Case Study AirAsia The World’s Lowest-cost Airline

Case Study: AirAsia: The World’s Lowest-cost Airline

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Case Study: AirAsia: The World’s Lowest-cost Airline

Introduction

AirAsia is one of the most popular airlines in South East Asia. The company experienced tremendous growth within a short time due to use of the low-cost carrier business model. The company’s slogan after its launch was “Now Everyone Can Fly!” The provision of cheap tickets has enabled the company make significant steps towards achieving this goal. This paper will provide an analysis of the operations of the company and determine whether it can replicate its business model in long-haul travel.

Value Chain Showing How AirAsia Achieves Multiple Costs Advantages

Value chain analysis can help in outlining the sources of cost advantages of AirAsia compared to its rivals. The value chain analysis of the company is shown below.

Primary activities

Inbound logistics

Good brand reputation

Use of Airbus A320, which is more efficient than Boeing 737

High aircraft utilization as turnover is only 25 minutes

Operations

Limited on-board services with additional services being provided at a cost

A self check-in machine in airports reduces human resources costs

Outbound logistics

All flights are non-stop, which saves human resource costs, airport costs, and facilities costs

Tickets purchased directly from website, which eliminates travel agent commissions

Marketing and sales

Huge market segmentation as AirAsia claims it provides everyone with the ability to fly

Sponsorships in Premier League, Formula 1 and MotoGP

Regular special offers to customers

Services

Good customer relationship with customers having the ability to contact company representatives online or at the office

AirAsia provides transport from airport to city in addition to city tours

Support activities

Firm infrastructure

Strict financial management reduces costs

Standard operational procedures ensures customers get similar experience with each flight

Strong relationship with government where the company operates

Human resources management

The use of standard service and homogenous fleet reduces training costs

Provision of career progression opportunities to staff motivates them to provide high quality services

Technology development

Reservations done online

Computer Reservations Systems (CRS) linked with yield management system (YMS), which priced seats based on demand

Procurement

Monitoring suppliers to ensure they meet quality, cost, and delivery commitments

Good procurement partnerships

Imitability of AirAsia’s Cost Advantages

Other airlines can acquire some of the resources and capabilities that provide AirAsia with cost advantages. For instance, other airlines can imitate AirAsia’s pricing strategy, technology and innovation, and supply chain system, which provide AirAsia with the cost advantages (Heshmati & Kim, 2016). However, it is very difficult for other companies to imitate AirAsia’s intangible assets. Since all the resources and capabilities, as a whole, provide AirAsia with the cost advantages, it is pertinent to claim that the company’s cost advantages cannot be imitated by other airlines.

Competing in the Long-Haul Air Travel

AirAsia has experienced significant success in South East Asia based on the LCC) business model. Cost efficiency due to certain features of short-haul operations such have provided the company with a competitive advantage. For instance, the company does not provide meals on flights. It is difficult for the company to replicate some of the cost efficiencies in long-haul air travel. However, the short-haul operations have provided the company with various skills on how to achieve cost efficiencies. The company can translate some of these operations to long-haul air travel (Schlumberger & Weisskopf, 2014). For instance, self-check in machines and amalgamation of AirAsia and AirAsia X operations would enable the company reduce human resource costs.

Conclusion

AirAsia’s cost efficiencies provide it with a competitive edge over its rivals. It is difficult for other airlines to imitate these competitive advantages. Therefore, AirAsia can replicate these cost efficiencies in long-haul travel. This would help in facilitating the continued growth and profitability of the company. However, it is vital for AirAsia to ensure it expands strategically to maintain its LCC strategy.

References

Heshmati, A., & Kim, J. (2016). Efficiency and competitiveness of international airlines. Singapore: Springer.

Schlumberger, C. E., & Weisskopf, N. (2014). Ready for Takeoff?: The Potential for Low-cost Carriers in Developing Countries. Washington, DC: The World Bank.