ASEAN Airline Thrives on Regional Routes
Air Asia – Now Everyone Can Fly
With the rising consumption power of Southeast Asia, many homegrown businesses are becoming regional giants with dominant market positions, by understanding local cultures and embracing an "ASEAN way of thinking."Air Asia is one prime example.
Air Asia – Now Everyone Can FlyBy Monique Hou
From CommonWealth Magazine (vol. 434 )
On July 1 Kuala Lumpur-based budget carrier Air Asia added Taipei to its international destinations, opening Taipei-Kuala Lumpur and Taipei-Bangkok routes.
On its official website the airline woos customers with Taipei-Bangkok flights for as little as NT$690. The flight to Kuala Lumpur costs only NT$1,180, less than a high-speed railway ticket to Taiwan's southern metropolis Kaohsiung.
The airline's CEO Tony Fernandes, a former music industry executive, believes, "Just like putrid tomatoes, vacant seats aren't worth a penny."Fernandes also confidently declares, "Low price is my only belief."The airline not only offers low fares, but also makes use of differential fares for different flight times. It offers unscheduled specials, such as last-minute fares that are 20 percent cheaper for flights booked within 48 hours of departure. When customers are able to get their hands on these super cheap tickets, they often rejoice as if they have won the lottery.
A Malaysian native, the 45-year-old Fernandes was born to a Goan father and Malaccan Portuguese mother and was sent to boarding school in Britain as a teenager. After graduating from the London School of Economics in 1987, he worked as an accountant for Virgin Records. At 28 he became one of the youngest managing directors in the music industry, in charge of Warner Music Malaysia. Before launching Air Asia in 2001, Fernandes had risen to the post of vice president ASEAN at Warner Music South East Asia.
Owning an airline had been Fernandes's childhood dream. Coming from the music industry, Fernandes had no background in the aviation industry. But his nose for business told him that there was a huge demand in Asia for cheap flights.
"There was no international connection in many Asian cities. Besides, most people couldn't afford to fly,"Fernandes recalls. So he put two and two together and concluded that Asia needed cheap airfares. "At that time, I knew nothing about the airline industry, but I knew how to profit from it,"he proclaims.
Fernandes kept lobbying the Malaysian government to let him take over bankrupt Tune Air, which belonged to a government-linked conglomerate, to launch a low-cost airline. Eventually he managed to convince then Malaysian president Mahathir Mohamad of his concept and bought Tune Air in late 2001 for the token sum of one ringgit (about NT$9). Back then the entrepreneur was only 37 years old. The one-ringgit deal left him with a crippled airline that owned only two old Boeing jets and was saddled with US$11 million in debts.
But since relaunching as Air Asia in 2001, the airline has expanded at an astonishing rate. Today the no-frills airline has a fleet of 72 aircraft and flies to 61 destinations in Asia and Oceania. It services 108 routes with more than 400 flights per day.
The airline not only flies to all ten ASEAN member nations, but also prides itself on being the only airline that speaks all ASEAN languages. The official website provides home pages in Arabic, Bahasa Indonesia, Bahasa Malaysia, Chinese, English, Thai and Vietnamese.
Before the launch of Air Asia, many secondary and tertiary Asian cities had no international flight connections. But Air Asia used joint ventures with local entrepreneurs, not only gaining local air traffic rights, but also opening international routes for neglected Asian cities, in the process carving out a dominant position for itself in a virgin market.
Backed by exponential growth, Air Asia began a gradual conversion of its fleet from Boeing 737-300 aircraft to Airbus 320-200s, and today has become the largest Airbus customer in Asia.
Thanks to its brand new fleet, the budget airline has won numerous international awards. It has not only rewritten Asian air traffic history, but also shattered the stereotype that budget airlines have outdated fleets, suffer flight delays, offer bad service and are unsafe.
Pioneering New Markets to Gain a Dominant Position
Aside from flying to the ASEAN countries, Air Asia has expanded its route network to Taiwan, China, Hong Kong, Macao, Australia, India, Sri Lanka, the United Arab Emirates and Britain.
Air Asia does not spend heavily on advertising, but instead relies on word of mouth. How can the airline be profitable with such low ticket prices? Its mantra of "saving on everything except safety."
Three Crucial Cost-cutting Tricks:
1. Air Asia uses fully automated ticketing. Where others charge fees, Air Asia doesn't, and what is free of charge at other airlines costs extra at Air Asia. Reserving seats, purchasing tickets and buying extra luggage allowances are all done online via the Internet. There are no fuel charges or administrative fees. Aside from the ticket price and respective airport taxes, the customer does not have to pay a single additional penny.
Boarding passes are thin paper slips smaller than a credit card receipt. No further paper is used, since travelers don't even need to print out their electronic tickets. Air Asia offers only economy class flights. The ticket pays for the seat, but nothing else on board – food, drinks and entertainment cost extra. But passengers can use a free real-time communication system to chat with other passengers on the same plane.
2. Air Asia targets secondary airports with shorter runways and lower costs. At large airports, runways are long, which means that takeoffs and landings consume a lot of fuel, and the long lines of passengers embarking and disembarking also eat up fuel and time. Moreover, overheads are considerably lower at more remote airports. In another cost-cutting measure, Air Asia does not use passenger boarding bridges at many airports, but instead has passengers walk across the tarmac to board and disembark from planes.
3. By using short-haul routes the airline maximizes aircraft uptime and turnaround efficiency. When the time intervals between departures and arrivals is kept short, the flight frequency of aircraft and crew increases, which greatly contributes to containing costs.
On the Taipei-Bangkok route, for example, Air Asia's daily flight from Bangkok arrives in Taipei at 5:50 p.m. and departs again for the Thai capital at 6:20 p.m., which means there is just half an hour spent on disembarking passengers, unloading luggage and other cargo, refueling, and cleaning the passenger cabin. One Air Asia flight attendant named Arawan says he usually flies four roundtrip flights between Bangkok and the northern Thai cities of Chiang Rai or Chiang Mai per day.
Thanks to these three cost-cutting measures, Air Asia's average operating costs are only one third those of other airlines. The Asian budget carrier began to make money just 20 months after starting operations, becoming profitable faster than any other airline before it. Over the past five years, Air Asia's profits have grown rapidly, almost doubling every year. "Making it a world-known regional brand is my goal,"Fernandes boldly declared when he launched Air Asia's maiden flight in 2001. Seven years into his airline adventure, he can rest assured that his ambitious mission is complete.
Translated from the Chinese by Susanne Ganz
Chinese Version: 區域天王 大賺東亞整合財