AirAsia - Southeast Asia's Most Successful Low-cost Airline

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Case Details:

Case Code : BSTR157
Case Length : 17 Pages
Period : 2001 - 2005
Organization : Air Asia Airlines
Pub Date : 2005
Teaching Note : Available
Countries : Malaysia
Industry : Airlines

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"There is tremendous camaraderie here (at AirAsia) - with no hierarchy and a family environment. We cannot ever change that. As soon as we change it we will lose our focus."

- Tony Fernandes, founder and CEO of AirAsia, in 2004.¹

"Mr. Fernandes's biggest challenges will be to manage growth, and to avoid both a destructive price war and the temptation to enter markets with fundamentally different economics, such as long-haul flights. For now, his lead over competitors looks unassailable."

- The Economist, in 2004.²

Free Seats on Airasia!

In early 2005, AirAsia Sdn Berhad (AirAsia) announced that it would give away 10,000 free seats on its flights to select Southeast Asian destinations.

The airline said that was its way of celebrating the completion of three years of successful flying and of saying thank you to the people for their support. "AirAsia's accomplishments and success today is a reflection of the public's trust and faith in the company," said Tony Fernandes (Fernandes), CEO of AirAsia³. The airline also wanted to thank the public for making its late-2004 shares issue a huge success (Refer Exhibit I for AirAsia's Free Seats Offer).

One of the most successful airlines in the Southeast Asian region and the pioneer of low cost, no frills travel in Malaysia, AirAsia was often in the news for its low fares and fast growing operations (Refer Exhibit II on Low Cost Airlines).

Until AirAsia proved them wrong, airline analysts believed that budget carriers would not find a market in Asia.

They said the Asian airline industry was different from the industries of the US and Europe - airline passengers in Asia looked on air travel as a luxury, and expected to be pampered by the airlines. For this reason, no-frills travel would not appeal to them. In addition, Asian countries had a great amount of red tapism, which made it difficult to start any new venture, not least of all, an airline. Major national airlines in most of the countries also enjoyed government backing and were too powerful to allow competition to flourish.

Therefore, when AirAsia was set up in 2001, it was greeted by a large amount of skepticism.

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1] "AirAsia's CEO flies humbly high," www.cnn.com, July 25, 2004.

2] "Having Fun and Flying High," The Economist, March 11, 2004.

3] www.asiatraveltips.com