market entry of a lcc - experience and impacts of airasia

September 4- 5 2006 / 13–14 1385 شهريورماه www.irmmc.com

MARKET ENTRY OF A LOW COST CARRIER: THE EXPERIENCES AND IMPACTS OF AirAsia

Seyed Mohammadbagher Jafari Department of Mechanical and Manufacturing Engineering, Faculty of Engineering,University of Putra Malaysia, [email protected]

Mohammadreza Vasili, Department of Mechanical and Manufacturing Engineering, Faculty of Engineering University of Putra Malaysia, [email protected]

Keywords Service marketing, Airline management, Low cost carrier, LCC, AirAsia

Abstract

Low Cost Carriers (LCC) that offers cheap cost of flying with no frill service has changed the air travel industry in other parts of the world especially in Europe and the United States. Following their success a number of airlines have emerged in Asia Pacific region to be run on similar business mode. In Malaysia, AirAsia has emerged as a successful low cost carrier cutting into the market of the country’s full service carrier Malaysia Airlines. With its ‘Now everybody can fly’ tagline, AirAsia’s has emerged as one of the leading low cost carrier in the region. In this study, the history of LCCs, the LCC business model, the current situation of LCCs and AirAsia as a successful case of LCC will be discussed. This paper attempts to look into the insights of AirAsia’s operation in general and its marketing strategy in particular and to see if their offerings will be able to sustain new competition. 1. INTRODUCTION The advent of low cost airline carriers (LCCs) emerged as a byproduct of the deregulation of the air transportation sector initiated by the US in the 1970s. In the Currently, the LCC model has expanded way beyond its original development in the US (with companies such as Southwest and Jet Blue) into Europe (Ryanair, easyJet, Buzz, among others), to locations as far a field as Asia and Africa involving companies such as AirAsia, Virgin Blue, Air Arabia and Kulula [1]. Low-cost carriers pose a serious threat to traditional "full service" airlines, since the high cost structure of full-service carriers prevents them from competing effectively on price - the most important factor among most consumers when selecting a carrier. From 2001 to 2003, when the aviation industry was rocked by terrorism, war and

September 4- 5 2006 / 13 – 141385 شهريورماه www.irmmc.com

SARS, the large majority of traditional airlines suffered heavy losses while low-cost carriers generally stayed profitable [2]. 2. LITERATURE REVIEW

2.1 The Definition of Low Cost Carrier (LCC) A low-cost carrier or low cost airline (also known as a no-frills or discount carrier / airline) is an airline that offers generally low fares in exchange for eliminating many traditional passenger services. The concept originated in the United States before spreading to Europe in the early 1990s and subsequently to much of the rest of the world [2]. Low-cost carriers (LCCs) offered an attractive alternative for price-sensitive clients during the economic downturn [3]. 2.2 The Historical Background Low cost carriers have reshaped the competitive environment within liberalized markets and have made significant impacts in the world’s domestic passenger markets, which had previously been largely controlled by full service network carriers [4]. The full impact of the LCC model may be inferred in several ways [5] not only in terms of the passengers they carry [6] but from the fact that some traditional full-blown service carriers (hereafter FSC) have responded by establishing their own LCCs; e.g. Delta operates Song in the US, in Canada Air Canada operates Tango and Zip, in Europe KLM established Buzz. Moreover, Windle and Dresner [7] document the decline of prices in routes where LCCs start operations, while Vowles [8] studies the socalled ‘Southwest Effect’: a rapid increase in traffic and a simultaneous reduction of the average ticket price at airports close to those where Southwest initiates operations, even on routes that Southwest does not compete directly. Tretheway [9] has reported the gradual reduction of the ability of conventional airlines to practice the differentiated prices needed to recover their total costs, due to the entrance of LCCs. Despite the original focus of the LCCs on leisure and tourism, recent evidence suggests the capture of significant numbers of business travelers. Mason [10] reports that easyjets regularly has over 50% of their volume consisting of business travelers, while a Go Fly 1999 press release claimed that over 40% of its users flew on business purposes. Finally, McWhirter [12] estimates that, depending on the route, between 40% and 80% of LCC passengers are traveling on business. In Europe, 14% of available seat miles are now provided by low cost airlines, with the two largest players, easyJet and Ryanair accounting for nearly 9%. These carriers have pursued simplicity, efficiency, productivity and high utilization of assets to offer low fares [4]. 2.3 The Growth Period After the ‘‘invention’’ of the low-cost business model by Southwest in the early 70s, it took more than 15 years in the US and 20 years in Europe before major network carriers began to take the challenge of this new business model seriously. Even then, it was perceived as a regional phenomenon, limited to in the South of the US and the United Kingdom. NC (network carrier) executives perceived this low-cost model as restricted to a niche market sector, luring low–low-yield passengers who would


never have flown otherwise (and whom the NCs would not like to attract anyhow), by offering the lowest service standards possible. Even at the beginning of the crisis, when LCCs in the US and their followers in Europe gained increasing market share, this perspective remained largely unchanged [3]. Figure 1 demonstrates the current number of LCCs in different continents. The full list of LCCs over world is provided in Appendix I.

Europe46%

Asia27%

America17%

Oceania4%

Africa6%

Studies and strategic examinations of the low-cost phenomenon have challenged this complacency. It has become obvious that LCCs have not merely expanded from their original niche in times of crisis, but have established a (potentially sustainable) alternative business model that is better prepared to adapt to changes in demand for continental travel than that of NCs. Studies (e.g. [2]) show that the LCC business model can operate sustainability at 40–50% of the (stage-length adjusted) unit cost of the average NC (5–8 US-Cent per ASK compared to 10–15 US Cent per ASK; see [12] and [13]. This cost gap can only marginally be explained by the assumption of lower wages and a ‘no frills’ approach to business. Rather, the root cause of the success appears to be a lean production philosophy underpinned by quick, streamlined processes. For example, point-to-point (P2P) services are offered only in continental traffic with a homogeneous fleet of cost-efficient aircraft (B 737 or A 320/319). At least one-third of the cost gap comes from the typical LCC production pattern with high-frequency commuter flights between major destinations, resulting in a considerably higher productivity of aircraft and crew. Other success factors are: lower maintenance costs due to homogeneous fleets and lower landing/ground handling fees, being negotiated with secondary airport without congestion problems [3]. Airline strategists from NCs have identified at least three major errors in their initial perceptions of the LCC model:

• The LCC service level is focused, not poor. In most cases, the LCC product is highly reliable and convenient for passengers; in the case of secondary airports in large US cities, the LCC product can, in fact, even be more convenient than that of NCs who force their clients into congested off-site mega-airports. They offer what most clients value at least in continental travel: direct connections with minimum interaction at the airport.

• LCCs do attract low–low-yield passengers and heavy bargainers who would not have flown otherwise (stimulation of latent demand), but they also alienate ‘‘regular’’ coach travelers and even price-sensitive business class clients from NCs.

• While the LCC model started in a niche, it can thrive equally well in significant parts of continental air traffic markets. With the exception of highly served hub connections, LCCs could—at least in theory—enter all local markets that provide enough demand for at least one

Figure 1: Numbers of LCCs in different continents


direct flight with a B 737 per day. This segment accounts for some 70% of the European continental market and more than 70% in the US.

It is quite sure that LCCs will not gain a 70% market share, but there are few markets now that NCs can regard as natural strongholds. LCCs have already reached some 9% market share of the US domestic market in terms of revenue resp. 24% in terms of passengers (for comparison: 3% resp. 8% in Europe; figures for 2002) and are still rapidly growing. The reality is that, for more than 70% of the continental markets, LCCs are able to provide 80% of the service quality at less than 50% of the unit cost of NCs. How successful NCs will be in future depends to a large extent on how quickly and flexibly NCs respond to these changes in demand and the new low-cost challenge [3]. 2.4 The LCC Business Model Though there are numerous variations across low cost operators (for example, between Ryanair and easyJet, or between Southwest and Jet Blue), the ‘standard’ LCC model may be characterized by a combination of some of the following attributes [1]:

1) Distribution—not always based on travel agents with commission payment; electronic ticketless systems becoming common;

2) In-flight service—no class differentiation, high volume, no seat assignments, no hot meals; to reduce costs of cleaning cabins, the logistics of supplying the aircraft and the time on the ground. These actions reduce operation costs by 6% [6];

3) High flight frequencies; 4) Minimum delays; 5) Low tariffs and simple operations, lacking partnerships with other operators; 6) Aircraft of a single type (Boeing 737 with four variations for Southwest); high utilization

(over 11 h/day); 7) Routes—direct short haul routes (averaging below 800 km); 8) Airports—secondary with little congestion, leading to turn around times for aircraft as low as

15–20 min; 9) Growth objectives—goals of 10% /year (not exceeding 15%); 10) Unreserved seating (encouraging passengers to board early and quickly) [2]; 11) Employees working in multiple roles, for instance flight attendants also cleaning the aircraft

or working as gate agents (limiting personnel costs) [2], and 12) Team—competitive wages and profit sharing and high productivity.

2.5 Background of the LCCs in Asia Pacific Region Prior to 2002, there were no significant low cost scheduled carriers operating in the Asia Pacific rim. Carriers such as JAL Express, Air Do and Skymark in Japan and Citilink in Indonesia existed some years earlier, but did not significantly impact their respective markets. The initial slow development was in part due to the perception that the low cost model adopted in the United States and Europe could not be replicated in Asia, because of the longer aircraft stage lengths, lack of secondary airports and regulatory restrictions preventing access to international markets. The latter being particularly relevant given that the bulk of traffic and revenues are drawn from international markets in Asia [4].


Thus, the low cost experience is a relatively new phenomenon in the Asia Pacific rim with much of the necessary management experience brought in from outside the region, for example, from Ryanair. Asian low cost carriers accordingly are in the initial growth phase of their development, while many of their American and European counterparts are approaching or have reached maturity. Due to this, little data is available about low cost operations in Asia. Table 1 highlights the surge in low cost airlines commencing operations in the Asia Pacific rim within the last 2 years [4].

Table 1: LCCs currently operating in the Asia-Pacific rim

3. CASE STUDY 3.1 The History of AirAsia AirAsia began its established in 1993 as Malaysia’s second national carrier, and started operations on 18 November 1996. It was originally founded by a government-owned conglomerate DRB-Hicom. On December 2, 2001 the heavily indebted airline was purchased by former Time Warner executive Fernandez’s company Tune Air Sdn Bhd. Fernandes proceeded to engineer a remarkable turnaround, turning a profit in 2002 and launching new routes from its hub in Kuala Lumpur International Airport at breakneck speed, undercutting former monopoly operator Malaysia Airlines with promotional fares as low as RM10 (US $2.70). In 2003, AirAsia opened a second hub at Senai Airport in Johor Bahru near Singapore and launched its first international flights to Thailand. AirAsia has since started a Thai AirAsia subsidiary, added Singapore itself to the destination list, and started flights to Indonesia. Flights to Macau started in June 2004, while flights to mainland China (Xiamen) and the Philippines (Manila) were started in April 2005. Flights to Vietnam and Cambodia followed later in 2005. AirAsia is managed by Conor McCarthy, an ex-Ryanair director. Besides attracting passengers from buses and ferries, both carriers have experienced a large proportion of first time flyers, largely attracted by the low fares on offer. AirAsia currently has a 30% share of the domestic Malaysian

Source: O’Connell and Ionides [14]


market. Since the airline’s inception in December 2001, the market has grown from 9 million passengers annually to 13 million. Bankers are valuing the carrier between $750 million and $1.2 billion [15]. Currently, the airline has 14 Boeing 737-300s in its fleet and by the end of 2004 it will have acquired up to 30 aircraft, representing a 114% compound growth in capacity. In mid June 2004, it issued a tender to manufacturers that it was interested in acquiring up to 80 new aircraft comprising 40 firm orders and 40 options [16]. Figures 2(a) and (b) show passenger carried and unit costs for Malaysia Airlines and AirAsia between 1998 and 2004. The unit cost differential is very significant and is due to Malaysia Airlines excessive labor force, its poor productivity, low aircraft utilization, unprofitable domestic routes and the limitations of intra-Asian bilateral [4].

Figure 2(a): Passengers carried on Malaysia Airlines and AirAsia


Figure 2(b): Cost per ASK for Malaysia Airlines and AirAsia Source: O'Connell and Williams [4]

With the world’s lowest unit cost of $0.023/ASK and a passenger break-even load factor of 52%, AirAsia is showing all the signs of being a Ryanair clone. It has hedged 100% of its fuel requirements for the next 3 years, achieves an aircraft turnaround time of 25 min, has a crew productivity level that is triple that of Malaysia Airlines and achieves an average aircraft utilization rate of 13 h a day. In comparison, Malaysia Airlines has hedged only 20% of its fuel requirements achieves 1-h turnaround times and has an aircraft utilization rate in the domestic market of just over 8 h a day. AirAsia has captured the growth in the domestic market of 4–5% in 2003 and consequently left Malaysia Airlines with stagnant traffic. Equipped with a strong low cost formula, AirAsia is beginning to move into new intra-Asian markets, such as Thailand, by developing a franchise, under the brand name ‘Thai AirAsia’. AirAsia has also pushed forward with its expansion program into Indonesia, where it is operating out of three cities: Jakarta, Surabaya and Bandung. It is offering tickets priced between 40% and 50% lower than the other domestic carriers. This growth outside the domestic Malaysian market follows a similar strategy of Ryanair and easyJet in Europe, which have expanded by creating hubs in different neighboring countries. This was achieved in the EU as a result of full deregulation of the sector, however. The tightly regulated international intra-Asian market is a major obstacle to the full-scale development of low cost carriers in the region. The success of AirAsia within a short span of less than three years is reflected by its successful listing on the Malaysian Exchange Market. Its passenger sales increased from only RM41 million ($11.1 million) in 2002, to RM348 million ($94.0 million) for the year ended June 2004. At the same time, AirAsia also turned around from incurring loses for the years prior to the takeover to profit of RM58 million ($15.7 million) in 2004. 3.2 Current Market Strategy and the Marketing Mix AirAsia provides passenger air transportation services which differ from full service carriers by offering its passenger air travel with no frills as reflected by its single class passenger seating, limited in-flight services, and no pre-assigned seating arrangement. By keeping to single class passenger seating arrangement, AirAsia can keeps it cost per passenger low as it results in lower in-flight catering services, shorter time for passengers to look for their seats, thus shorter boarding and transit time which led to lower air-craft parking charges. The shorter transit also helps AirAsia in achieving high flight frequency for its air crafts. This is opposed to the practice by full service carriers such as Malaysia Airlines System (MAS) who normally provides pre-assigned seating arrangement, double or more classes seating arrangement, and more elaborate in-flight services such in-flight meals, shopping and movies. Full service carriers also provide more auxiliary services such as front-seat video or movie projectors, internet communication and other facilities especially for its long haul flights.


The current marketing mix adopted by AirAsia focus on delivery of services at low cost to its customers compared to that provided by full service carriers. To keep the cost low, AirAsia differentiate distinct itself from full service carries by offering different types of services not only in terms of price but other deliverables such as the product or services itself, channel of distribution, and promotional strategies as discussed below: 3.2.1 Price Pricing is the most significant practices that differs low cost carrier such as AirAsia from full service airlines. Cost of flying on low cost airlines such as AirAsia can be cheaper by about 40% -50% compare to fare offered by full service carriers. To be able to offer cheaper fare to its customers and at the same time sustains its profitability, AirAsia practice dynamic pricing system where fare for each flight is changed depending on demand. Usually, to encourage early bookings of flight, customers who book earlier are given lower fare compares to those that book later. As it gets closer to the flight time and if demand is good, the fare is changed so that it gives AirAsia a targeted average fare per passenger for the flight. The advantage of the dynamic pricing system is to gauge passenger load on each flight so that the fare can be change accordingly according to demand. On a low demand flight for example, AirAsia can choose to stimulate demand by offering more low fares thereby expanding its potential market size. 3.2.2 Place In term of ‘place’, defined as locations where customers get a particular product or service and the channel the company employed to reach its customers, AirAsia make full and effective use of the advance in information and computer technology to reach its customers. Compare to full service carriers who use travel agents to reach the customers, AirAsia instead use its web-site extensively. By using the web site, AirAsia can reach its customers without the limitation of more costly physical offices. Thus, instead of having its customers to call or visit the travel agents to check availability of flight and eventually booking a flight, all the customers need to do is to visit its web-site complete the task. This not only reduces cost to AirAsia but also to its customers. For customers who have no credit card to complete the transaction, AirAsia has entered into strategic alliances with other agencies such as Malaysia Post Company to enable the customers to pay at the post office counters. 3.2.3 Process AirAsia ensures that it continuously keeps its operational cost low to be able to keep its air fare low. This is done by careful selection of process in its service delivery. The following actions have been taken:

1) AirAsia maintains a relatively higher flight frequency on its air-crafts compare to that by full service carriers. This means that its air-craft spend more time flying than parked at the airports which also carry parking charges by the airport authorities.


2) AirAsia maintains a shorter transit time for boarding and disembarking of passengers. This is done by offering only single class seating arrangement and no pre-assigned seating. With this arrangement, AirAsia takes shorter time for passenger boarding, baggage check in and loading as well as shorter time for catering service to provide supplies for in-flight meals.

3) AirAsia maintains only a single hub for its pilots and cabin crews. This means that AirAsia do not have to make arrangement for its pilots and cabin crews to have overnight stay at other airports apart from KLIA. This way, AirAsia does not have to spend extra cost on hotel bills and the need to maintain another set of pilots and cabin crews away from the hub.

4) AirAsia chooses to have only one type of air crafts to keep cost of operation low. Having a mixed fleet of jets can add costs to an airline and breaks the low-cost model used so successfully by the world's top low-cost airline, Southwest. It has stuck with one airplane type - Boeing's 737. Ryanair, Europe's biggest low-cost airline, also operates only 737s. But two years ago, easyJet, at the time an all-Boeing 737 operator, ordered 120 A320s from Airbus and took options for that many more Airbus planes. Airbus agreed to cover additional costs incurred by easyJet in transforming its operations to a dual fleet, including the costs of training mechanics and easyJet pilots. By having only one type of air-crafts, AirAsia keeps cost of trainings for technical staffs low and only need to keep lesser units of spares. With regards to its intention to gradually replace its present fleet of B737s to AB320s, where AirAsia will end-up with two types of air-crafts during the transition stage before the B737s are transferred to its affiliate companies in Thailand and Indonesia, the extra cost incurred in having to maintain a dual fleet such as cost of training mechanics and pilots is covered by supplier of AB320s.

3.2.4 Promotion and Publicity Comparer to full service carriers, AirAsia has smaller budget for advertisement. To offset for the low advertisement, AirAsia uses a lot of promotions to stimulate market demand. One recent example was to offer air fare at RM0.00 or free trip for ten thousand (10,000) seats to celebrate its third (3rd) year anniversary. Recently, however, AirAsia was reported to be interested in endorsing an English Series Football team by having its logo on the jerseys of one of the team. AirAsia also uses a lot of publicity to promote its services which is at no cost to the company. This is done by having its top management to make statement to the press pertaining to the operation of the company as frequent as possible. 3.3 Analysis of Threats and Opportunities

3.3.1 Threats from Full Service Airlines AirAsia face competition from full service airlines not only from Malaysia Airlines but also from other similar carriers in the region such as Singapore Airlines, Thai Airways and Garuda. These full service carriers are normally bigger in terms of financial might and fleet size. Most of them are also majority-owned by their respective government. As low cost carriers such as AirAsia cuts into their market, these full service carriers has to some extent reduce fares on their airlines as well by


introducing travel fares where fares at discounts are offered. Malaysia Airlines for example, have its annual travel fare which boast tickets at deep discounts. Other methods are known to be used by full service carriers in other parts of the world but have yet to be used by full service carriers in this region against AirAsia. For example, full service carriers in the United States like Continental, Delta and Northwest airlines group together to forming marketing alliance among them allowing passengers of an airline to fly to destinations served by other airlines and still earns frequent flier credits. Members of each airline's lounge club enjoy reciprocal benefits from the others. Effectively, such arrangement means cheaper fare to their customers. Among other tactics that full service carriers can do are to sell tickets on each other's planes and sell seats on flights they do not serve. To the airlines, the alliance would provide more route choices which ultimately lead to lower fares. A low cost carrier operating alone will not be in a position to compete on this. Full Service Carriers have also come out with advertising that emphasized its contribution to towards the country’s nation building such as its access to far away markets which ultimately help in bringing in large number of tourists into the country. Other advertisement also depicts its supports towards nation building such as its intended purchase of the largest aircraft that is going to be in service AB380, its support of popular television programmes such as “the apprentice” and the “explorace” which relates to the young and business segment market. With bigger planes, full service carriers emphasize that they offer more value without skimping on services as practiced by low cost carriers. Following the success of direct marketing with on-line sale of tickets by low cost carriers, Malaysia Airlines has also launched its own on-line reservation system. With the system, Malaysia Airlines could be expected to introduce aggressive discounts through dynamic pricing to take on AirAsia. With the use of this technology, Malaysia Airlines can compete head-on with AirAsia by also offering discounts when bookings are low. Full Service Carriers can also challenge AirAsia with their more flexible ticket exchange or refunds as well as schedule change in case of operational delays which low cost carriers like AirAsia cannot afford to in order to maintain a continuously high load factor. By emphasizing on this advantage, some travelers may find that it is not as cheap to fly with AirAsia unless the flight is book way in advance and there is no sudden change in flight plans. Another serious threat to AirAsia is the change in travelers’ preference as the economy improves as it could cause travelers to move from low cost carriers to more comfortable full service carriers. Business travelers who see the incentive of the discounts offered by low cost carriers only if they plan their flight in advance will not be encourage to go for the savings and at the same time forego services offered of full service airlines, if there is nor urgency for them to cut cost. Likewise, non-business travelers also may not feel the impact on the budget by flying using full flight carriers. 3.3.2 Threats from Other Low Cost Carriers Apart from full service airlines, AirAsia also faces competition from other low cost carriers that continue to emerge in the region. Though for domestic flights, AirAsia only faces competition from Malaysia Airlines, it will face competition from other low cost carriers for its regional sector. For its Johor Bahru to Bangkok sector, AirAsia is expected to lose the Singapore market that it gained earlier once the Singapore based low cost carrier, Tiger Airways, began its Singapore-Bangkok route. Such competition will be stiff as each country in the region has their own respective low cost carriers such Tiger Airways and Valueair based in Singapore, Lion Air based in Indonesia and for example, several new low cost carriers have began operation in neighboring countries not only put it. AirAsia is


expected to face stiff competition from Singapore based Tiger Airways, and Valuair. Tiger Airways is owned by Temasek Holdings, a Singapore government investment arm who has the financial might to compete with AirAsia. 3.3.3 Threat from Increasing Cost of Fuels High cost of fuel hits all airlines the same. In the case of AirAsia it has a better chance to face the impact of higher cost of fuel because of its better financial position after its listing and access to public funds. Moreover, AirAsia has hedged 100% of its fuel requirements for the next 3 years. However, prolonged high cost of fuel will definitely have a long term impact on its ability to sustain profitability. 3.3.4 Threats from Consumer Perception as Deceiving Tactics To really enjoy low cost fares, passengers of low cost carriers have to plan their travel plan in far in advance. On a study to find if low cost carriers manipulates customer expectations of their services, a number of passengers complained that traveling on low cost carriers are not as cheap as it is supposed to be. According to a number of respondents, “low cost airlines were actually more expensive than the main carriers. As more and more people experience the shortcomings of the low cost offerings, more people would not be satisfied and this could lead to market perception that traveling on low cost carriers is not as cheap as it tries to tell. 3.3.5 Threats from Other Mode of Transportation Apart from other low cost carriers and full service carriers, other mode of transportation may also pose threats to AirAsia. For example, as traveling by coach become more comfortable and safer, travelers may decide to stay with traveling by coach as it is still cheaper than compare to flying even on a low cost carriers. With improvement in our road system and design, as well as introduction of more comfortable coaches, this mode of traveling will be a threat to AirAsia as it keeps potential customers from becoming a potential market for low cost carriers. 3.3.6 Opportunities in New Markets Low cost carriers are successful in creating and stimulating new market for its services. On this point, AirAsia can explore into new market such as the emerging market of China, Vietnam, Laos and Cambodia. AirAsia is also expanding the operation of its affiliated company, Thai AirAsia which operates in Thailand and PTAwair which operates in Indonesia. Both countries offer large untapped market.


4. CONCLUSION

Low Cost Carriers (LCC) that offers cheap cost of flying with no frill service has changed the air travel industry. In Asia Pacific region, AirAsia has so far successfully uses the low cost carrier model to turn around a losing company into a profitable one. As a company with the first move advantage, AirAsia is expected to be able to face stiff competition not only from other new low cost carriers but also from full service airlines. For the domestic market, AirAsia is expected to maintain its market share as it only has the full service carrier, Malaysia Airlines, to compete with. With clear product differentiation and greater support from the customers, as well as comfortable financial position consequent to its recent public listing on the exchange, AirAsia is in a good position to counter any aggressive or threatening strategies from Malaysia Airlines. The same situation cannot be considered for its regional sector or how its affiliates, Thai AirAsia and PTAwair of Indonesia will face. AirAsia will not enjoy the ‘protected’ position it enjoy in Malaysia as on the regional sector it will have to compete with other LCCs that have supported by their governments. In conclusion, AirAsia is expected to continue or at least maintain its market share for the domestic market in line with its growth strategy by adding new aircrafts. AirAsia however, is expected to face stiff competition for its regional sectors and its operations in Thailand and Indonesia. To counter this, AirAsia may have to explore new markets such as the Indo-Chinese market of Cambodia, Vietnam and Laos.

References

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Transport Intelligence news, 11th June. Appendix

Appendix I: The full list of LCCs in different continents

Country LCC Number

Asia Hong Kong Hong Kong Express , Oasis Airways, WOW Asia 3

India Air Deccan - Air India Express (subsidary of Air India) Alliance Air (subsidary of Indian) - Go Air, IndiGo Airlines Kingfisher Airlines - Paramount Airways , SpiceJet

8

Indonesia Awair (subsidiary of AirAsia) - Citilink (subsidiary of Garuda Indonesia) - Lion Air [www.lionair.co.id] - Adam Air [www.adamair.co.id]

4

Japan Hokkaido International Airlines (also known as Air Do) Skymark Airlines - Skynet Asia Airways-StarFlyer (from March 2006)

4

Kuwait Al Jazeera Airways 1 Macao WOW Asia 1

Malaysia AirAsia 1 Pakistan Aero Asia - Air Blue - Shaheen Air 3

Philippines Air Philippines - Asian Spirit - Cebu Pacific - South East Asian Airlines(SEAIR) 4

Singapore Jetstar Asia Airways (subsidiary of QANTAS) - Tiger Airways (subsidiary of Singapore Airlines) - Valuair 3

Thailand

Nok Air (subsidiary of Thai Airways International) - One-Two-GO (domestic brand of Orient Thai) - Thai AirAsia - Neo Siam Airways ( [email protected] )

4

United Arab Emirates Air Arabia 1 Europe

Pan-European carriers easyJet - Ryanair - Virgin Express - Wizzair (mostly Central and Eastern Europe) - Skyeurope (hubs in Central Europe) - Sterling Airlines (mostly Scandinavia)

6


Austria Niki [30] 1 Belgium SN Brussels Airlines 1 Bulgaria EasyFLY Bulgaria 1

Czech Republic Smart Wings 1 Denmark Maersk Air - Sterling Airlines 2 Finland Blue1 1 France Flywest 1

Germany Air Berlin - Dba - Eurowings - Germania Express – Germanwings Hapag-Lloyd Express 6

Iceland Iceland Express 1 Ireland Aer Arann - Aer Lingus - Ryanair 3

Italy

Air Service Plus (operating with French Axis Airways) - Alpi Eagles Alitalia - Evolavia - Jet X (Icelandic company operating in Italy only) Meridiana - Myair - Volare - Windjet - Ryanair

10

Netherlands Transavia Airlines - Ryanair - Corendon Airlines 3 Norway Norwegian Air Shuttle 1 Poland Centralwings 1

Romania Blue Air 1 Serbia and

Montenegro Air Maxi 1

Slovakia Skyeurope 1 Spain Air Madrid - Vueling Airlines 2

Sweden FlyMe - FlyNordic - SAS Snowflake 3 Switzerland easyJet - Helvetic Airways 2

Turkey AtlasJet - Onur Air - Corendon Airlines 3

United Kingdom Air Southwest - Air Wales - BMIbaby - easyJet - Flybe - Flyglobespan Jet2.com - Monarch Airlines - My Travel Lite - Ryanair -Thomsonfly

11

North America

United States

AirTran Airways - Allegiant Airways - American Trans Air - Frontier Airlines - JetBlue Airways - Primaris Airlines - Song (subsidiary of Delta Air Lines) - Southwest Airlines - Spirit Airlines - Sun Country Airlines Ted (subsidiary of United Airlines) - USA 3000 Airlines - US Airways (+America West Airlines) Defunct: Air South (1994-1997) - Independence Air {2004-2006) – MetroJet - National Airlines (1999-2002) -Pacific Southwest Airlines (PSA) -PEOPLExpress - Southeast Airlines -Tower Air

13

Canada

CanJet - Harmony Airways (ex HMY Airways) -Tango Airlines (now Air Canada) - WestJet Defunct: Air Canada Tango - Canada 3000 - JetsGo - VistaJet - Zip

4

Mexico Click Mexicana - Interjet - Volaris 3 Oceania


Australia

Jetstar Airways (subsidiary of Qantas) - OzJet (Business class service at full economy prices) - Pacific Blue (brand of Virgin Blue for international operations) - Virgin Blue Defunct: Compass - East-West - Impulse Airlines

4

New Zealand

Freedom Air (subsidiary of Air New Zealand) - Jetstar Airways Defunct: Kiwi Airlines

2

South America Brazil Bra (transportes aéreos) - Gol - Webjet 3

Uruguay U Air 1 Africa

Nigeria Bellview - Sosoliso - Virgin Nigeria - IRS - Chachangi - Kabo Air 6 South Africa Kulula , 1time 2

Source: [2] Wikipedia (2006)

market entry of a lcc - experience and impacts of airasia

Documents