AIRASIA: GETTING

EVERYONE TO FLY

Dr Achinto Roy, School of Management and Marketing, Deakin

University

!

On 8 September 2001, Tune Air Sdn Berhad co-founder Tony

Fernandes¹ signed an agreement to take over an almost bankrupt AirAsia from the Malaysian government.² This was three days prior to the September 11 attacks in the United States that permanently altered operational costs and business conditions for the aviation industry, making it more challenging than ever. However, Tony went on to complete the deal by buying debtladen AirAsia for 1 ringgit, taking over two old aircraft and liabilities amounting to 40 million ringgit. On 8 December 2001, AirAsia was re-branded and relaunched as Asia’s first low-cost carrier with a marketing slogan ‘Now everyone can fly’.³ When AirAsia restarted operations, only 6 per cent of Malaysians had even flown on a plane.⁴ Targeting the other 94 per cent of the population who had never flown before, the airline’s first lowfare routes — which included Kota Kinabalu, Kota Bahru, Kuching, Labuan, Langkawi and Penang — were an instant hit in Malaysia.

   In 2010, AirAsia flew its 100 millionth passenger and broke the 1 billion ringgit profit barrier⁵ — a testimony to the success of its low-cost carrier (LCC) business model. AirAsia has consistently achieved better than industry averages in most operational and revenue areas. Today, AirAsia employs 8000 people and flies across 132 routes (40 of which are not served by any other airline). AirAsia (and its associate company Air Asia X) has routes that cover 80 destinations in 18 countries, and operates out of 14 hubs located in Malaysia, Indonesia, Thailand and the Philippines.⁶ One AirAsia jet either takes off or lands every 3 minutes somewhere in Asia.⁷

   AirAsia started out with very little capital in a very competitive industry at a point in time when the aviation industry was facing its worst moment in history. It was promoted by people who did not come from the industry, and the company targeted a market that was untried. So, what made this airline so successful?

Defining AirAsia’s vision, mission, strategy, goals and values

The company’s success can be attributed to a number of factors — including starting out with a clear definition of the airline’s competitive positioning within the industry, its strategy formulation, and effective implementation conveyed through its vision and mission statements. As per its vision statement, the airline aims ‘to be the largest low cost airline in Asia serving the 3 billion people who are currently underserved with poor connectivity and high fares’.⁸ This statement also spells out the competitive positioning sought by AirAsia — that is, the business-level strategy to be pursued as a cost leader; its strategy formulation based on customers as proposed in Hamel (1998)⁹ and Markides (2000)¹⁰; and its strategic goal as a quest for value beyond profitability, supported with

471

a service commitment to 3 billion underserved stakeholders. AirAsia’s vision is complemented by a mission statement¹¹ that aims to create a workplace culture of commitment likely to foster motivation to implement its strategy and build a global brand¹²:

• To be the best company to work for whereby employees are treated as part of a big family
• Create a globally recognized ASEAN brand
• To attain the lowest cost so that everyone can fly with AirAsia
• Maintain the highest quality product, embracing technology to reduce cost and enhance service levels.

   As with any service industry, strategy formulation for commercial airlines has to typically start with questions proposed in Markides (2000), namely:

• Who are our customers or who should be our customers?
• What value can we offer them?
• How do we go about doing the above two things?

AirAsia precisely asked that and connected with them effectively.

Implementing AirAsia’s strategy

Setting out with the desire to serve an underserved market in the ASEAN region, AirAsia relentlessly concentrated on achieving cost efficiencies, customer conveniences, innovative practices, regional connectivity and a workplace culture that offered unlimited opportunities for staff and best services for customers. As a result, the airline was the first to introduce ticketless travel in Asia during 2002, enabling passengers to buy a ticket over the phone using their credit cards. In August 2003, AirAsia became the world’s first airline to introduce SMS ticketing. Later that year, AirAsia inaugurated its first international flight to Phuket and established Thai AirAsia. The path was set for rapid expansion in 2004 through the introduction of domestic AirAsia services within Thailand, flights to Jakarta from Johor Bahru and Kuala Lumpur, a listing on the Kuala Lumpur Stock

Exchange and the purchase of 40 Airbus A320 aircraft with the option to buy another 40 aircraft. By 2005, AirAsia had bought an additional 60 Airbus A320s, set up an Indonesian subsidiary that flew between Jakarta and Singapore, signed up with Manchester United as their official airline and introduced a comprehensive booking system for mobile and wireless devices as another world first.

   Between 2006 and 2007, the airline set up the AirAsia Academy (with Airbus full flight simulators to train its staff), established new hubs both within and outside Malaysia, launched flights to Vietnam and booked firm orders for 175 Airbus A320s (making it the world’s biggest operator of this type of aircraft). By this time, the airline had successfully operated its low-cost aviation model built on innovative solutions in the short-haul destination (3 hours flying time) segment — flying both point-to-point services between major cities and effectively using the hub-and-spoke system at its Malaysian hubs to connect with regional Malaysia, Thailand and other places.

   AirAsia’s fleet has now grown to 100 aircraft, and includes a large number of brand new A320s.¹³ This was achieved largely due to the dedicated teamwork of its managers and employees. Unlike many other organisations in Asia, Fernandes as CEO introduced a non-hierarchical system of workplace interaction. He led by personal example and was found working alongside baggage handlers, counter sales and reception staff, and at times as part of the inflight cabin crew attending to customers. As a mentor, he also encouraged his staff at all levels to excel and seek growth within the company. AirAsia is the only airline in the world where baggage handlers and customer service staff have worked their way through the organisation, acquired pilot training funded by their employer and become flight captains.¹⁴

472

AirAsia expands as a long-haul budget carrier

In 2007, AirAsia entered the long-haul budget flight segment of the industry by creating a separate corporate entity called AirAsia X. It sold a ten per cent stake to Virgin Airlines, thus enabling AirAsia X to access Virgin’s expertise in the long-haul sector as well as the opportunity to code share and act as a passenger and cargo feeder for each other at certain transit hubs such as Kuala Lumpur (AirAsia) and London (Virgin). AirAsia’s entry into the long-haul sector as a budget carrier defied industry logic: in the past, almost all long-haul carriers who had chosen to position themselves in the budget category had failed and gone bankrupt. However, AirAsia X launched point-to-point flights between popular destinations linking Asia with Europe, the United States and Oceania and kept costs under control.

!

   The airline survived high fuel costs, economic crisis, natural disasters and bird flu scares during the first four years of its operation, flying to 15 destinations — London, Taipei, Tehran, Paris, Seoul, Tianjin, Hangzhou, Chengdu, Tokyo, Gold Coast, Melbourne, Perth, Mumbai, Delhi and Christchurch. It is considered a success, achieving the lowest industry CASK (cost per available seat kilometre), with plans to expand.¹⁵ AirAsia thus has the rare distinction of having succeeded in both segments (i.e. short-haul and long-haul) using a LCC business model — defying industry logic that LCC business models cannot be successfully applied for long-haul destinations. AirAsia looks to the future

AirAsia has truly lived its vision and mission statement during the past decade by focusing on a relentless route expansion to serve its target market. The airline is part of the Tune group — which has forayed into discount hotels (Tune Hotels), mobile phone services (Tune Talk), financial services (Tune money) — and also has ties with car rental companies. It has introduced a number of value-added services and innovative products such as the ‘Big points’ loyalty program that doubles up as an air points collector and a prepaid charge card. All these link up to AirAsia’s core airline business and customer base within the region. AirAsia Berhad intends to triple its fleet and match that growth with similar growth in Tune’s hotel, mobile and financial sectors.¹⁶

   In its bid to grow, AirAsia had sought to buy 20.5 per cent of the struggling government-run Malaysian Airlines in August 2011, with the aim of turning it around. However, the deal fell through in June 2012 due to strong opposition from Malaysian Airlines employee unions, who feared job cuts.¹⁷ Tony has now set into motion another strategic plan to grow AirAsia by shifting its headquarters to Jakarta, Indonesia. He has recently stepped down from the stewardship of AirAsia, Malaysia and appointed 38-year-old Aireen Omar as the CEO for Malaysian operations of the airline.¹⁸ He has acquired a 49 per cent stake in loss-making Batavia Air¹⁹, an Indonesia-based airline in order to enter Indonesia — a country that has been experiencing an economic growth rate of around 6 per cent for the past few years.²⁰ Tony intends to replicate the AirAsia, Malaysia’s successful model in Indonesia under buoyant economic conditions and increasing domestic consumption. He intends to make a public issue and list AirAsia, Indonesia shares on the Jakarta Stock Exchange in order to fund fleet modernisation and expansion of operations. Given his track record

(Grant 470-472)

Grant, Robert, Bella Butler, Stuart Orr, Peter Murray. Contemporary Strategic Management: An Australasian Perspective, 2nd Edition. John Wiley & Sons Australia,, 08/2013. VitalBook file.

Question 1:

Use examples from this case study to explain the importance of a vision statement and its link with a mission statement.

Question 2:

What is the connection between AirAsia’s intended strategy, formulated strategy and implemented strategy emanating from the vision and mission statements?

Question 3:

Why is it important to include a scope for providing value as part of intended strategy?

For a custom paper on the above case study, place your order now!

What We Offer
• On-time delivery guarantee
• PhD-level professionals
• Automatic plagiarism check
• 100% money-back guarantee
• 100% Privacy and Confidentiality
• High Quality custom-written papers