The Cheaper the Better - from the Perspective of Airasia

The cheaper, the better?

– From the perspective of AirAsia

Low cost carriers (LCC) have been regarded as a new business model in airline industry recently. Southwest Airlines, which is deemed as one of the largest LCC in the world, exhibits a successful story to all the airlines across the globe since 70s. Having launched its first flight from Dallas to Houston, Southwest Airlines has become one of the largest US airlines in number of national passenger flights. It was the sole profitable US airline in 2001 after 911 terror attack. Its successful business model stimulated the start-up of LCC in Europe. Ryanair, for example, has demonstrated itself as a profitable LCC in intra-Europe market since 1985.

The business model of LCC, which is not a secret to the practitioners, comprises some basic principles including:

1) Cost controlling in sales& marketing, operations and maintenance;

2) Low fare which targets non-business travelers who have the option to choose road transportation to the destination; and

3) High efficiency which means short turnaround time and high utilization of the fleet

AirAsia, which is one of the earliest LCC in Asia, has become a LCC since 2001. It has expanded its network from Malaysia, Thailand to Singapore, Macau and even the Mainland China recently. A scheduled Bangkok to Xiamen was launched on 1st April this year. It seems that AirAsia has greatly jumped out from an intra-Malaysia and Thailand market to a "real AirAsia" in the continent among its competitors. How does the environment in Asia nurture those LCC? Why does AirAsia succeed in managing its value chain? Is the cheaper, the better?

Environmental analysis of LCC in Asia

Societal

After the financial crisis in 1997, most Asian countries have been recovering and bouncing back from the valley in recent years. Therefore, the quality standard of leisure and business travel requested by Asians has declined. People are seeking for traveling at a low price with satisfactory service. As an alternative to road transportation in a journey within 3 hours, LCC shortens the travel time by providing a low fare service with no frills.

Technological

In sales and marketing point of view, customers are more getting used to buying air tickets online. This convenient and cost-saving ticket-selling method allows most LCC to sell their tickets online which help save commission for traveling agents and simplify the administration process.

Economical

For the airports in Asia, especially secondary airports far away from the downtown, recession in airline business

...