A Case Study: Airasia Berhad

AirAsia Berhad was established in the year 1993 by a Malaysian conglomerate, which is DRB-Hicom. It commenced its operation on 18 November 1996. However, on 2 December 2001, the company has faced heavily indebted and then, the company was purchased by Tony Fernandes’s companies, Tune Air Sdn Bhd for the price of one Ringgit with RM40 million worth of debts.
In year 2002, Tony Fernandes turned the AirAsia around and managed produced a profit. In the same year, he launched new routes from its center point in Kuala Lumpur, and undercutting former monopoly operator Malaysia Airliner with special charge as low as MYR 1, which equivalent to US$0.27. Next, a second hub was opened in Senai International Airport, Johor Bahru, and launched the first

Since the Airlines’s product is undifferentiated or known as homogeneous, it will cause significant competition in markets such as Firefly airlines, Malaysia Airlines and others. This is because of free from regulations and also the economic barriers. For AirAsia, its have moderate competed and steadily being threatening the dominance of Malaysia Airlines or known as MAS.
Airline industry also incurred high capital, such as aircraft and high operating expenditure, like aviation fuel and labor. Thus, AirAsia, which is involved in this industry has a low threat of entry, since it required high capital and expenditure. Furthermore, this industry has a low pressure from substitute products.
Next, the conditions for market entry is differ between domestic market and international market. For the domestic and regional, the conditions is depends on the level of deregulation, while for international market, entry is more difficult because of the international flight routes are based on the results of the bilateral negotiation between governments. For international markets, it is more difficult instead of domestic market. For AirAsia company, it’s involved in the domestic and also international

Firstly, is the currency volatilities. Since AirAsia involved in the international markets, it would faced this threat, and this problem can be solved by reducing the costs in the business activity, in order to cover the loss from the currency volatilities. Besides, the company also faced with the labor cost problem, which incurred higher expenditure on labor costs. This is because, in the airline industry, it needs the professional labor to conduct the business. Moreover, the fuel costs also were the problem in the airline industry, if the fuel prices was fluctuated. If the fuel price was high, AirAsia would charger higher prices for the ticket to the customers, in order to cover the costs. Besides, the competition with others low cost airliner also might be the problem in this industry, where AirAsia need to compete to ensure the customers will satisfy with the service