AIR ASIA

Air Asia- the world's lowest cost airline



Air Asia- the world's lowest cost airline

Introduction

A low cost airline based in Malaysia, built its entire business on the model of LLC, established by the Southwest airlines in the United States is Air Asia. Air Asia mission statement is to be the leading airline in Asia offering low fares and no frills. The Air Asia is the first airline in Asia to start and introduce a ticketless travelling. Air Asia's value describes 'Now Everyone Can Fly'. Customers are benefitted by the Air Asia cost advantages established by the company through its efficiency and operational effectiveness. With the fare falling dramatically the customers enjoy more. This makes the company Air Asia capture more of the 'dead weight losses' when the company captures the customers through segmentation which previously weren't afforded by the fares of airlines. This paper will focus on the sources of the cost advantage of Air Asia along with the strategy to focus on the long-haul business of Air Asia (airasia.com).

Sources of Air Asia cost advantage

This section mainly focuses on the sources of cost advantage of Air Asia in critical manner. Following are the sources of Air Asia's cost advantage.

Capacity Utilization

The main focus of Air Asia is to keep all its planes active at all times. They make the schedules of the flights in such a way which maximizes the time aircrafts where time can be spent on flying. As compared to the full-services carriers the turnaround time of Air Asia is very short. After landing of one flight, the aircraft can be ready in 25 minutes time. On the other hand, the time for turnaround for FSC usually takes about one hour. Revenues are maximized with this rapid turnaround time. In the minimizing of Air Asia's cost, capacity utilization plays a pivotal role. The fixed costs of the flight must be spread on the few units; therefore unit costs are increased due to under utilization. The aim of Air Asia is to keep the planes on air as much as possible because the more planes on air the more revenues are generated by the company (Centre for Asia Pacific Aviation, 2002).

Air Asia also has single class seating system which is beneficial for the company because the passengers have the liberty to choose where they will want to be seated. The passengers can choose their preferred seats by paying extra for the Xpress boarding. The tickets fares of LCC are basically based on the time value of the seats rather full cost carriers. The closer the time gets to the day of the flight, the more the ticket fares are increased. Altogether, there are twelve fare tiers. Those passengers who book their tickets ahead of time and are value conscious are placed as the first few tiers which are solely targeted for these passengers. The captive market is targeted by the middle tiers. Air Asia covers its operational cost of the flights by this technique and also generates revenues ...