Business Strategy

Aligned with its mission statement, AirAsia’s business strategy is centred on costleadership. However, its business strategy targets specific markets; price sensitive customers (including first-time fliers) needing short-haul flights. In Porter’s generic strategies, AirAsia’s business strategy can be categorised into focused cost leadership;quadrant 3A in figure 1.

AirAsia builds and sustains its competitive advantage by providing services at a price that is simply lower than competitors’ price. Operation effectiveness and outstanding efficiency are two main characteristics of low cost businesses including AirAsia. The central objective is to achieve bigger cost advantages than the rivals by continuously searching  areas for cost reduction along its value chain. By further analysing AirAsia’s value chain, one can actually determine how AirAsia creates cost advantages along  its value chain. Appendix 2 summarises the sources of cost advantages contributable to the low cost business model for each activity in AirAsia’s value chain. These cost advantages constitute AirAsia’s order winner in competing with its rivals as they enable AirAsia to provide the lowest possible price to the  price sensitive customers.  In LCC industry, cost is the competitive priority and it determines market position.

The Air Asia Establishment

Inspired by the LCC business model of Southwest Airlines inspired Tony. Southwest Airlines was established in 1971 and had been profitable every year since 1973. Then model adopted by Europe after liberalization of aviation industry. Ryanair (Ireland) and easyJet (London) are the largest LCC in Europe and follow the same business model.

Air Asia was established initially by DRB-Hicom Bhd in late 1996, asian financial crisis in 1997.

Government studied Tony’s proposal to start a LCC carrier and refused to issue a new licence and had requested Tony to buy over an existing airline.

Tune Air, set up by Tony and his investors bought Air Asia over from DRB-Hicom on 8th Dec 2001 for a token sum of RM1, with its 2 x Boeing 737-300s, a tiny route network and nearly RM 40 million in debts.

Tony Fernandez (VP, Times Warner Music, SEA), from music industry had RM 1 million in hand (mortaged house and sold off Times Warner Share Options) to pump into Air Asia.

Air Asia’s LCC runs short-haul (less than 3 hours) and is low-cost, no-frills carrier serving routes within Asia.

Air Asia was re-launched in January 2002, with fares lower than bus ticket for local destinations and even gave away free tickets. First day of operations started with RM 1 promotional price.

Air Asia started with routes from KL, and then from Senai Airport in Johor in 2003.

By Dec 2002, the revenue was stated to be RM 113 million and profits of RM 19.4 million, 1.1 million passengers and most debts settled.

Cost cutting measures such as : Fuel consumption being cut by half, and landings being doubled with the tyres. Safety and service were given same priority as cost cutting measures. Problems raised were resolved within 24 hours as a KPI.

Picture of Product(s)

Entrepreneur Profile

Tan Sri Anthony Francis Fernandes CBE (born 30 April 1964; also known as Tony Fernandes) is  Malaysia entrepreneur and the founder of Tune Air Sdn. Bhd., who introduced the first budget no-frills airline, AirAsia to Malaysians with the tagline "Now everyone can fly". He has since founded the Tune Group  of companies.

He rose to prominence by turning AirAsia, a failing government-linked commercial airline, into a highly successful budget airline public-listed company. Fernandes was also instrumental in lobbying the then Malaysian Prime Minister, Tun Dr.Mahathir Mohamad  in mid-2003, to propose the idea of open skies agreements with neighbouring Thailand,Indonesia and Singapore. As a result, these nations have granted landing rights to AirAsia and other discount carriers.

 

Born in Kuala Lumpur to an Indian Goan father, Stephen Edward Fernandes, and Malacca Portuguese mother, Ena Dorothy Fernandez. At a young age, Tony used to follow his mother, a businesswoman, to Tupperware dealer parties and conventions. He was educated at Epsom College 1977-83 and then graduated from the London School of Economics in 1987. He worked very briefly with Virgin Atlantic as an auditor, subsequently becoming the financial controller for Richard Branson's Virgin Records in London from 1987 to 1989. Tony was admitted as Associate Member of the Association of Chartered Certified Accountants (ACCA) in 1991 and became Fellow Member in 1996.

Upon his return to Malaysia, he became the youngest managing director of Warner Music (Malaysia) Sdn Bhd. Though an accountant, Fernandes is an amateur guitarist and also has achieved grade 8 piano which is where his musical inclination lies. He was responsible for revolutionising ethnic music, nasyid and dangdut, bringing them into the mainstream of contemporary Malaysian music.

He subsequently became the South East Asian regional vice-president for Warner Music Group from 1992-2001. When Time Warner Inc announced its merger with America Online Inc., Fernandes left to pursue his dream of starting a budget no-frills airline. However, his application for a license from the Malaysian government was rejected.