AirAsia: The World’s Lowest Cost Airline

Introduction

Due to the geographic specificity of Southeast Asia, where traveling from one destination to another by land is either very difficult or simply impossible, air transportation has seen rapid development over the last couple of decades (Jeddi et al. 2014). As a result, at present, the Asian air transportation industry is highly competitive, with businesses attempting to satisfy the needs of their consumers. Among others, the need for high-quality transportation services provided for low prices is the most prominent. In this regard, AirAsia is the leading low-cost carrier (LLC) airline in the region.

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Porter’s Five Forces

Threats of New Entrants

The airline industry is known for a high level of threat of new entrants. Among the most significant factors that drive this force are barriers to entry, switching costs, brand loyalty, and government regulations. High starting costs that include the cost of purchasing aircraft, hiring staff members, and establishing services, among others, serve as the major barrier to entry. However, due to the high density of low-cost competition, switching costs in the industry are low.

As a result, brand loyalty plays a powerful role in the attraction and retention of consumers. LLC airlines gain profit from expanding their networks (Eller & Moreira 2014). However, acquiring new aerial roots in the region became difficult due to government regulations (Jeddi et al. 2014). At the same time, government regulations also help to prevent new entries.

Rivalry among Competitors

LLC airlines need to compete against low- and full-service network carriers (Acar & Karabulak 2015). The air transportation industry has a limited inflow of consumers. Therefore, new customers are attracted by the segments of competitors. Apart from AirAsia, the market has similar companies offering low-costs and the same set of services, thus making the differentiation advantage rather low (Yashodha 2012).

Threats of Substitutes

In the LLC airline market, switching costs are low due to the presence of dozens of similar service providers (Yashodha 2012). Consequently, consumers are free to move from one airline to another without having to stay loyal. However, when it comes to switching to other transportation modes, the threats of substitutes vary in levels depending on locations. For instance, a trip from to Singapore from Malaysia could be accomplished by bus or train. However, traveling to Australia, one would have no opinion but to choose air travel.

Bargaining Power of Buyers

The low switching costs provide high bargaining power to buyers. Under such circumstances, a low-cost strategy needs to be accompanied with an attractive selection of offered services in order to win new consumers and retain the existing ones (Jeddi et al. 2014). Cost analysis can be done easily by accessing the prices of various airlines online and drawing a comparison.

Bargaining Power of Suppliers

The scarcity of suppliers in the region provides the existing ones – Airbus and Boeing – with high bargaining power (Yashodha 2012). Since both suppliers offer similar quality and services, switching costs for airlines are low. Also, AirAsia helps expand the coverage for these suppliers, which also can help reduce the switching cost.

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Strategies

Pricing, service quality improvement, and the pursuit of customer loyalty are the major strategies employed by AirAsia in order to stay at the top of the competition (Amiruddin 2013). Particularly, apart from price, customer loyalty can be created using tangibles, responsiveness, assurance, and reliability. All three factors are tightly interconnected in terms of customer retention. Service branding is another strategy used by AirAsia.

It involves careful brand asset management (Lim el al 2009). In the case of AirAsia, the emphasis in banding is made on accessibility and reachability, promoting the airline as a down-to-earth and customer-focused service provider attempting to help everyone get to their destinations. Overall, AirAsia uses what is known as a hybrid strategy – a combination of different elements and low-cost services (Baroto, Abduallh & Wan 2012). This is the best strategy to use in the kind of market where AirAsia operates.

Recommendations

Instead of targeting the general population of potential passengers, AirAsia could carry out a customer segment research to determine who uses the airline services the most. Further, a specific marketing strategy could be created to fulfill the specific needs of this group of consumers. Also, risk-management strategies need to be applied in order to address the future growth of the air travel industry, as well as the potential geopolitical challenges and conflicts and the region that could impact air travel.

Finally, the brand value of AirAsia needs to be emphasized through the development of customer services and business excellence. Some of the best options are the enhancement of empathy and responsiveness. Practically, the brand image of AirAsia as a people-oriented brand needs to be emphasized with the improvement of care and attention given to consumers.

Conclusion

AirAsia is an LLC airline operating primarily in Asia, a region where air travel has seen rapid growth over the last decades. AirAsia is known for its low prices; however, it needs to compete against dozens of similar companies. As a result, the power of differentiation is low, while switching costs for consumers is low. In order to stay at the top of the competition, AirAsia needs to emphasize its hybrid strategy, enhance customer service excellence, and increase the brand value through responsiveness, empathy, and tangible perks for customers.

References

Acar, AZ & Karabulak, S 2015, ‘Competition between full service network carriers and low cost carriers in Turkish airline market’, Procedia – Social and Behavioral Sciences, vol. 207, pp. 642 – 651.

Amiruddin, NH 2013, ‘Price, service quality and customer loyalty: a case of AirAsia’, South East Asia Journal of Contemporary Business, Economics and Law, vol. 2, no. 1, pp. 34-40.

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Baroto, MB, Abdullah, MM, & Wan, HL 2012, ‘Hybrid strategy: a new strategy for competitive advantage’, International Journal of Business and Management, vol. 7, no. 20, pp. 120-133.

Eller, RA & Moreira, M 2014, ‘The main cost-related factors in airlines management’, Journal of Transport Literature, vol. 8, no. 1, pp. 8-23.

Jeddi, AR, Renani, NG, Khademi, A & Yousof, NM 2014, ‘Low-cost strategy factors in airline industry: the AirAsia case’, Advanced Materials Research, vol. 845, pp. 652-657.

Lim, KY, Mohamed, R, Ariffin, A & Gerald, GG, 2009, ‘Branding an airline: a case study of AirAsia’, Journal Pengajian Media Malaysia, vol. 11, no. 1, pp. 35-48.

Yashodha, Y 2012, ‘AirAsia Berhad: strategic analysis of a leading low cost carrier in the Asian region’, Elixir Management Arts, vol. 51, pp. 11164-11171.

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StudyCorgi. (2020, December 14). AirAsia: The World’s Lowest Cost Airline. Retrieved from https://studycorgi.com/airasia-the-worlds-lowest-cost-airline/

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StudyCorgi. 2020. "AirAsia: The World’s Lowest Cost Airline." December 14, 2020. https://studycorgi.com/airasia-the-worlds-lowest-cost-airline/.

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StudyCorgi. (2020) 'AirAsia: The World’s Lowest Cost Airline'. 14 December.

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