Havard Business Case Study (HBS) Air Asia

QUESTIONS 1 : Briefly describe the trends in the global airline industry.

In the global airlines industry these days, it’s a trend to offer a no-frills low cost concept in their business. A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline or cheap flight) is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc. Air Asia is one of the company that succeed in low cost carrier (LCC) business provides a full service regional airline that offered slightly lower fares than other airlines in Malaysia. Private entrepreneur Tony Fernandes saw great potential for no-frills LCC in Asia after saw a massive success of LCCs in the West. He restructured Air Asia into the first no-frills, LCC in Asia and the new business model was a huge success. 

QUESTIONS 2 : What is the business level strategy adopted by Air Asia?

The business level strategy adopted by Air Asia is a cost leadership strategy that targets markets such as domestic flights, short-haul / regional flights and long-haul regional services and selling their services below the average industry price to gain market share. Beyond competing on prices, Air Asia also introduced value-added services such as ticketless travel and a free seating policy. Under the guise of offering more choice to customers, they also monetized services that were previously taken for granted under full-service premium airlines. For instance, they offered an internet check-in service that allowing the passengers to print their own boarding passes; charging additional fees for early boarding and seat selection; pre-book their checked baggage and meals, and sale of F&B on board the flight.

Recognizing that price and convenience are most important to their target audience, Air Asia achieved cost leadership through innovative strategies such as single class services and lower fares without preferable seats, meals, entertainment and other utilities. They also undertake regular fare promotions for specific travelling periods that encourage early booking, and increasing the avenues that customers could book the tickets e.g. by phone, sales offices, travel agents, local banks and post offices, alongside the web and mobile applications. Finally, strategic alliances with prominent associations have also helped to boost Air Asia’s profile as a leader in its market segment and be seen as an airline of high quality. 

QUESTIONS 3 : How does Air Asia achieve cost leadership through differentiation?

Air Asia modified the low cost airline model and adopted a lot of actions to compete in the industry while maintaining the competitive level of differentiation in this business and AirAsia passengers grew significantly.

Air Asia introduce the value-added services which is to provide ticketless travel and implement a free seating policy. In early 2007, Air Asia became the first airline in Malaysia to offer an internet check-in service that allowing the passengers to print their own boarding passes and paid extra money to board first so as to choose their seats with ease. Passengers also can pre-book their checked baggage and meals. Besides, instead of free meal and flight entertainment, they prepare food and beverages ready for sale on board. 

Air Asia to achieve the targeted cost effective marketing through advertising. No matter through print media or telecommunications, the resulting ad to attract more passengers day by day. In addition, Air Asia also received widespread publicity by sponsoring famous flight football team, Manchester United, Formula One team AT & T William and several other sports stars. Air Asia is also heavily involved with charitable activities such as providing assistance to victims of aviation disasters in Myanmar and China. In addition, the widespread publicity campaign comes from caring for the environment by reducing the use of paper ticketing system.

QUESTIONS 4 : Identify the ways Air Asia can sustain its competitiveness through the business level strategy that is adopted?

Air Asia can sustain its competitiveness by maintaining its no frills, low fared services and expand their business hubs through Asia and around the world. With their effective sales and marketing strategy, Air Asia can simply beat their competitors in airlines industry. Besides with their strong foundation and strategies, they continue to be the lowest cost airlines in the market and always be the people's choice to buy their services. The advantage of lowest price has made Air Asia sustainable growth through the business and succeed along its competitors.

Nevertheless, given its first mover advantage, cost-leadership remains a viable strategy for Air Asia to maintain its leadership position in the budget airline industry. The key is for Air Asia to strengthen other aspects of its positioning, such as convenience and integrated lifestyle packages, apart from just focusing on cost, so as not to be caught off-guard when escalating costs render it unable to continue to sustain its cost-leadership position. It also has to leverage on its existing wide reach of its brand name to monetize more areas of its services.

Finally, a cost leadership strategy means competition and rivalry amongst the budget airlines is high, as the ability to differentiate from other providers is more limited due to the nature of the industry and product.