Introduction
The airline industry has been in flux for many years, with many airlines operating on a loss. The cost of operating an airline company is quite high, and there have been a plethora of studies done on how best to maximize profits within the airline industry without sacrificing profits (Jiang 2013). However, despite all the studies, there has been little consensus: one airline that has become quite successful with their current business model, however, is AirAsia (Ahmad 2010).
AirAsia is a company based in Malaysia, which lauds itself as a low-cost carrier (Lim, Mohamed, and Ariffin n.d.). According to Lim, Mohamed, and Ariffin, the carrier has an astonishing per-seat cost of only US $0.23, which is exxtremely low—even for a low-cost carrier. This discussion will focus on analysis of AirAsia in terms of the input, transformation, and output model—it will also investigate key operational decisions that have led to its success as a low-cost carrier in Asia.
Input, Transformation, Output Model
In the input, transformation, output model, an organization has a number of quantities that can be added to the environment. AirAsia has been motivated to use the input quantities that it has access to to ensure that it is the premier low-cost carrier in Asia. The inputs for AirAsia are capital, materials, equipment, facilities, labor, suppliers, knowledge and time. Each of these quantities must be input into the equation to add the appropriate value for customers (Idris 2007). This is the same model that is used for a wide variety of different organizations, but because the overall goal for AirAsia is to reduce overall cost to the consumer, the company must be very careful with the way the inputs are chosen and quantified. For companies like AirAsia, building a low-cost carrier for both short trips and long haul trips requires a thorough understanding of how the environment affects capital investment.
The transformation system that AirAsia has attempted to utilize is based on the need to fit into a very specific market niche (Berhad n.d; Thomas 2009.). There are restrictions on how much capital and labor can be invested when an organization is interested in cutting customer cost. The transformation system for AirAsia, particularly for AirAisa Berhad, the long-haul arm for the carrier, focuses on providing the basic services necessary for each customer, and allowing all customers to customize their experience with the airline. One of the ways that customers are allowed and encouraged to customize their experience is through the use of purchase-oriented services (Kamisan and King 2013; Man and Justine 2011; Ratanakomut and Kitcharoen 2013). Although there have been issues with quality control in the AirAsia structure, the company has largely used the transformational structure of operations management to cut down on important costs (Matsuno and Ilmi 2015).
The output that is desired for the organization is a airline that allows customers to fly anywhere around the world for the lowest cost possible. This means that in the transformation system, AirAsia and all its affiliates—including AirAsia Berhad—must minimize the per-seat cost for carrying passengers (Jeddi et al. 2014). If an airline is not able to minimize these costs, it is entirely likely that this airline will struggle to compete in the low-cost carrier market: the low-cost carrier market offers little in the way of luxury, so the cost for the consumer must be extremely low (Jeddi et al. 2014).
Key Operation Decisions
AirAsia Berhad, as a potential competitor for other low-cost long-haul carriers, has to make operational decisions that minimize cost. Investment cost is one of the primary issues for airlines as a whole—starting an airline is extremely expensive, and requires significant up-front investment. However, although the cost of investment cannot be altered, the cost on a per-seat basis can be changed based on a number of factors. AirAsia has chosen to minimize certain services—like minimizing labor costs—in an effort to minimize the price that the customer will pay per ticket. This also means that AirAsia, as an organization, will struggle less financially than other airlines might do. It is very difficult for air carriers to make a profit in the current market; reducing the per-seat cost is one of the only ways that carriers have been able to truly turn a profit in recent years. Another important operating decision for the carrier has been to include long-haul flights in addition to the short flights that initially characterized most low-cost carriers. The decision to include long-haul flights opened new doors for the carrier, and has allowed AirAsia to expand into new territories in both the Asia/Pacific region and beyond.
Discussion
There have been some concerns about safety on low-cost carriers, but as the industry matures, the low-cost carriers are becoming more effective and efficient, without sacrificing safety. AirAsia Berhad is no exception—it is one of the fastest-growing carriers in Asia, and it has been successful in implementing long-haul flights outside of Asia as well (Jeddi et al. 2014). If the company can expand into new markets outside of Asia, where there is a very high demand for low-cost international flights, it seems very likely that AirAsia will be able to control a large portion of the market for international flights to and from the major cities in Asia (Idris 2007).
References
Ahmad, R., 2010. AirAsia Indeed the Sky’s the Limit! Asian Journal of Management Cases, 7(1), pp.7-31.
Berhad, A., Annual report 2009, 2010b.
Idris, F., 2007. Applying the rigid flexibility model in a service setting: A case study of AirAsia. In POMS College of Service Operations and EurOMA Conference, London Business School
Jiang, H., 2013. Service quality of low-cost long-haul airlines–The case of Jetstar Airways and AirAsia X. Journal of Air Transport Management, 26, pp.20-24.
Jeddi, A.R., Renani, N.G., Khademi, A., Shokri, V. and Noordin, M.Y., 2014, February. Low-Cost Strategy Factors in Airline Industry: The AirAsia Case. InAdvanced Materials Research (Vol. 845, pp. 652-657).
Kamisan, A.P. and King, B.E., 2013. Transactional and transformational leadership: A comparative study of the difference between Tony Fernandes (Airasia) and Idris Jala (Malaysia Airlines) leadership styles from 2005-2009.International Journal of Business and Management, 8(24), p.107.
Lim, K.Y., Mohamed, R. and Ariffin, A., BRANDING AN AIRLINE: A CASE STUDY OF AIRASIA.
Man, M.K. and Justine, J.B., 2011. AirAsia in the Malaysian domestic airline market: empirical analysis of strategy. International Business & Economics Research Journal (IBER), 4(12).
Matsuno, S. and Ilmi, B., 2015. A CAUSAL STUDY ON THE AIRASIA AIRBUS CRASH EVENT.
Ratanakomut, S. and Kitcharoen, N., 2013. A Study of Factors That Affecting Service Quality Of Passenger Service Department in Airlines (AIRASIA, Thailand). Innovative Journal of Business and Management, 2(1).
Thomas, G., 2009. AirAsia Spots Success. ATW: Air Transport World, 46(9).
