1. Low Cost Model: Low cost operations and fixed costs
Focusing on providing air travel without frills at substantially lower prices, AirAsia has managed to achieve lower prices to attain high passenger loads, market share, and profitability by eliminating provision of costly in-flight services, flying a standard fleet, selling tickets to passengers directly, and minimizing labor, facilities and overhead costs (i.e. passengers are not allocated seats, and do not receive meals, entertainment, amenities, or access to airport lounges).
Its successful negotiations for its low aircraft lease rates, low long-term maintenance contracts rates, and low airport fees, enabled AirAsia to provide the lowest fares. As a result, AirAsia was able to reduce its overheads and investments in equipments substantially in the absence of fringe services. Exhibit 4 shows that AirAsia has the lowest operating cost (29), compared with 29 other competitors (with Air France being the highest at 184).Moreover, AirAsia’s aircraft maintenance contract costs were reported to be substantially lower than other airlines (i.e. contractual lease charge per aircraft decreased by more than 60% from 2001 to 2004), adding to AirAsia’s competitive advantage, which was further compounded by its young fleet...Read more>>