Air Asia: The World’s Lowest Cost Airline
Air Asia is a Malaysia-based low cost airline which builds its business on the LLC model created by Southwest airlines in the U.S. Air Asia’s mission statement is to be the Asia's leading low fare no frills airline and first to introduce "ticketless" traveling. Now Everyone Can Fly clearly describes Air Asia’s value. Cost advantages created by Air Asia through operational effectiveness and efficiency go directly to the customers. The customers now enjoy much more surplus than before as the fare falls dramatically and Air Asia captures some of the ‘dead weight losses’ by capturing segments of customers that previously cannot afford the airlines’ fare.
The cost drivers in the industry are scale, technology, product and process design, input costs, and capacity utilization. The nature of the operational structure of low cost carriers provides them with initial cost advantages. This lean cost structure translates itself into high turnaround time, basic amenities, standard operating procedures and a lean distribution system
To maintain a low flight fare, Air Asia uses many sources of cost advantages. First one should be economies of scale. In many activities, increases in output do not require proportionate increases in input. This can be applied to the airline industry. Air Asia offers a single class, which allows more seats per plane. As mentioned in the case, the Boeing 737 can be equipped 12 more seats per plane in the single class model compared to a traditional two class model. Although the company has replaced Boeing 737 with airbus 320, the new aircraft can also offers more seats with single class model. Now Air Asia operates 89 aircrafts and has commitments in place for 86 additional A320s. As Air Asia has expanded its routes to over 400 destinations spanning to 25 countries, it will need more and more aircrafts in