1. What are the sources of AirAsia’s cost advantage?
Air Asia was able to build a strong cost advantage throughout the years due to the implementation of a l
cost leadership strategy that enables all passengers to fly at low fares. The company has been seeking
to achieve this advantage by providing customers with more or less the same services of other airlines at
a lower cost. First, AirAsia managed to reduce the cost of input factors such as flight fuel cost which is
very low if compared to its main competitor Malaysia Airlines.
Additionally, the load factor is fairly above the average of the industry which means that AirAsia has
been able to sell almost all of its available seats for each flight. This was made by offering low fares but
also by placing a big emphasis on marketing and brand development, focusing on the efficiency of its
customer service and on strong co-branding and sponsorship relationships. Accordingly, the advantages
of the load factor offset the higher costs of its marketing campaign, including the savings in avoiding
payments to travel agents.
Second, developing an efficient information technology allowed the company to price seats according to
demand. Moreover, customers would have been able to print their own boarding passes book seats,
check flight schedules, and obtain real-time updates on AirAsia’s promotions via their mobile phones.
The YMS helped AirAsia to maximize revenue by providing trend analysis and optimize pricing; it also
gave information on future passenger numbers that was used by AirAsia’s Advanced Planning and
Scheduling (APS) system to minimize operational costs by optimizing supply chain and facilities
management. These two IT systems allowed AirAsia to reduce costs in logistics and inbound activities.
Outsourcing those activities that could be undertaken more effectively and efficiently by third parties,
such as aircraft maintenance, is another source of cost advantage.
The choice of operating with a single aircraft type offered economies in purchasing, maintenance, pilot
training, and aircraft utilization.
AirAsia also offered a single class, which allowed more seats per plane, and no aerobridges for boarding
and disembarking passengers were provided, thus introducing another cost-saving measure.
Lastly, Air Asia human resource management allowed the realization of learning curves, which effects
lead to fall in the cost of production because employees are multi-skilled and more familiar with the
production process.
2. Should AirAsia expand its long haul business and to what extent should AirAsia and AirAsiaX be
integrated operationally
An expansion of AirAsia long haul business may be considered as a source of competitive advantage for
many reasons. First, AirAsiaX would be able to focus on a new target market, serving the international
demand for long haul flights while transferring most of the advantages from AirAsia such as the low costs
associated with fuel-efficient new planes, secondary airports, and human resources practices but also
web-based and telephone flight booking systems along with administrative and operational services and
the brand awareness benefits that will accrue from a merger between AirAsia and AirAsiaX.
Consequently, the scope of competition is to go after the broader market so the company should be able
to maintain their cost leadership advantages and to minimize external threats as well. As it is been said,
AirAsiaX was able toreplicate most of the cost efficiencies of AirAsia, and that would not be possible for
an independent start-up. On the other hand, we have to take account of the huge difference between the
industry context in whichthey operate. AirAsia was able to attract a whole new market which means that
the rivalry of the industry is limited to a few number of competitors. In the case of AirAsiaX it is exactly
the opposite situation. AirAsiaX will have to face the more intense rivalry of the international market and
so the competition shifts also to non price attributes. The company is already dealing with these
challenges by providing through-ticketing, baggage transfer, and frequent-flyer schemes. Earnings from
first- and business-class travelers, ,which permitted subsidization of economy-class fares, are also very
different sources of profit from the others LCCs. It seems that a merger between the two can be very
profitable if the leaders will able to cope with the external threats of a broader and more competitive
market.