In December 2001, AirAsia was taken over by private entrepreneur Tony Fernandez. The company originally started out as a Malaysian government controlled Airline and offered customers full on board services with all the trimmings. Fernandez acquired the debt ridden airline for the abysmal share price of $0.26.
Given the time of the takeover by Fernandez, it was a significant risk. The acquisition took place shortly after the September 2001 terrorist attacks in new York, and the subsequent downturn of the airline industry that quickly followed. However Fernandez saw opportunity- aircraft leasing costs were at rock bottom prices and due to the mass lay-offs in the airline industry at the time there was an abundance of cheap affordable labour available.
Given the time of the takeover by Fernandez, it was a significant risk. The acquisition took place shortly after the September 2001 terrorist attacks in new York, and the subsequent downturn of the airline industry that quickly followed. However Fernandez saw opportunity- aircraft leasing costs were at rock bottom prices and due to the mass lay-offs in the airline industry at the time there was an abundance of cheap affordable labour available.
The company's business model was completely restructured and made into Asia's firstlow fares airline. Fernandez saw the incredible growth of the no frills airline business model in Europe with company's such as EasyJet and Ryanair and knew the potential it would have in Asia. The low cost carrier model proved a huge success. An executive team was formed and spearheaded by Conor McCarthy, the former director of RyanAir, in the hope that Air Asia could imitate the low fares no frills concept.
Air Asia executed the cost leadership strategy excellently introducing ticketless travelling and offering only one cabin class with a free seating policy. It positioned itself in the regional market as the cost leader with the promotional tagline “now everyone can fly.” Air Asia fareprices are an incredible 40% to 60% lower than those of rivals and facilitates the quick and easybooking of seats through regular fare promotions on its website, AirAsia.com
However the cost leadership strategy is not without its risks. The most significant ofwhich is imitation by competitors. To combat competitors imitation cost leaderscan increase the value of the good or services it provides to customers.
AirAsia’s success inspired many low cost carrier imitators in the region andeven resulted in a price war with Malaysian airlines. AirAsia combats imitatorsthrough focusing on its low cost core competency but also by extending itsservice offering, allowing customers to purchase financial services such astravel insurance. Businesses looking to implement a cost leader strategy mayonly feel it applies to large businesses that can avail of bulk purchasing and downsizing. However small businesses can also be cost leaders, perhaps not to the extent of larger competitors’, but any firm that reaps the advantages oflow costs is essentially adopting some element of cost leadership into its strategy. AirAsia started in 2002 as a three aircraft operation, significantly lower than the major airlines fleet in the region within six years it hadexpanded to 72 aircraft's.
AirAsia’s success inspired many low cost carrier imitators in the region andeven resulted in a price war with Malaysian airlines. AirAsia combats imitatorsthrough focusing on its low cost core competency but also by extending itsservice offering, allowing customers to purchase financial services such astravel insurance. Businesses looking to implement a cost leader strategy mayonly feel it applies to large businesses that can avail of bulk purchasing and downsizing. However small businesses can also be cost leaders, perhaps not to the extent of larger competitors’, but any firm that reaps the advantages oflow costs is essentially adopting some element of cost leadership into its strategy. AirAsia started in 2002 as a three aircraft operation, significantly lower than the major airlines fleet in the region within six years it hadexpanded to 72 aircraft's.
Author: Declan Egan
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