CASE STUDY: AIRASIA,
WHAT’S NEXT?
Park, Tae Sung; Yap, Lik Hang;Lee, Ja Young; Ebel Khoo
MONASH UNIVERSITY
i
Table of Contents
Executive Summary…………………………………………………………………………………..i
1.
Introduction ................................................................................................................................... 4
2.
Analysis......................................................................................................................................... 4
2.1. Environmental scanning: Macro and Industry .................................................................... 4
2.1.1. Political...................................................................................................................... 4
2.1.2. Economical ................................................................................................................ 5
2.1.3. Social ......................................................................................................................... 5
2.1.4. Technological ............................................................................................................ 5
2.1.5. Legal .......................................................................................................................... 6
2.1.6. Environmental ........................................................................................................... 6
2.2. Differing Demand Compared To North America and Europe ............................................ 6
2.3. AirAsia’s generic strategy ................................................................................................... 7
2.3.1. Strategic similarities and differences between AirAsia and Incumbent Low Cost
Carrier (LCC). ...................................................................................................................... 7
2.4. Overlooked risks.................................................................................................................. 8
2.4.1. Singapore government’s rejection ............................................................................. 8
2.5. Fernandes’s entrepreneurial strategy ................................................................................... 9
2.6. AirAsia Strategy against potential and existing competitors ............................................ 10
2.7. Outlook of Asian passenger air transport marketplace and lessons can be drawn from the
North American and European. ................................................................................................. 10
2.8. Assessment of AirAsia moving beyond its historic strength. ........................................... 11
3.
Recommendation ........................................................................................................................ 13
3.1. Expand the market towards Pakistan................................................................................. 13
3.2. Strategic alliance with Pakistan International Airlines ..................................................... 14
3.3. Benefits that could be gained ............................................................................................ 14
3.4. Cost analysis ...................................................................................................................... 15
4.
Conclusion .................................................................................................................................. 16
Reference List .................................................................................................................................... 17
Annex................................................................................................................................................. 20
TaeSung Park (diamondinmarketing@gmail.com) Page | 1
List of Table
TABLE 1. GDP PER CAPITA (US$), W ORLD DEVELOPMENT INDICATORS, W ORLD BANK, 2014 ................................ 5
TABLE 2. PAKISTAN’S ECONOMIC INDICATIONS 2007-2012, W ORLD DEVELOPMENT INDICATIONS, W ORLD BANK,
2014 ........................................................................................................................................................ 13
TABLE 3. COST PER AVAILABLE-SEAT-KILOMETER (ASK) ANALYSIS. BY OWN WORK. ............................................ 15
TaeSung Park (diamondinmarketing@gmail.com) Page | 2
List of Figure
FIGURE 1. COMPETITIVE ADVANTAGE OF NATIONS: CREATING AND SUSTAINING SUPERIOR PERFORMANCE, PORTER,
M. E., 2011. ............................................................................................................................................... 7
FIGURE 2. SOUTHWEST AIRLINES’ ORIGINAL LOW-COST BUSINESS MODEL, ALAMDARI & FAGAN, 2005. .................. 11
TaeSung Park (diamondinmarketing@gmail.com) Page | 3
Executive summary
AirAsia was initially launched in 1996 as a full-service regional airline offering slightly cheaper fares
than its main competitor, Malaysia Airlines. Before 2001, AirAsia failed to either sufficiently
stimulate the market or attract enough passengers from Malaysia Airlines to establish its own niche
market. 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. AirAsia, as the second Malaysian National Airline, provides a totally
different type of service in line with the nation's aspirations to benefit all citizens and worldwide
travelers. Such service takes the form of a no frills - low airfares flight offering, 40%-60% lower than
what is currently offered in this part of Asia. Their vision is "Now Everyone Can Fly" and their
mission is to provide 'Affordable Airfares' without any compromise to Flight Safety Standards. The
story of emergence of AirAsia is similar to Ryanair, since both carriers underwent a remarkable
transformation from a money-losing regional operator to a profitable, low cost airline.
It may be foreseeable that some of budget airlines faces the challenge when they attempted to
expand the market fast. Also, the regulations and legal factors of institutions such as governments
may be the constraints for AirAsia to expand further into new markets even though there have been
some form of open sky agreements in the world. In addition, the demands and values of consumers
in different markets may be not identical that thorough consideration of AirAsia is required.
It is recommended that
 enter into Pakistan as a new market since the pattern of regulation for opening their sky to
foreign operators is detected;
 take care of customer satisfaction in Pakistan market with careful management of employee
as the influence of direct contact of staffs are found to be significant;
 Form strategic alliance with Pakistan International Airline for the benefits of having
political backup and pursuing cost leadership strategy,
assuming that no behavior of bad faith will be occurred (e.g. bribery, take-over) by competitors,
governments, that demand of consumers in Pakistan will be similar with those whom AirAsia used
to cater.
i
1. Introduction
Fernandes had a dream to own the airline since he was young. He earned accounting degree, worked
at Virgin Group, and left the group coming back to Malaysia in 1992. He was tired of it and decided
to own his airline, and ultimately purchased AirAsia with a symbolic one ringgit which was
financially struggling in 2001. He persuaded McCarthy, Ryanair’s former director of group, to invest
and be executive team of AirAsia in where their value proposition was described as “Ryanair
operational strategy”, even Malaysian government was favorable to its strategy that possibly brought
tremendous opportunity, with the slogan of “Now everyone can fly”. Fernandes’ vision has turned
AirAsia to become one of the well-known airline brands in the world. AirAsia focused on very lost
cost structure, and finally achieved the lowest cost among the airline industry in the world, which
brought themselves the enormous expansion of business. However, there is arising concerns that other
airlines which attempted fast expansion faced serious challenge. Even though he succeed to expand
AirAsia into 42 international city as of 2009, rigorous scanning of political and demands of regions
are required. He treats the employees as the family member in non-hierarchical atmosphere which
lead the company into good integration and working environments (King, 2013). Fernandes believed
openness, creativeness, and passion of his employees, therefore, he valued on inspiring his people,
by which himself can be described as transformational leader together with the entrepreneurship,
charisma, and innovation (King, 2013).
2. Analysis
2.1.Environmental scanning: Macro and Industry
To evaluate the macro environment in the Southeast Asia region for budget airline, PESTLE analysis
were conducted to gain a greater insight. PESTLE framework assesses the 1) Political, 2) Economical,
3) Social, 4) Technological, 5) Legal and 6) Environmental issues among the region.
2.1.1. Political
Budget airlines grows rapidly in the Southeast Asia region after the the liberalisation of the industry.
Countries including Thailand, Malaysia, Cambodia, Philippines and Singapore underwent
deregulation of the budget airline industry. Moreover, reciprocal access agreement were implement
among Southeast Asia countries with the United States to embrace the liberalisation of the industry.
This implies the open skies services agreement encourage more air traffic to enter and exit the region
TaeSung Park (diamondinmarketing@gmail.com) Page | 4
domestically and internationally. Finally, governments in these countries allow more new private
budget airlines were introduced to the industry to increase competition.
2.1.2. Economical
Country
Name
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Brunei
Darussalam
21819
25914
30613
32109
37094
27212
30880
41060
41127
38563
Cambodia
406
471
537
628
743
735
783
878
945
1008
Indonesia
1161
1273
1601
1871
2178
2272
2947
3470
3551
3475
Malaysia
4918
5554
6180
7218
8460
7278
8754
10058
10432
10514
Philippines
1085
1201
1399
1681
1921
1832
2136
2358
2587
2765
Singapore
Vietnam
27405
29870
33579
39224
39722
38577
46570
52871
54007
55182
607
699
797
919
1165
1232
1334
1543
1755
1911
Table 1. GDP per Capita (US$), World Development Indicators, World Bank, 2014
Table 1 shows the GDP per capita for several countries in Southeast Asia from 2004 to 2013. There
is a obvious increase of GDP per capita among these countries, which indicated that the purchasing
power of the region had gone up. In general, due to the strong economic growth in this region, budget
airline’s ticket are now more affordable among middle income population.
2.1.3. Social
The large population base of the Southeast Asia region creates a large market for aviation travel.
Among those, Indonesia that with 235 million potential passengers fuels the growth of budget airline
industry. However, there is an perception of Asian passengers values quality more than price. Hence,
despite the low price strategy, certain inflight quality standards will have to met the expectations of
Asian passengers.
2.1.4. Technological
Infrastructures such as international and domestic airports, public transports to the terminal are quite
sophisticated in the region. Malaysia for example, every states at least has a domestic airport, while
bigger cities might have a combination of international and domestic terminals. Internet coverage are
usually adequate for the purpose of purchasing online ticket, which lower the operating cost in budget
airline.
TaeSung Park (diamondinmarketing@gmail.com) Page | 5
2.1.5. Legal
Competition regulation implemented in several countries such as Malaysia, major merger or
acquisitions were mostly prohibited by the local government to ensures the industry’s competition.
Foreign direct investment were also limited to joint ventures or alliances by several countries in the
region. Moreover, regulatory systems in some of these countries are quite weak, which might affect
the business planning in this region.
2.1.6. Environmental
Environment is really a big advantage for the airline industry, particularly to budget airlines. This is
due the lack of high speed cross countries railways or highways, which make land travelling among
countries difficult. Moreover, most the countries are separated by sea which pave ways to the budget
airlines in the region as either travelling in business or pleasure have to take a flight to another
country. Additionally, tourism industry are a major industry in the Southeast Asia countries. The
spilled over of the growth tourism industry also increases the demand for budget airline, as more
passengers demand for more low cost and fast travel options while travelling in the region. Finally,
the countries were located near to each other, within 3 hours flight, few countries can be reached from
Malaysia to Singapore, Indonesia, Philippines, Brunei and Thailand. Which budget airline can
achieve a cost benefit from their fuel consumption.
2.2.Differing Demand Compared To North America and Europe
Firstly, although having huge pool of potential passengers, as mention above, the Asian regulatory
systems are deemed to unable to keep pace on the uncertain demand for low fare service (Lawton &
Solombo, 2005). Which creates a more volatile and uncertain business environment in Southeast Asia
market compared to the western markets. Moreover, nature of demand for low fare services might be
different in Asia Pacific than the western countries due to the existence of high speed rail across
countries. As mention in the analysis above, passengers European countries can choose to travel by
land transports, which make them less sensitive to price offered by the budget airlines. Conversely,
in Asia pacific region, the only efficient way to travel across countries is limited mainly to air travel.
Hence, price level of the fares plays a major influences to the demand for the budget airline industry.
To conclude, in North American and European markets, demand differs from the type of transport
TaeSung Park (diamondinmarketing@gmail.com) Page | 6
due to the abundant substitution of cross countries transport. In Asia pacific region, demand differs
in the selection of airline companies according to the price.
2.3.AirAsia’s generic strategy
Aligned with the mission statement, AirAsia business strategy centered on cost leadership from
Porter’s generic strategies (2011), since they are mainly targeting the customers who are sensitive in
pricing. AirAsia pursue its competitive advantage by providing services at a lower price compare to
its competitors price. Operation effectiveness and outstanding efficiency are the two main
characteristics of low cost business including in AirAsia to achieve bigger cost advantages (AirAsia,
2014).
Figure 1. Competitive advantage of nations: creating and sustaining superior performance, Porter, M. E., 2011.
2.3.1. Strategic similarities and differences between AirAsia and Incumbent Low Cost
Carrier (LCC).
As it is written from the case, AirAsia, Southwest and Ryanair are all known as low cost airlines
which are all currently acting as a strong cost leaders in their region, respectively. Despite they are
all in low cost carrier (LCC) industry and known as using cost leadership as their business strategy,
there are some similarities and differences to note. Firstly, Similarity is the way of pursing cost
leader ship strategy. AirAsia resembles Southwest’s successful people-oriented strategies in the way
of treating their employees and Ryanair’s efficient operational strategies such as no frills, landing in
secondary airport (Kling & Smith, 1995; O’Connell & Williams, 2005; AirAsia, 2014). Secondly,
differences would be the reason of pursuing those strategies such as people oriented strategy and
efficient oriented strategies. Southwest and Ryanair emphasize those strategies in order to
TaeSung Park (diamondinmarketing@gmail.com) Page | 7
differentiate themselves from other low-cost competitors in their fierce competitive and relatively
saturated American and European markets. Thus, for Southwest and Ryanair are hard to position
themselves as just pursuing cost leadership but could be argued that they are using differentiation as
well (Kling & Smith, 1995; Baroto & Abdullah, 2011). It implies that the Porter model does not
appropriately account for firms like Southwest and Ryaniair that achieve both low costs and
positive differentiation (Kling & Smith, 1995). However, AirAsia is operating its business in a
Southeast Asian market with limited competition and growing demand as a new market segment
compared to saturated America and European market.
2.4.Overlooked risks
The case indicates that Fernandes was concerned of most of the risks, especially having worked in a
decision making capacity in the same geographic region. Fernandes also invited Connor McCarthy,
the former director of group operation of Ryanair for seeking advice from professional low cost
carrier industry. These effort to avoid risk could be noticed from the strategies which resembles
other successful low cost airlines such as Southwest, Ryanair. However, one area that have
overlooked is macro political risks. Nations differ in political risk, which affects the stability of
their markets (Simon, 1984). Perception of foreign businesses entering to their country also differ
by governments that some of countries welcome as foreign capital comes in and some shows
negative respond as fierce of losing their market share (Peng, Wang & Jiang, 2008). These diverse
aspect implies the organization that understanding of political environment and domestic and
foreign government’s attitude is crucial part of building international business strategic planning
since doing business internationally could be seen as dealing with both domestic and different types
of governments, relationships, and levels of risk which country possess (Boddewyn, & Brewer,
1994; Holburn & Zelner, 2010). Political risk refers to government’s activities that negatively
affects the organizations such as forcing unjust law with changing policy or regulation (Simon,
1984). It would link to political instability that refers to likeability of sudden change from war,
revolution, democratic changes in government or other political turmoil (Peng, Wang & Jiang,
2008).
2.4.1. Singapore government’s rejection
Initially, AirAsia wanted to locate their flights from the southern state of Johor, near Singapore, in
order to operate the business in lower cost than operate in Singapore. Furthermore, to attract the
customers, AirAsia attempted to operate a convenient bus service which links the city to state.
TaeSung Park (diamondinmarketing@gmail.com) Page | 8
However, Singapore government rejected the idea that mentioned as ‘bus link for AirAsia would
never be approved’ (Kaur, 2012). It reflects the fears that Singapore’s Changi airport would lose
business to Johor’s new Senai airport. Therefore, AirAsia had to use Changi airport, which led to
burden of high cost in operation by SGD$21 departure and security tax of Changi.
2.5. Fernandes’s entrepreneurial strategy
According to Boyett (1996), entrepreneur is an individual who have the resources to own a private
firm and at the same time expecting to be benefited directly from the labors. By looking at the case,
Fernandes does possess entrepreneurial traits such as flexibility, insightful, perceptiveness, and the
ability to accept change as he has succeeded in making his dream come true which is having his own
airline.
To become an entrepreneur, risk is always present and Fernandes who is also a risk taker, has tackled
it head on by purchasing AirAsia for one Ringgit even though previously AirAsia is failing. As
Fernandes is independent minded person who trust his guts, Fernandes who is a first timer has the
confidence to purchase AirAsia without prior knowledge on airplane industry. By becoming
independent minded person, Fernandes has the power to obtain something new and huge when
nobody else believe or dare to do it.
The other strategy that Fernandes took is opportunity. Through meeting Conor McCarthy in a trip to
Europe, it helps Fernandes to make a better decision. One of Conor McCarthy advice is to focus closer
to home which is believed the reason behind it was to try whether you can compete with country that
has the similar culture. By having the opportunity to meet and talk with Conor McCarthy, Fernandes
succeeded to persuade Conor McCarthy to become part of AirAsia’s team as soon as Fernandes
bought AirAsia. Fernandes strategy in inviting Conor McCarthy to join the team is a great idea, as
Conor McCarthy was once a director of Ryanair which by having him in the team, it indirectly will
help AirAsia easier to be handled. Thus, Ryanair operational strategy was used by AirAsia to compete
as well as survive in airline competition.
TaeSung Park (diamondinmarketing@gmail.com) Page | 9
2.6. AirAsia Strategy against potential and existing competitors
AirAsia was launched in 2002 which is more than a decade ago. If there is a new competitor, AirAsia
have a lot of advantages compared to the new opponent. AirAsia has the advantages in terms of brand
image, customer loyalty as well as government support as AirAsia is the first low fare airlines in Asia.
AirAsia also has the advantage to compete with multinational competitors such as knowledge of
Asian culture, technology know-how, and experience in the field of airlines. Hence, to reduce the risk
as well as secure the position, AirAsia can start to identify the weaknesses and overcome it as most
of the new competitor will imitate AirAsia strategy as well as improve it. The other way is by going
for more international markets as AirAsia seems to have the resources and capability to do so.
2.7.Outlook of Asian passenger air transport marketplace and lessons can be drawn from the
North American and European.
The Asian passenger air transport marketplace could shakeout if Asian governments fail to deregulate
or, for those that have already deregulated, impose strict competitive regulations in the airline
industry. Moreover, if another economic recession is to hit, business trips will decline due to
weakened purchasing power. However, since there is lack of alternative transportation such as highspeed railways, highways which connects internationally, and target consumers in most of South-East
Asian countries are ‘relatively less affluent with increasing disposable income’, thereby demand for
low-cost air transport will continue to grow.
From the deregulation in the 1970’s till the early 2000’s the transformation of the low cost concept
in the United States can only be described as a series of innovations, proliferations and consolidations
where many other low cost airlines such as Pacific Southwest, New York Air, Jet America entered
the market of which, some survived the competition and others did not. This also caused some of the
major carriers to start their own subsidiaries under the low cost banner in order to regain their lost
market share (Francis, Humphreys, Ison & Aicken, 2006).
In Europe the low cost concept was originated in the UK and Ireland based on the Southwest model
with the introduction of easyJet and Ryanair in 1995. Their success was attributed to the favourable
economic framework that encouraged the low cost airline industry. For example, the deregulation
allowed airlines of member states to operate domestically within the European Union. Another
Example is low charges at underused airports which increased the passenger numbers going into those
airports and finally, their direct sales approach using the internet and call centers (Francis et al, 2006).
TaeSung Park (diamondinmarketing@gmail.com) Page | 10
Lesson that can be drawn from the North American and European experience and be applicable in
the Asian setting is Low cost model. The success of low cost airlines can be derived from what is
called a low-cost leadership position strategy. According to (Flouris & Oswald, 2006), the goal of a
low-cost leader is to include the costs to the lowest relative to industry rivals and, to create a
sustainable cost advantage over the competition. The most important concept to this strategy is that
cost is not equal to price. The original low cost model is designed based on this concept and as
outlined in Alamdari & Fagan (2005), the original “South West Low Cost Model” which consists of
key factors below:
Figure 2. Southwest Airlines’ original low-cost business model, Alamdari & Fagan, 2005.
2.8. Assessment of AirAsia moving beyond its historic strength.
It may be a challenging idea that AirAsia moves beyond its historic strength. Firstly, to deliver on
nonstop service to Europe and a one-stop service to the United States, AirAsia X would need to rely
on its small A340 fleet, and replacing these and growing fleets of the new aircraft. As it was currently
not scheduled to receive its first new aircraft until 2016, it may take time. Secondly, Asia’s regulatory
environment and uncertain demand for low-fair services created uncertainty. Some analysts predicted
that budget airlines will continuously cater the demand for less affluent consumers and the other said
lower average income should boost demand rather than constraints for the budget airline. This implies
the doubts that the concept of AirAsia can also be successful beyond its historical strength into Europe
and other regions because of difference in level of average income. Other analysts added that there is
lack of bilateral agreements that allows new low-fare carriers to fly between countries, and lack of
satellites airport for cutting costs.
TaeSung Park (diamondinmarketing@gmail.com) Page | 11
However, it is prospect that there are a lot of factors that indicate the future success of AirAsia. Due
to regulatory restrictions from country to country, competition for tourist revenue is pushing more
countries to open up their sky, according to Fernandes, with an example of open skies agreements of
ASEAN in 2008 although it is expected to be fully implemented in 2015. Also, 2007 AirAsia made
an agreement with the cargo management company as cargo plays a key part of AirAsia’s additional
income, capital raised by IPO enabled it to create opportunity for future expansion.
Overall, it is known from the case that AirAsia should focus not only on cost saving, but also on
profits. They should capitalize on their accomplishments by expanding into comparable markets.
With their expansion into these new markets, they will create additional revenue helping the company
reduce their dependence on existing markets. However, the decision-making should be made
rigorously and thoroughly due to raising factors that may take AirAsia into dangers.
TaeSung Park (diamondinmarketing@gmail.com) Page | 12
3. Recommendation
3.1.Expand the market towards Pakistan
Series Name
2007
2008
2009
2010
2011
2012
GDP growth (annual %)
5
2
3
2
3
4
GDP per capita, PPP ($)
4195
4187
4228
4220
4263
4360
7
7
8
8
9
10
840000
823000
855000
907000
1161000
966000
Internet users
(per 100 people)
International tourism,
number of arrivals
Table 2. Pakistan’s Economic Indications 2007-2012, World Development Indications, World Bank, 2014
Table 2 above shows some of the economic indications that were relevant for the budget airline
companies such as AirAsia, while considering the market potential of the country. Firstly, Pakistan
shows positive annual economic growth after the global financial crisis at 2008, GDP growth shows
that Pakistan is growing steadily at 1% per year. Moreover, to better assess the purchasing power of
the people in Pakistan, GDP per capita ($) in the nation also shows a stable increase since 2007, which
implies budget airline are more affordable compared to premium service provider.
Being a budget airline company, online ticket booking is crucial for cost saving, hence the data also
presents the internet users in Pakistan to show the internet usage among the people. This shows that
Pakistani’s internet usage were also increasing over the years, meaning that, air ticket booking
through online are suitable in Pakistan. Last but not least, the number of arrivals to Pakistan for
international tourism shows a gradual climb since 2007. This implies, the tourist flow to Pakistan
have been increase, making Pakistan a favourable tourism destination. AirAsia should capture this
market to maximise the brand presence in Pakistan while other international budget airline are still
absent.
Furthermore, in a research done by Ahmad, Wasay and Malik (2012) about satisfaction of customers
in Pakistan airline industry, it is found that employee, especially who deals directly with the customers,
has a major contribution to customer satisfaction in airline industry. As a hierarchical society, people
in Pakistan tend to be satisfied when they feel they are respected and treated well (Kwintessential,
2014). Therefore, AirAsia is recommended that it needs to focus on not only cost cutting, but also on
training its employees for profitable customer satisfaction.
TaeSung Park (diamondinmarketing@gmail.com) Page | 13
Also, based on “National Aviation Policy” of Pakistan Civil Aviation Authority, it says “Unlimited
Open Skies Policy may not be adopted for the present. However, selective Open Skies Policy may be
implemented by having agreements on the principle of reciprocity” in Section 2, “Pakistan should
continue to allow open skies policy for foreign airlines, while simultaneously trying to convert the
unilateral policy into bilateral open skies with major destinations of the world” in Section 9(i), in
where AirAsia would not have foreseeable legal problems. Even though Pakistan air seems quite
opened to foreign carriers, there is possibility of changes in aviate policy of government due to poor
aviation facility and weakened competitiveness of local airlines in Pakistan (Deen & Arshad, 2007).
Should thorough monitoring be conducted so on despite of attractive factors that may bring another
success to AirAsia.
3.2.Strategic alliance with Pakistan International Airlines
Due to the globalization, companies are now days strongly required to collaborate with local and
overseas partners for market efficiency and responsiveness (Ghoshal, 1987; Ireland, Hoskisson &
Hitt 2009). Furthermore, Achrol and Kotler (1999) argue that firms in strategic networks will gain
significant market advantages. Therefore, followed by the statements from researchers, alliances
between airlines have become a dominant feature in air transport, and a new global phenomenon as
well (Goh & Uncles, 2003). Since, AirAsia has decided to expand their market in Pakistan due to the
benefit followings from high demand, regional and political stability, AirAsia is highly recommended
to go alliance with the airline company as well, specifically, Pakistan International Airlines
Coporation (PIAC). In fact, one consideration would be arise that PIAC is facing many challenges to
its profitability such as staffing levels and overall management issues, currently (BBC News, 2011).
However, in other perspective, it gives more chances for both AirAsia and PIAC to form a strategic
alliance that AirAsia can easily offer a joint venture with PIAC since they may want to learn the
AirAisa’s operation effectiveness and outstanding efficiency.
3.3.Benefits that could be gained
There are several things that could benefit both AirAsia and PIAC from strategic alliance in airline
joint venture. Firstly, Strategic alliance with PIAC would firstly ensure the safety from political risk
as it is owned by government and operated under the administration of Ministry of Defence of
which the chairman is Muhammad Mian Nawaz Sharif. Furthermore, it would allow market access
to overcome restrictions in route access and airline ownership imposed by national governments
TaeSung Park (diamondinmarketing@gmail.com) Page | 14
(Goh & Uncles, 2003). Secondly, code sharing between two airlines would benefit both airlines that
code sharing can decrease in ticket prices when linking cities to each other. Glisson et al. (1996)
argue that code sharing would increase the passengers as the airline offers the lower ticket prices.
Thirdly, by schedule coordination and marketing and pricing cooperation, both airlines will benefit
once more that they can optimize the demand and capacity of each flight (Goh & Uncles, 2003).
Lastly, AirAsia would benefit in the cost from sharing offices and airport facilities (Glisson et al.,
1996; Morrish & Hamilton, 2002).
Thus, followed by the benefits, AirAsia would able to extend their market and pursue the cost
leadership strategy at the same time without the concern of political risk by alliance with PIAC.
Moreover, PIAC may welcome the offer that strategic alliance would be a chance to increase their
profitability and to restructure their organization to get over the issues which they are currently
facing (Goh & Uncles, 2003).
3.4.Cost analysis
COST BREAKDOWN
2014
2009
% CHANGE
REASONS
Staff
0.36
0.34
+ 6%
Assistance in Pakistan
Fuel and Oil
1.20
1.04
+ 15%
More destinations
Maintenance
0.19
0.17
+ 12%
Cost of aircraft
0.03
0.25
- 88%
Others
0.24
0.20
+ 20%
Use existing aircrafts
Table 3. Cost per Available-Seat-Kilometer (ASK) Analysis. By own work.
In every company, the main purpose is to earn profit as much as possible. In order to increase
profit, the only way is to minimize the use of equipment by choosing a proper type and characteristics
of the aircraft as well as using cheaper products with the same quality so that costs reduction can be
achieved (Eller & Moreira, 2014). In the case of airlines industry, cost reduction is determined by
staff, fuel and oil, cost of aircraft, maintenance, and many more. By having a strategic alliance with
Pakistan International Airline, it helps AirAsia to have more benefits while staying with low cost
strategy. The benefits are AirAsia can penetrate to a new market with new customer in Pakistan by
using existing aircrafts. As shown in Table 3, there are extra costs in all aspects except for cost of
aircraft which has reduced by 88%. However, all of the extra costs needed will not be as much as the
profit earned by AirAsia in the long run which can be seen in the table 3 whereby the profit earned
by using an existing aircraft can cover up all the lost from other factors.
TaeSung Park (diamondinmarketing@gmail.com) Page | 15
4. Conclusion
Overall, AirAsia is a successful budget airline industry located in Asia compare to Europe and
America Airlines industry. As stated above, Asia is mostly covered by the sea where the most efficient
transportation is by air. However, countries in Europe and America are not separated by the sea which
has created a lot of transportation substitute such as trains, buses, high speed railway, and many more.
The other reason is because Asian people are more sensitive in terms of price, therefore by having a
budget airline such as AirAsia, it will be easier to grow.
Although it seems easy for AirAsia to enter Asian market, in the process, risk as well as downturn
including when Singapore government rejected AirAsia bus link project is present. However, due to
the entrepreneurial skills such as independently minded person within Fernandes, risks can be carried
out perfectly. Thus, with the help of Conor McCarthy, AirAsia can finally be the first budget airline
in Asia that implements Ryanair’s operational strategy. Hence, to improve growth of AirAsia as well
as compete with new and existing competitor, penetrating to Pakistan market through alliance with
PIAC may be one of the options that AirAsia can consider as it has the similar culture and it give
benefits in terms of customers, new market, and European market as well.
TaeSung Park (diamondinmarketing@gmail.com) Page | 16
Reference List
Achrol, R. S., & Kotler, P. (1999). Marketing in the network economy. The Journal of Marketing,
146-163.
Ahmad, M. B., Wasay, E., & Malik, S. U. (2012). Impact OF Employee Motivation on Customer
Satisfaction: Study of Airline Industry in Pakistan. Interdisciplinary Journal of
Contemporary Research in Business, 4(6), 531-539.
AirAsia | Corporate profile | What we're about. (2014). Retrieved from
http://www.AirAsia.com/my/en/about-us/corporate-profile.page
Alamdari, F., & Fagan, S. (2005). Impact of the adherence to the original low‐cost model on the
profitability of low‐cost airlines. Transport Reviews, 25(3), 377-392.
Baroto, M. B., & Abdullah, M. M. B. (2011). The Application Of Cost, Differentiation and Hybrid
Strategy in Business Operations: will hybrid strategy become the New Competitive
Strategy?.
BBC News - Pakistan International Airlines strike grounds flights. (2011, February 8). Retrieved
from http://www.bbc.co.uk/news/world-south-asia-12392187
Boddewyn, J. J., & Brewer, T. L. (1994). International-business political behavior: New theoretical
directions. Academy of management review, 19(1), 119-143.
Boyett, I. (1996). The public sector entrepreneur – a definition. International Journal of Public
Sector Management, 9(2), 36-51.
Deen, H. U., & Arshad, S. (2007). Challenges for the commercial airline industry in
Pakistan. Market Forces, 2(4), 1-9.
Eller, R.A.G., & Moreira, M. (2014). The main cost-related factors in airlines management. Journal
of Transport Literature, 8(1), 8-23.
Flouris, T. G., & Oswald, S. L. (2006). Designing and executing strategy in aviation management.
Ashgate Publishing, Ltd.
Francis, G., Humphreys, I., Ison, S., & Aicken, M. (2006). Where next for low cost airlines? A
spatial and temporal comparative study. Journal of Transport Geography, 14(2), 83-94.
Ghoshal, S. (1987). Global strategy: An organizing framework. Strategic management
journal, 8(5), 425-440.
Glisson, L. M., Cunningham, W. A., Harris, J. R., & Di Lorenzo-Aiss, J. (1996). Airline industry
strategic alliances: marketing and policy implications. International Journal of Physical
Distribution & Logistics Management, 26(3), 26-34.
TaeSung Park (diamondinmarketing@gmail.com) Page | 17
Goh, K., & Uncles, M. (2003). The benefits of airline global alliances: an empirical assessment of
the perceptions of business travelers. Transportation Research Part A: Policy and
Practice, 37(6), 479-497.
Holburn, G. L., & Zelner, B. A. (2010). Political capabilities, policy risk, and international
investment strategy: Evidence from the global electric power generation industry. Strategic
Management Journal, 31(12), 1290-1315.
Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2009). The management of strategy. Mason, OH:
South-Western Cengage Learning.
Kaur, K. (2012, December 25). No reason to say no to shuttle now. Retrieved from
http://www.asiaone.com/print/News/Latest%2BNews/Singapore/Story/A1Story20121224391336.html
King, B. E. (2013). Transactional and Transformational Leadership: A Comparative Study of the
Difference between Tony Fernandes (AirAsia) and Idris Jala (Malaysia Airlines)
Leadership Styles from 2005-2009. International Journal of Business and
Management, 8(24), p107.
Kling, J. A., & Smith, K. A. (1995). Identifying strategic groups in the US airline industry: an
application of the Porter model. Transportation Journal, 26-34.
Kwintessential. (2014). Pakistan – Language, Religion, culture customs and etiquette. Retrieved
from http://www.kwintessential.co.uk/resources/global-etiquette/pakistan.html.
Lawton, T.C., Solombo, S. (2005). When being the lowest cost is not enough: Building a successful
low-fare airline business model in Asia. Journal of Air Transport Management, 11(6),
355–362. doi: 10.1016/j.jairtraman.2005.03.001
Morrish, S. C., & Hamilton, R. T. (2002). Airline alliances—who benefits?. Journal of Air
Transport Management, 8(6), 401-407.
O’Connell, J. F., & Williams, G. (2005). Passengers’ perceptions of low cost airlines and full
service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia
Airlines. Journal of Air Transport Management, 11(4), 259-272.
Peng, M. W., Wang, D. Y., & Jiang, Y. (2008). An institution-based view of international business
strategy: A focus on emerging economies. Journal of International Business Studies, 39(5),
920-936.
Porter, M. E. (2011). Competitive advantage of nations: creating and sustaining superior
performance. Simon and Schuster.
Simon, J. D. (1984). A theoretical perspective on political risk. Journal of International Business
Studies, 15(3), 123-143.
TaeSung Park (diamondinmarketing@gmail.com) Page | 18
The World Bank. (2014). World Development Indicators [Table 1]. Retrieved
from http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true#
The World Bank. (2014). World Development Indicators [Table 2]. Retrieved
from http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true#
TaeSung Park (diamondinmarketing@gmail.com) Page | 19
Annex
Achrol, R. S., & Kotler, P. (1999). Marketing in the network economy. The Journal of Marketing,
146-163.
TaeSung Park (diamondinmarketing@gmail.com) Page | 20
Ahmad, M. B., Wasay, E., & Malik, S. U. (2012). Impact Of Employee Motivation on Customer
Satisfaction: Study of Airline Industry in Pakistan. Interdisciplinary Journal of
Contemporary Research in Business, 4(6), 531-539.
TaeSung Park (diamondinmarketing@gmail.com) Page | 21
AirAsia | Corporate profile | What we're about. (2014). Retrieved from
http://www.AirAsia.com/my/en/about-us/corporate-profile.page
TaeSung Park (diamondinmarketing@gmail.com) Page | 22
Alamdari, F., & Fagan, S. (2005). Impact of the adherence to the original low‐cost model on the
profitability of low‐cost airlines. Transport Reviews, 25(3), 377-392.
TaeSung Park (diamondinmarketing@gmail.com) Page | 23
Baroto, M. B., & Abdullah, M. M. B. (2011). THE APPLICATION OF COST,
DIFFERENTIATION AND HYBRID STRATEGY IN BUSINESS OPERATIONS: WILL
HYBRID STRATEGY BECOME THE NEW COMPETITIVE STRATEGY?.
TaeSung Park (diamondinmarketing@gmail.com) Page | 24
BBC News - Pakistan International Airlines strike grounds flights. (2011, February 8). Retrieved
from http://www.bbc.co.uk/news/world-south-asia-12392187
TaeSung Park (diamondinmarketing@gmail.com) Page | 25
Boddewyn, J. J., & Brewer, T. L. (1994). International-business political behavior: New theoretical
directions. Academy of management review, 19(1), 119-143.
TaeSung Park (diamondinmarketing@gmail.com) Page | 26
Boyett, I. (1996). The public sector entrepreneur – a definition. International Journal of Public
Sector Management, 9(2), 36-51.
TaeSung Park (diamondinmarketing@gmail.com) Page | 27
Deen, H. U., & Arshad, S. (2007). Challenges for the commercial airline industry in
Pakistan. Market Forces, 2(4), 1-9.
TaeSung Park (diamondinmarketing@gmail.com) Page | 28
Eller, R.A.G., & Moreira, M. (2014). The main cost-related factors in airlines management. Journal
of Transport Literature, 8(1), 8-23.
TaeSung Park (diamondinmarketing@gmail.com) Page | 29
Flouris, T. G., & Oswald, S. L. (2006). Designing and executing strategy in aviation management.
Ashgate Publishing, Ltd.
TaeSung Park (diamondinmarketing@gmail.com) Page | 30
Francis, G., Humphreys, I., Ison, S., & Aicken, M. (2006). Where next for low cost airlines? A
spatial and temporal comparative study. Journal of Transport Geography, 14(2), 83-94.
TaeSung Park (diamondinmarketing@gmail.com) Page | 31
Ghoshal, S. (1987). Global strategy: An organizing framework. Strategic management
journal, 8(5), 425-440.
TaeSung Park (diamondinmarketing@gmail.com) Page | 32
Glisson, L. M., Cunningham, W. A., Harris, J. R., & Di Lorenzo-Aiss, J. (1996). Airline industry
strategic alliances: marketing and policy implications.International Journal of Physical
Distribution & Logistics Management, 26(3), 26-34.
TaeSung Park (diamondinmarketing@gmail.com) Page | 33
Goh, K., & Uncles, M. (2003). The benefits of airline global alliances: an empirical assessment of
the perceptions of business travelers. Transportation Research Part A: Policy and
Practice, 37(6), 479-497.
TaeSung Park (diamondinmarketing@gmail.com) Page | 34
Holburn, G. L., & Zelner, B. A. (2010). Political capabilities, policy risk, and international
investment strategy: Evidence from the global electric power generation industry. Strategic
Management Journal, 31(12), 1290-1315.
TaeSung Park (diamondinmarketing@gmail.com) Page | 35
Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2009). The management of strategy. Mason, OH:
South-Western Cengage Learning.
TaeSung Park (diamondinmarketing@gmail.com) Page | 36
Kaur, K. (2012, December 25). No reason to say no to shuttle now. Retrieved from
http://www.asiaone.com/print/News/Latest%2BNews/Singapore/Story/A1Story20121224391336.html
TaeSung Park (diamondinmarketing@gmail.com) Page | 37
King, B. E. (2013). Transactional and Transformational Leadership: A Comparative Study of the
Difference between Tony Fernandes (AirAsia) and Idris Jala (Malaysia Airlines)
Leadership Styles from 2005-2009. International Journal of Business and
Management, 8(24), p107.
TaeSung Park (diamondinmarketing@gmail.com) Page | 38
Kling, J. A., & Smith, K. A. (1995). Identifying strategic groups in the US airline industry: an
application of the Porter model. Transportation Journal, 26-34.
TaeSung Park (diamondinmarketing@gmail.com) Page | 39
Kwintessential. (2014). Pakistan – Language, Religion, culture customs and etiquette. Retrieved
from http://www.kwintessential.co.uk/resources/global-etiquette/pakistan.html.
TaeSung Park (diamondinmarketing@gmail.com) Page | 40
Lawton, T.C., Solombo, S. (2005). When being the lowest cost is not enough: Building a successful
low-fare airline business model in Asia. Journal of Air Transport Management, 11(6),
355–362. doi: 10.1016/j.jairtraman.2005.03.001
TaeSung Park (diamondinmarketing@gmail.com) Page | 41
Morrish, S. C., & Hamilton, R. T. (2002). Airline alliances—who benefits?.Journal of Air
Transport Management, 8(6), 401-407.
TaeSung Park (diamondinmarketing@gmail.com) Page | 42
O’Connell, J. F., & Williams, G. (2005). Passengers’ perceptions of low cost airlines and full
service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia
Airlines. Journal of Air Transport Management, 11(4), 259-272
TaeSung Park (diamondinmarketing@gmail.com) Page | 43
Peng, M. W., Wang, D. Y., & Jiang, Y. (2008). An institution-based view of international business
strategy: A focus on emerging economies. Journal of International Business Studies, 39(5),
920-936.
TaeSung Park (diamondinmarketing@gmail.com) Page | 44
Porter, M. E. (2011). Competitive advantage of nations: creating and sustaining superior
performance. Simon and Schuster.
TaeSung Park (diamondinmarketing@gmail.com) Page | 45
Simon, J. D. (1984). A theoretical perspective on political risk. Journal of International Business
Studies, 15(3), 123-143.
TaeSung Park (diamondinmarketing@gmail.com) Page | 46
The World Bank. (2014). World Development Indicators [Table 1]. Retrieved
from http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true#
TaeSung Park (diamondinmarketing@gmail.com) Page | 47
The World Bank. (2014). World Development Indicators [Table 2]. Retrieved
from http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true#
TaeSung Park (diamondinmarketing@gmail.com) Page | 48