Gilles

Manon

Matthias

Maxime

Elisabeth

Low Cost Airlines

• What is a Low-Cost Airline?

Low-Cost Airline = No-Frills Airline.

Minimum services for passengers.

• History:

USA: Pacific Southwest Airlines (1949-1988)

Southwest Airlines (1971)

Europe: Ryanair (1985)

Easyjet (1992)

Asia: Air Asia (2001)

Synthesis

Analysis

Conclusion

Air Asia Airlines over the years

• 1996: full-service airlines => Failure

• 2001:Tony Fernandes World Trade Center terrorist attacks Low-Cost Domestic airlines

• 2004: 1st international service => Phuket (Thai)

• 2007: The lowest cost in the World, 51 000 passengers per day, 54 planes. Cross border joint ventures Expansion to Cargo transportation.

• 2008: Launch of Air Asia X

Synthesis

Analysis

Conclusion

• Headquarters : Sepang, Selangor Malaysia

• 78 planes (including Joint ventures)• 3.000 employees• 16.000.000 customers a year• $60.000.000 turnover.

Synthesis

Analysis

Conclusion

Air Asia today

Illustrations

Synthesis

Analysis

Conclusion

Air Asia Routes Map

Synthesis

Analysis

Conclusion

Positioning Low-cost short haul, no frills

Aircraft Airbus A320 with 180 seats

Seat Type Single Seat ( Economy class only)

Seat Option Free seating with Xpress boarding option

In-Flight Services

Wide range of light meals and snacks available for purchase on board

Marketing strategy

Conclusion

Analysis

Synthesis

Key Factors to the Success of AirAsia

• Global Context: - Air Asia was re-launched in the aftermath of the September

11 events - Aircraft costs were declining at that time

• An attractive market: - Geographical conditions = Pacific Asia is made up

numerous islands and poor road network

• Demography: - more than 558 million inhabitants (ASEAN countries) and

over 3 billions with China and India - urbanization (many cities have more than 1 million

inhabitants) and growth of the middle class population

• Its Strategy: - Differentiation strategy by simplification - Attractive and competitive ticket price, even compared to

bus and road fare

Conclusion

Analysis

Synthesis

STRENGTHS WEAKNESSES

- Important revenue up

- Low distribution cost

- Low operational costs

- Attractive ticket price

- Strong Brand presence in Asia

- Malaysian government support

- Diversification strategy + Joint ventures

- Aircraft financing costs surging

OPPORTUNITIES THREATS

- Liberalization of ASEAN capital routes

- Asia’s middle class growth

- Recycling routes abandoned by struggling rivals

- Increasing competition

- Oil price

- Flu spread

- Substitute products

SWOT Analysis

Conclusion

Analysis

Synthesis

Bargaining power of customers

Bargaining power of supplier

Threats of potential entrants

Threats of substitute products

Rivalry within industry

Medium

Many customers but high sensibility to prices.

Develop-ment of substitute product

Low

Hard competition between Airbus, Boeing, ATR and others

Sizeable

Full services Air Line might consider going low cost. Develop-ment of new low-cost companies

Medium

Train, bus and car travel are developing

High

Hard competition

Porter Analysis

Conclusion

Analysis

Synthesis

Differentiation strategy

Downward differentiation or simplification (combined with a niche strategy):

The offer consists in a cheaper product or service , with deliberately limited features (usually associated services are reduced)

Conclusion

Analysis

Synthesis

Cost

Price

Reference offer

Price & cost

Cost decreases more than price

Niche strategy

What is a niche market?

- small but profitable segment of a market

- market niches do not exist by themselves, but are created by identifying needs that are not satisfied by the competitors

- adapt offer to customer demand

Conclusion

Analysis

Synthesis

Cost reduction

Leanest cost structure: - High aircraft utilization (turnaround time)

- No frills (no free food & beverages, ticketless travel)

- Streamline Operations (simple process)

- Basic Amenities (secondary airports)

- Point to point network (short-haul, 3 hour flight or less)

- Lean Distribution System (internet, sales office)

Conclusion

Analysis

Synthesis

Liberalization of air transportation:

ASEAN liberalizes air transport:• The Roadmap for Integration of Air Travel Sector (2004)

provides for the liberalization of air traffic for all the international airports of member countries

• This agreement was ratified in 2007 in Singapore by the 10 member countries of ASEAN

• The final objective is an ASEAN Single Aviation Market by 2015: full liberalization of both passenger and cargo air services

• Advantages of this liberalization: – it stimulates economic and commercial growth by

facilitating goods exchanges– it should increase competition and thus lower tariffs– it enables passengers to have greater choice if there

are more competitors– it will reduce trade transaction costs for ASEAN

member countries

Conclusion

Analysis

Synthesis

Liberalization of Indian aviation sector

• Travel liberalization in India opens up a great market for low cost airlines

• The growing middle class represents over 200 million potential travellers Conclusion

Analysis

Synthesis

Recommendations

1.To maintain the high level of profitability

30% profit margin on EBITDAR (Earning Before Interest, Taxes, Depreciation, Amortization and Rent)

Synthesis

Analysis

Conclusion

How to maintain this level of profit while fuel price is

increasing?

- Act on the prices

- Act on the costs

Synthesis

Analysis

Conclusion

Recommendations

Act on the prices

Yield management: different price’s categories are defined. Cheap tickets available during the middle of the week

Expensive tickets to be distributed when the demand is high (week-end)

Prices increasing according to the demand

Synthesis

Analysis

Conclusion

Recommendations

Act on the costs

Extensive use of the aircrafts in launching long haul night flights

Offer more on board services/ products to the passengers:• Taxi booking service • Internet WIFI access on board• Newspapers, Movie renting,…• Offer more products on catalogue. (Parfum, make-up,

toys…), Products could be sold without TVA so AIRASIA could increase its margin instead and still be cheaper than regular retailers.

Place advertisings on the plane’s cabini.e. to advert about an online hotel booking website.

Synthesis

Analysis

Conclusion

Recommendations

2. Fund-raising

They would come from:

- Private equities- Public

This fresh money could be used to finance strategic

projects…which ones?

Synthesis

Analysis

Conclusion

Recommendations

3. Implement strategic projects

A) Increasing AIR Asia's assets

Enlarging this existing fleet• More narrow body aircrafts• Some wide body aircrafts

This new fleet will enable to open new routes in ASIA and around the globe!

Cargo’s installations to load/unload the aircraft

Air Asia’s flights could thus mix passengers and freight

Synthesis

Analysis

Conclusion

Recommendations

B) Invest in joint ventures

AIRASIA should maintain its international development across Asia in association with local budget airlinesIt would increase the airline’s offer.

C) Diversification

AIRASIA should acquire new know-how in a view to offer More Service to the consumer.i.e. To take over an online travel agency

D) Take over competitors

AIRASIA should enter in equities of threatening competitors to eliminate them

Synthesis

Analysis

Conclusion

Recommendations

Gilles

Manon

Matthias

Maxime

Elisabeth

Questions?