Case Study Abi Sanni, Aly Remtulla, Kelsey Gamble, Kendra Jocksch, Nancy Moke

Presentation Overview
Company Overview
Problem Company Analysis

Recommendation
Conclusion

Company Overview
Company Vision

To be an airline that flies long-hauls with low fares with a corporate culture that is flexible and functional.

Company Overview
Prior to 2002 Tony Fernandes had a vision. 2004 Introduction of international service 2007 Long-haul flights under AirAsia X brand 2009 AirAsia recognized as a successful LCC

2002 AirAsia was relaunched with just 3 planes

2005 Adopted an ERP system

2008 4% ROA during recession

Future Possibility exists to expand into other areas

Company Overview
Key Success Factors
Single aircraft and single class Human resource policies Outsourcing Wireless delivery system Tourism

Deregulation

Problem

Should AirAsia expand its long haul business and to what extent should AirAsia and AirAsiaX be integrated operationally?

Problem
Advantages
New markets and growth opportunities

Disadvantages
Moves away from successful LCC strategy

Expansion of trunk routes

Difficulties with external factors

Increases market share

Loss of competitive advantage

Company Analysis
Structure of Operating Costs

Direct

Indirect

Company Analysis
Company SouthWest WestJet AirAsia Average

EBITDAR (%)
18 25 31 22

EBIT (%)
10 15 18 12

Net Income (%)

6 7 17 9

ROE (%)
8 14 17 13

Adjusted ROIC (%)

5.4 4.2 6.2 5.2

Source: AirAsia Presentation, CLSA Forum, Hong Kong, September 2007. www5.airasia.com/.../CLSA%20Investor%20Forum%20KL%2007.pdf Malaysia

Company Analysis
Operating Expense (RM, millions)
Staff costs Fuel costs Maintenance Costs Total Operating Expenses

AirAsia
236.8 1389.8 345.1 2966

MAS
2179 6531.6 1146.4 15198.3

Cost per available seat kilometer (sen)

11.66

22.80

Source: Grant, Robert M. Contemporary Strategy Analysis. 7th ed. Wiley's Higher Education, 2010. P.632

Company Analysis
AirAsia price advantage
36.5% 18.2%

Long-Haul Flight
Kuala Lumpur-London round trip
London-Kuala Lumpur

AirAsia X
US$433.96 US$433.96

MAS
US$683.68 US$530.35

Source: Grant, Robert M. Contemporary Strategy Analysis. 7th ed. Wiley's Higher Education, 2010. P.633

Company Analysis
Capacity Utilization
Product Design

Economies of Scale and Learning

Input Goods Production Technologies Residual Efficiency

Company Analysis
Capacity Utilization

Quick turnaround time

Single class seating system

Ticket fares on time value

Company Analysis
Product Design

Food and beverage sales

Ticketless airline

No refund policy

Company Analysis
Economies of Scale and Learning

Single type of aircraft

Employee specialization

Company Analysis
Input Costs

Outsourcing

Secondary airports

Non-union labor

Company Analysis
Production Techniques

Distribution methods

Point to point network

Company Analysis
Residual Efficiency

Teamoriented

Employee bonuses

Open management style

Recommendation
Remain one of the cost leaders Go long-haul strategically A blending of brands

Questions?