Reference no: EM133477288

AirAsia: a Malaysian success story

AirAsia, the international budget airline, is often touted as one of Malaysia's success stories. Malaysia is a relatively small but high-growth economy and is one of the most resource-rich countries in the world. Malaysia underwent a major privatization programme between 1983 and 2000 which achieved mixed results. Malaysia Airlines, the principal competitor of AirAsia in Malaysia, is an example of a company that was privatized and then renationalized when it nearly went bankrupt. Despite such setbacks, Malaysia, in common with many other developing countries, is now on the brink of graduating to the level of more advanced economies such as Korea, Taiwan, and Singapore. However, this progression is potentially at risk from competition from lower-wage economies such as China, India, and Vietnam. There are also potential internal threats to the country's political stability. AirAsia had two Boeing 737-300 aircraft and RM40 million (approximately £8 million) debts when it was bought by Tony Fernandes for RM1 (approximately 20 pence) in 2001. The firm was relaunched with three aircraft in 2002 and within 7 months it was making a profit. Since then the company has gone from strength to strength by adopting and then adapting the low-cost business model that was working successfully in the US and Europe (e.g. South-western Airlines, Ryanair). By 2009 the airline had 7,500 employees and was making a net profit of RM506 million (approximately just over £100 million). In the same year the firm's long-haul carrier, AirAsia X, was chosen as the World's Best Low Cost Airline for 2009 by more than 16.2 million travelers in a survey conducted by London-based consultancy Skytrax. The airline continues to expand rapidly and in March 2011 announced the launch of a new joint venture company with the travel firm Expedia which will offer a range of value flights, hotels, and holiday packages in the Asia Pacific market. Tony Fernandes believes that 'the biggest, most important thing to my passengers is the low fare'. However, to make sure the low-cost model works 'you have to make sure you have the right people, focus and discipline'. He argues that it is pointless doing something just because other airlines are doing it: 'being on time, safe and efficient are important. The rest are really added frills. Consequently, AirAsia has dropped any services that cost extra money such as free in-flight entertainment, free meals, and refreshments. Customers are encouraged to purchase tickets online. The firm always looks for the cheapest airports to land in and lands as far away from the airport lounge as possible because this reduces landing fees; passengers have to walk to the lounge as buses are not provided. The firm schedules most of its flights so that the same personnel can work on both legs of a journey and return home on the same day, thus eliminating the need to pay for overnight hotels and meals. Longer flights are only considered if they make business sense. The firm does not own any technology such as computers and mobile phones as it is cheaper to rent the equipment. Tony Fernandes describes this strategy as the 'ultra low cost business model'. In terms of the firm's commitment to its employees it has published a range of commitments, such as to develop a safety culture and provide employees with appropriate training, and clearly defines for all employees their responsibilities and accountabilities. The fi rm has also set up the AirAsia Academy, which trained over 15,000 employees in 2009.

Case study questions

1. What business strategy made AirAsia a successful company?

2. What are the potential HR implications of AirAsia's business model?