s Strategies • Low airline operating system costs and leasing the plane due to factors like the government. • Focused on Internet booking and low distribution costs. • Huge boost in incoming revenue. • Decrease in staff by 5%, lower fuel prices, more route preferences, and more aircrafts owned by the company

20. Implementation of AirAsia’s Strategies • Chose to expand globally and regionally. • Increased cross border ventures and kept rates affordable. • Long term expansion plans worldwide. • Gained recognition in the Europe market by sponsoring the football team Manchester United. • Sponsored the American football Oakland Raiders. • Formed a Relationship with Southwest Airlines. • Started cargo transportation. • Went on Public Listing • Arranged an Open Skies Agreement that allowed unlimited flights between ASEAN members.

21. Further recommendations for AirAsia • Provide incentives to their customers, such as a rewards program with mileage. • Baggage fees • Provide a snack instead of meal. • Streamline check-in process through mobile app • Future Involvement • Creating Do-It- Yourself (DIY) for printing boarding pass

22. Discussion Questions • Is a cost effective model more effective at generating profits? What are some other successful businesses that have cost effective models? • Should governments relinquish their ownership in service based sectors? What are some sectors in countries that did better when they changed hands from government ownership to being privately held? • Should businesses operate in countries that are politically unstable to maximize their profits? At what point should a company draw the line, in terms of hostile environments?