Final Project on AirAsia

Submitted by,
Submitted By,
Md. Iftekhar Rahman 1420939
Mr. Md. Latiful Khabir
Aminul Islam 1321306 Senior Lecturer
Abdul aual khan 1420654 Department of Management
Ibrahim Bepary 1430442 School of Business

Dipto Corraya 1431338 Independent University, Bangladesh

 Letter of Transmittal

26th November 2017

Mr. Latiful Khabir

Department of HRM,

Senior Lecturer, School of Business,

Independent University, Bangladesh.

Subject: Submission of report on ‘Final Project on AirAsia’

Dear Sir,

We are very pleased to submit this report ‘Final Project on AirAsia’, which has been prepared
for the requirement of the course of MGT 490. We have tried our level best to complete this
report properly and to write an efficient assignment within all the constraints and the report
contains a comprehensive study.

We appreciate that the approach really contributes in giving our course learning a lasting shape
on us. We have a great hope that the report will meet your expectation and aid you in getting a
clearer idea about whole mechanism of Project on AirAsia. We have tried our level best to
follow the guidelines of yours. We are very much glad that you have given us the opportunity to
prepare this report for you and hope that this report will meet the standards of your judgment.

Sincerest gratitude for your illuminating guidance.

Sincerely yours,

Md. Iftekhar Rahman (on behalf of group members)

Students, sec-6

MGT-490.

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Table of Contents
Executive Summary .................................................................................. 3
Acknowledgement ..................................................................................... 4
History of AIRASIA ................................................................................. 5
Vision & Mission ...................................................................................... 7
Air Asia cost efficiency ............................................................................. 8
1. High Aircraft Utilization ................................................................... 9
2. No Frills............................................................................................. 9
3. Streamline Operations ..................................................................... 10
4. Secondary Airports ......................................................................... 10
5. Point to Point Network .................................................................... 10
6. Lean Distribution System ............................................................... 10
Air Aisa aircraft type ............................................................................... 12
Target Market .......................................................................................... 13
SWOT Analysis ....................................................................................... 13
Porter five force analysis of Air Asia airline .......................................... 15
Air Asia problems ................................................................................... 17
Air Asia Solutions ................................................................................... 18
Operating Cost Structure of Air Asia ...................................................... 20
Conclusion .............................................. Error! Bookmark not defined.
References ............................................................................................... 21

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 Executive Summary
AirAsia Airline was established with the dream of making flying possible for everyone. It has
been named as the world's best low-cost airline headquartered in Kuala Lumpur, Malaysia.
AirAsia is one of the award winning and largest low fare airlines in the Asia expanding rapidly
since 2001. With a fleet of 72 aircrafts, Air Asia flies to over 61 domestic and international
destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia,
Thailand, and Indonesia.. Its main hub is the Low-Cost Carrier Terminal (LCCT) at Kuala
Lumpur International Airport (KLIA).

It was originally founded by a government-owned conglomerate, DRB-Hicom. On 2 December

2001 the heavily indebted airline was bought by former Time Warner executive Tony
Fernandes's company Tune Air Sdn Bhd for the token sum of one ringgit (about USD 0.26 at the
time) with USD 11 million (MYR 40 million) worth of debts. He managed turned the company
to earn profit. In this marketing plan, we will analysis about AirAsia’s market summary, whose
are their target markets, which group of the consumer that they focus on, what the market needs,
market trend. We will also using SWOT analysis to analysis AirAsia’s strengths, weakness,
opportunities and threats. Besides that, we also list out their competitor.

We also discuss about product or service that provided by AirAsia, how they success and critical
issues. This plan also will analysis AirAsia’s marketing strategy, financial status and how they
implement their operations and control risk.

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 Acknowledgement
The success of this project depends on the contribution of a number of people, especially those
who take the time to share their thoughtful guidance and suggestion to improve this Air Asia
Report. First of all we would like to pay our gratitude to almighty Allah, who has given us
patience to complete this report. Because working on this issue for a month and then preparing a
report regarding our experience is quite tedious job.

We would like to thank Independent University, Bangladesh (IUB) for planning such a course
that gave us the chance to gather practical knowledge about what we learnt in few weeks. The
knowledge we gathered throughout the course would help us to develop our future career.

Then we would like to express our gratefulness to our honorable faculty of Business School Mr.
Latiful Khabir in Independent University (IUB) who supported us sharing his knowledge
according on this ‘Final Project on AirAsia’.

Lastly, we must be thankful to our friends for their endless inspiration not to be hopeless and
keep working harder.

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 History of AIRASIA

AirAsia is a low cost airline based in kuala Lumpur, Malaysia. It operates scheduled domestic
and international flights and is Asia’s largest low fare, no frills airlines. AirAsia pioneered low
cost travelling in Asia. It is also the first airline in the region to implement fully ticketless travel
and unassigned seats. Its main base is the low cost carrier Terminal (LCCT) at Kuala Lumpur
international Airport (KLIA). Its affiliate airlines Thai AirAsia and Indonesian AirAsia fly from
suvarnabhumi Airport, Thailand and Soekarno-Hatta international Airport, Indonesia,
respectively.

The airlines established in 1993 and started operations on 18 November 1996. It was originally
founded by a government-owned conglomerate DRB-Hicom. On December 2, 2001 the heavily -
indebted airlines was purchased by the former Time warner executive Tony -ernandes1s
company Tune Air Sdn Bhd for the
token sum of one ringgit. Fernandes
proceeded to engineer a remarkable
turnaround, turning a profit in 2002
and launching new routes from its
hub in Kuala Lumpur international
Airport at breakneck speed,
undercutting former monopoly
operator Malaysia Airlines with
promotional fares as low as RM1
(US$ 0.29)

Air Asia operates with the world’s lowest unit cost of US$0.023/ASK and a passenger breakeven
load factor of 52%. It has hedged 100% of its fuel requirements for the next three years, achieves
an aircraft turnaround time of 25 minutes, has a crew productivity level that is triple that of
Malaysia Airlines and achieves an average aircraft utilization rate of 13 hours a day.

Air Asia currently is the main customer of the Airbus A 320. The company has placed an order
of 175 units of the same plane to service its routes and at least 50 of these A320 will be
operational by 2013. The first unit of the plane arrived on 8 December, 2005.

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6|Page
Vision & Mission

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 Air Asia cost efficiency
By 2009, AirAsia had established itself as Asia's most successful low-cost airline. Between
January 2002 and March 2009, AirAsia had expanded from two aircraft and 200000
passenger journeys to 79 aircraft and 11.8 million passengers. Its route network had grown beyon
dMalaysia to cover 10 South-East Asian countries. In addition to its hub in Kuala Lumpur (KL),
Malaysia, it had replicated its system by-establishing associated airlines in Thailand and
Indonesia.

By 2007, UBS research showed that AirAsia was the world's lowest cost airline; with costs per
available seat kilometer (ASK) significantly below those of Southwest, Jet Blue, Ryan air or
Virgin Blue. It was also one of the world's most profitable airlines. In 2008, when very few of
the world's airlines made any profit at all, AirAsia earned return on assets of 4%.1 in 2009 it
won the Skirted Award as "The World's Best Low Cost Airline."

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The key components of the Low Cost Carrier (LCC) business model are the
following:

1. High Aircraft Utilization:

Aircraft is kept flying as much as possible, the first flight starts as early in the morning
commercially possible and the final flight typically ends at midnight. A fast turnaround is critical
to ensure time spent on the ground is minimal – an airline makes money when the aircraft is
flying, not when the aircraft is parked. AirAsia's turnaround time is 25 minutes; as compared to a
Full Service Carrier (“FSC”) which typically has a one hour turnaround time. On average,
AirAsia's utilization per aircraft is 12 block hours per day, a FSC might do about 8 block hours
per day.

2. No Frills:
The underlying business for a LCC is to get a person from point A to point B. Everything else is
considered to be luxury items or "frills", of which can be acquired for a small fee. Among the
many frills that AirAsia has excluded include;

No free food & beverages: Some of our passengers may prefer not to consume food &
beverages when onboard. There are those who prefer to rest throughout a flight or those
who prefer having their meals before flying off. Hence we do not force our guests to
purchase something they do not want or need. Guests are most welcome to purchase food
& drinks at an affordable price from our website before the flight, of from the cabin crew
during the flight.
Assigned seating: Guests receive boarding passes with pre-assigned seats and are not
allowed to request for a seat change unnecessarily. If the guests have preferences on
where or with whom they would like to seat on the aircraft, they are able to do so by
paying a small sum when checking-in online. This feature is called “Pick-a-Seat”.
Ticketless airline: Less hassle for the customer, as guests need not worry about collecting
tickets before travelling. This also allows AirAsia to keep our costs down (less paper,
lower printing and distribution costs) and continue to offer low fares to our guests.
Online check-in: Guests are highly encouraged to check-in online so they do not have to
waste time lining up at the check-in counters at the airport. This helps us to improve
efficiency and reduce congestion in the airport.
No refund: Airlines waste a lot of money, time and resources due to refunds and
rescheduling when guests do not show up for a flight. Whether or not a guest shows up,

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 the cost of flight to the airline is the same. LCCs are strict when it comes to no show
guests and do not offer refunds for missed flights.

3. Streamline Operations:
Making the process as simple as possible is the key of a successful LCC.

Single type of aircraft. Pilots, flight attendants, engineers, mechanics and operations
personnel are specialized in a single type of aircraft. This means, among others, that there
is no need for costly re-training of staff, for maintaining stock with parts for different
types of aircraft, for different knowledge and skills to operate and maintain different
types of aircraft with their own specifications, or for new work requirements.
Single class seating. There is only one class seating, i.e. first class. Should a guest want to
have the privilege of choosing his or her seat, they can do so by purchasing “Pick-a-
Seat”.
Standard Operating Procedures. SOPs are important to ensure same level of competence
among all staff. This way we can ensure the homogeneity of service throughout the
company.

4. Secondary Airports:
Low cost carriers mostly fly to and from airports that are not necessarily the busiest. These are
often referred to as secondary airports. Operating from secondary airports is cheaper than the
major airports. They are also a lot less congested and "turnaround times" for aircraft are a lot
shorter. For instance, to minimize fees AirAsia flies into Clark Airbase in the Philippines which
is 70km away from Manila as appose to flying into Manila Ninoy Aquino airport. And in
Thailand, AirAsia operates from Don Mueang instead of Suvarnabhumi airport.

5. Point to Point Network:

LCCs operate simple point-to-point network. Almost all AirAsia flights are short-haul (4 hour
flight or less). No arrangements have been made with other airline companies on connecting
flights, on possibilities of flight transfers, nor on having the luggage labeled and passed through
from one flight to another.

6. Lean Distribution System:

Distribution costs are something that FSCs most often ignore. Very often, FSCs rely on travel
agents and their sales offices. Furthermore, FSCs tend to complicate their distribution channels

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by integrating their systems with multiple Global Distribution Systems, which are very costly.
LCC will keep their distribution channel as simple as possible and will cover the whole spectrum
of the clientele profile. For example, AirAsia can cater to the most sophisticated European
traveler via internet and credit card sales. And at the same time, AirAsia has an established
system to sell our tickets to the most remote and technology deprived locations, such as in
Myanmar.

Internet sales. The bulk of sales (85%) are done via the airline's website
(www.airasia.com), whereby the fares are paid using credit cards, debit cards or via
online banking. This is the most cost effective distribution channel.
Sales office. AirAsia only has a few sales offices. We only establish a sales office if we
are confident the sales derived from the center will be worth it.
Travel agents. LCCs avoid reliance on travel agents as much as possible. This means that
the airlines do not pay any commission to travel agents, which would otherwise have
been reflected in the fares. Also, as LCCs do not use travel agents, we do not use nor
participate in the world wide reservation systems. This allows us to save costs, which
again are reflected in our pricing.
Call centers. Ticket sales can be done via telephone - a simple and cost effective method.

Fuel costs had a significant impact on Air Asia’s bottom line. With oil price showing high
volatility and reaching record levels by mid-2008. Air Asia opted for a dynamic, layered-hedge
strategy to pay for fuel for fuel in advance and to quality for low price. Fernandez believed that
his staff’s a positive work ethic had also contributed much to lowering the airline’s fuel cost and
operational cost. New fuel-efficient Airbus A320-200 aircraft had been ordered by Air Asia to
replace its fleet of Boeing 737-300s. The 175-aircraft commitment to Airbus-a purchase made
possible by its listing on the Malaysia stock exchange in November 2004- would potentially turn
it into the Asia-pacific region’s single Airbus A320 operator by 2012. Fuel cost is the fixed cost
for AirAsia, variable cost increase by number of passengers increase. They reduce their fixed
cost to increase their profit margin.

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 Air Aisa aircraft type

The airline has a fleet of 188 Airbus A320-200 aircraft. Subsidiary Air Asia X (D7) operates
medium- and long-haul flights, while other airlines operating under the Air Asia name (such as
Air Asia India, Air Asia Japan and Thai Air Asia) are typically joint ventures with other
companies.

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 Target Market

A lot workers or low pay salaries earners who

would like to travel often to meet their families
especially during special occasions but due to
how expensive it was that time, their desire are
not fulfilled.

For example:

 Age 21-35; Male and Female; Single and Married; Social Class BC
 Employed; budget-conscious;
 Avid leisure traveler; almost always with loved ones (friends/family/significant other)
 Willing to sacrifice comfort for savings
 Tech-savvy
 Not afraid to make online purchases

SWOT Analysis

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Strengths:

Air Asia’s brand name is well established in Asia Pacific.

Low cost operations
Fewer management level, effective, focused and aggressive management
Multi-skilled staffs means efficient and incentive work force
Air Asia has the excellent utilization of IT.
Attractive ticket Price.
Breakeven load factor of 52 % and world’s low traveling cost of 0.23 per kilometer

Weaknesses:

Non-central location of secondary airports.

Brand is vital for market position and developing it is always a challenge.
Limited human resources could not handle irregular situation.
Asia does not have its own maintenance, repair and overhaul (MRO) facility.
Extra charge for Baggage.
Air Asia receives lot complaints from customers on their service.

Opportunities:

Asia's middle class growth.

Large international market potential
Higher fuel costs means less profitable competitors may be forced out of business.
The population of Asian middle class will be reaching.

Threats:

Entrance of other low cost couriers.

Air Asia’s profit margin is about 30% which has already attracted many competitors.
Customers worry about safety.
Accident, terrorist attack, and disaster and affect customer confidence
Aviation regulation and government policy.
Volatile fuel price.
Increasing maintains cost.

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 Porter five force analysis of Air Asia airline

Threat of New Entrants:

The competition in an industry will be the higher; the easier it is for other companies to enter
this industry. In such a situation, new entrants could change major determinants of the market
environment (e.g. market shares, prices, customer loyalty) at any time. There is always a
latent pressure for reaction and adjustment for existing players in this industry. The threat of
new entries will depend on the extent to which there are barriers to entry. These are typically:
• Economies of scale (minimum size requirements for profitable operations),
• High initial investments and fixed costs,
• Cost advantages of existing players due to experience curve effects of operation with fully
depreciated assets,
• Brand loyalty of customers
• Protected intellectual property like patents, licenses etc.
• Scarcity of important resources, e.g. qualified expert staff
• Access to raw materials is controlled by existing players,
• Distribution channels are controlled by existing players,
• Existing players have close customer relations, e.g. from long-term service contracts,
• High switching costs for customers
• Legislation and government action

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 Threat of Substitute product:

Ease to switching. As there is approximately 59 low cost airline operating in the industry, it
is always easily for the customer to look for alternative. It is also because they are providing
same service to the customer which is sent their customer to their destination by flight. As
there are no significant differences in product offering, the customer may different them
through the service provided. Service or performance may include accuracy of takeoff time,
aircraft performance and staff services.

Rivalry among existing firms:

Huge numbers of Competitor. The competition will be fiercer if there is high number of
competitor, this is a normal phenomenon. Air Asia are now facing competition with
approximately 59 low fares airline such as JAL Express, Tiger Airways, Air Arabia, Jet Star
Airways, and etc. They may compete in term of their route offering that Air Asia does not
fly. Fixed Cost is high. Fixed cost incurred by an airline company may include the finance
cost, hire purchase and staff cost while this fixed cost may be reduce through increase in
market share. As the rivalry is strong, Air Asia may constant in price reduction to compete
with them.

Bargaining Power of Buyers:

There are two types of buyer power. The first is related to the customer's price sensitivity. If
each brand of a product is similar to all the others, then the buyer will base the purchase
decision mainly on price. This will increase the competitive rivalry, resulting in lower prices,
and lower profitability.

Bargaining Power of Suppliers:

Supplier concentration in a few hands. Due to few suppliers in market, this has increasing the
bargaining power of supplier. Aircraft supplier could be the one who gaining most bargaining
power as there are only two in operation, Boeing or Airbus. The other supplier such as fuel
supplier, merchandise supplier, or food supplier may be depending on market condition.

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 Air Asia problems
As many other commercial enterprise, Air Asia also have many problem. These are some of the
problem of Air Asia.

AirAsia has the high fuel cost problem.

In the political problem AirAsia faced difficult to fly outside the Malaysia.
The airport departure rate, airport security charges and landing charges are problem to
AirAsia airline because it is a lower cost air carrier.
AirAsia is not too many routes as compared to market leaders.
Stiff competition in its sector.
There is a risk of system disruption due to AirAsia’s heavily reliance on online sales. Any
flight delays or calling their customer line to confirm bookings would indicate that Air
Asia’s system is not robust enough to handle booking efficiently. This would result in the
loss of customers as confidence and satisfaction levels drop affecting profitability.
AirAsia has been receiving many complaints on the delay of the flights the unstable flight
schedule the ticketing services and even the flight attendants services.
AirAsia customer’s complaints about the company's poor performance and Many
AirAsia customers converted on flying with other major airlines. Some people think it
was either pay more for better service.
This had recently happened that the public especially the disabled people feel segregated
and discriminated as AirAsia had the policy to refuse carriage for the people who are not
able to walk. This is effect on AirAsia because AirAsia main idea was "now everyone
can fly"
Customer's bad perception to low cost airline might affect a poor safety measure to keep
the costs low. This image could be a major problem to low cost airline because it effects
on the ticket sales of the airline.
AirAsia does not have its own maintenance, repair and overhaul (MRO) facility. It may
be a good strategy when they first started with only Malaysia as the hub and few planes
to maintain. But now, with few hubs (Malaysia, Thailand and Indonesia) and over 100
planes currently owned and about another 100 planes to be received in the next few years.
It is a competitive disadvantage not to have its own MRO facility.
Good customer service and management is critical for competition is getting intense.
AirAsia’s profit margin is about 30% and this has already attracted many competitors.
Most of the full service airlines planning to create a low cost subsidiary to compete
directly with AirAsia.
AirAsia has no better perform crew.

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 Air Asia Solutions

To bring successful in the air Asia needs to identify proper solution. These are some
solution of air Asia.

Social media coverage.

AirAsia need solve their fuel cost problem.
Airport departure, security charges and landing charges are tries to keep their cost
as low as possible.
AirAsia should improve their customer satisfaction and management system.
AirAsia must need their own maintenance, repair and overhaul (MRO) facility
and AirAsia have to ensure proper and continuous maintenance of the planes
which will also help to keep the overall costs low.
AirAsia could demonstrate a better service and in flight performance regarding
the customer's safety during the customer's travel with AirAsia.
AirAsia needs to fantastic crew productivity and the crew performs way better
than competitor Airline.

Future Plan

Air Asia was launched in 2002 which is more than a decade ago. If there is a new competitor,
Air Asia has a lot of advantages compared to the new opponent. Air Asia has the advantages in
terms of brand image, customer loyalty as well as government support as Air Asia is the first low
fare airlines in Asia. Air Asia 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, Air Asia can start to identify the
weaknesses and overcome it as most of the new competitor will imitate Air Asia strategy as well
as improve it. The other way is by going for more international markets as Air Asia seems to
have the resources and capability to do

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Air Asia Airline Company in the East Asia has made this company a successful company in this
market. The success of the company can be due to company willingness to take risk through
using the innovative strategies that reduces the cost and also provides huge profitability.

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 succeeds along its competitors

It may be a challenging idea that Air Asia moves beyond its historic strength. Firstly, to deliver
on nonstop service to Europe and a one-stop service to the United States. Air Asia should focus
not only on cost saving, but also on profits. They should capitalize on their accomplishments by
expanding into comparable markets. Air Asia increased customers in the Asian market due to
low cost approach of the airline companies. Low cost fare model of the airline will prove
beneficial for the company in attracting customers from all over the world and thus will helps in
enhancing the profitability of the company in order to remain sustainable for future.

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.

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 Operating Cost Structure of Air Asia

Operating Expenses Oct –Dec Oct –Dec

USD’000 2016 2015

Revenue 74,320 53,664

Operating Expenses:
-Staff cost (186) (117)
-Depreciation of property, plant and equipment (11,956) (2,047)
-Aircraft operating lease expenses (27,511) (24,328)
-Maintenance &overhaul (9,583) (22,440)
-Other operating expenses (1,646) (1,628)
Other income 5,018 -

Operating Profit 28,456 3,104

Finance income 5,603 -

Finance costs (5,596) (414)

Net Operating Profit 28,463 2,690

Foreign exchange (loss)/gain (5) 5,114

Profit before tax 28,458 7,804

Taxation (1) (5)

Profit after tax 28,457 7,799

EBITDAR 67,923 29,479

EBITDAR Margin 91% 55%

EBIT Margin 38% 6%

Source: Air Asia (31 December 2016) “Financial report”

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 References

https://www.airasia.com/en/home.page?cid=1

https://www.airasia.com/cdn/docs/common-docs/investor-relations/airasia_bursa-

announcement-q42016_23feb17_final.pdf

https://www.studentsassignmenthelp.com/answers/case-study-air-asia/

https://www.planespotters.net/airline/AirAsia

http://www.academia.edu/19795006/ASSIGNMENT_AIRASIA

https://www.scribd.com/document/192815971/Case-9-Airasia

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