IntroductionWhat Air Asia X did differently

• Faster turnaround time• Improving Aircraft utilization• Crew efficiency• Aircraft Selection• Seat Configuration• A la carte In-Flight experience

• Cabin crew trained to push sales• Fees for baggage• Online Business through Airasia.com• Flat bed, thumb drive and battery source

• Company Culture• Training and Development• Non Traditional Marketing- KoolRed• Free Journalist Trips • Improving brand recognition• Innovative Advertising

Operational Expertise Culture and Marketing

Alternate Revenue Streams

Air Asia

Questions facedHow best to leverage on the extensive network of the regiona sister company Airasiain selecting new destinations for Airasia X?

How to increase the revenue without increasing the ticket price?

How best to globally position the airline’s brand in non-Asian markets?

How to shift the marketing team’s mentality from a start-up mindset?

How to prepare for a global initial public offering within the next 12 months?

Air Asia

Selection of New and Profitable Route for Air Asia XLeveraging the extensive local network of Air Asia

Factors influencing the Route Planning Decision

Destination Appeal

Historical Passengers Numbers

between two ends of the route

Propensity of people to travel

on the route

Support and Incentives from

the Tourism organization and Airport Authority

Long term competitive and market

Presence

Expected Response

of Competitor

s

Passenger Preference for multiple connecting

flights

Air Asia

Existing Short Haul Network of Air AsiaFeeder NetworkDense Network in South Asia. More than 78 destinations can feed passengers to Air Asia X flights

Air Asia X passenger profile60% Malaysian nationals40% originating from X destination or transfer from Air Asia or other flights in KLMajor focus on less affluent Malaysian passenger base

Rapidly growing new middle class through Asia. ( Income of low population group growing at around 7% at this time)

Between 1991 and 2011, the number of foreign tourist arrivals to Southeast Asia increased by nearly 300%.

Air Asia

Route Evaluation• Aircraft Specs

• A330 : short – medium range aircraft• Maximum range when full – approx. 7000 km• Fuel Usage – approx. 3,000 gallons per hour• Cruise speed – approx. 850 km/hr

• Other Info• Aviation fuel Price : - approx. $2 per gallon• Industry Aircraft Utilization :- 11 hours a day vs Air

Asia X’s 16 hours a day• Load Factor – Industry average for break even 65%-

69% (target should be around 80% for profitability)

Air Asia

Route EvaluationChina• Destination Appeal : High• China ranks number 1 in tourist arrival, Malaysia ranks 3 in Asia

• Number of tourists : approx. 16,10,000 in an year• Propensity to travel on this route : High (tourist arrival sustained over a period of years)• Incentives and Support from Chinese Tourism and AA : Majority od international airports supportive in terms

of tax benefits and airport charges

Japan• Destination Appeal : High• Japan ranks 6th in tourist arrival, Malaysia ranks 3 in Asia

• Number of tourists : approx. 12,18,400 in an year• Propensity to travel on this route : High (tourist arrival sustained over a period of years)• Incentives and Support from Japanese Tourism and AA : Industry Rates for taxes and airport charges

Australia• Destination Appeal : High• Australia ranks 9 in the world for international tourism receipts

• Number of tourists : approx. 8,06,700 in an year• Propensity to travel is also High• Incentives and Support : No tax benefits but support by waiving off 50% of R&D tax expense. Industry rate of

airport charge

Air Asia

Profitability of the RouteChina

Beijing to Kuala Lumpur (4350 Kms)

Time of flight at cruise speed : approx. 5 hours

Fuel Consumption : 15000 gallons

Fuel Expense : $30000

Revenue per trip:

Number of available seats: - 377 (12 business + 365 economy)

At 90% load factor (achievable as daily number of tourist from to China/from

Malaysia is about 380) : Number of passengers : about 339

Amount that can be charged for break even :- approx. $265

Can be further lowered by charging higher for 12 business class seats

• Business class seats : $1000• Economy Class seats : $237

Fuel Charge contributes to about 1/3 of the operating cost for an airline. Hence total expense for one trip is around $90000 for this route

Air Asia

Profitability of Routes

• Japan• Tokyo <-> KL• Ticket price: approx. $331 (without differentiating business and economy; assuming 90% load factor)

• Australia• Darwin <-> KL• Ticket Price: approx. $192 (without differentiating business and economy; assuming 90% load factor)

• Saudi Arabia• Jeddha <-> KL• Ticket Price: approx. $437 (without differentiating business and economy; assuming 90% load factor)

• Europe• London<-> KL• Ticket Price: approx. $400 (without differentiating business and economy; assuming 90% load factor)

These prices are on average lower than those charged by other airlines for economic class the same route.

Air Asia

SouthWest (low cost, short haul) AirAsia X JetSar

Operating income (as percentage of revenue) 8.59 3.5 1.52

Passenger Load factor 79.30% 76.50% 60%

AirCraft Utilization per day 10.48 hr 15.7 hr 11 hr

Avg Passanger fair 130.2 USD 160.71 USD 193.2 USD

AirAsia X In 2009: Lowest cost – Avg US Budget airline - US$0.09 per mile, AirAsia- $0.02 per mile

Improve the bottom line

Increase the top line

Increase # of passengers

Increase fares

Decrease the cost

Air AsiaLow Cost Model of AirAsia X

Low cost model Vs Traditional modelAir

Asia

How did AirAsia-X achieve it?

Aircraft selection and seat configuration

To achieve extra capacity they used 3-3-3 seating configuration

Aircraft utilization

Sold food, merchandise etc at relatively low cost, 25% of its revenues from ancillaries

Only one way point-to-point fair to make it simple for customers

Flat corporate hierarchy

Established its own training academy

Air Asia

Things AirAsia could consider at operational level

Light weight seats

Lean crew [Indigo-96 persons per flight, airIndia-250, AirAsia -180]

Employee to take up multiple Jobs, train them accordingly

Focus more flights from secondary airports to save cost

Cargo – Low-cost carriers avoid cargo on short-haul routes as it complicates the operation and slows down turnaround times. On the long-haul, cargo is too significant a source of revenue to ignore (Francis et. al, 2007).

AirAsia missed but Indigo Implemented

Air Asia

• two-class, large, existing aircraft, or smaller latest technology types to match their seat-km costs

• very large high density all-economy aircraft (A380)• The success rate is not very good• it relies on high volume city pairs to generate sufficient

traffic to fill the aircraft• The advantages of requiring less volume and offers feed

from existing bases, but depends crucially on obtaining new aircraft very cheaply.

• very high volume routes.

• On short/medium haul the large cuts in fares might generate additional traffic that might make the route viable. But on long-hauls the disadvantages of travel time, jet lag and total cost

2 Expansion Options For Airasia X

POTENTIAL COST SAVING

No frills Faster turnaround of aircraft Point-to-point markets only Higher productivity with increased seat density Passenger load factor Lower input price

Air Asia

Cost Saving Comparison

 Fuel is a much larger part of long-haul costs, and there is less scope for large reductions in fuel burn per passenger There is less opportunity for greater labour and aircraft productivity Seat factors are already very high on long-haul routes Some aspects of the simplified product would become more complex in Long haul

• High density long-haul services should offer at least 300 seats per flight• Need daily or five weekly frequencies. • a market share of at least 175,000 passengers. • Otherwise they would be restricted to leisure markets• LCCs have played a smaller role in stimulating traffic than attracting passengers from other

modes• Using economic sized aircraft, 80% loading factor would be possible because of the simplified

fare structure, one-way pricing and very transparent web-based distribution.

Air Asia

Corporate Entrepreneurship – The creation of new value of a corporation, through investments that create either new sources of competitive advantage or renewal of the

value proposition

Corporate culture

Leadership

Structural features that guide and

constrain action

Organizational systems that

foster learning and manage

rewards

Fact

ors

The use of teams in strategic decision making

Whether the company is product or service oriented

Product or process improvement

The extent to which it is high-tech or low-tech

Shifting a marketing team mentality from start-up mind-set

1 Building the Global single brand identity

2 Distinctive advertising

• X’s sponsorship of Manchester United• Sponsoring Oakland Raiders National

Football League team in 2009• Sponsoring Lotus Formula One Racing

Team• Sponsoring Asian Basket Ball League

• Explicit advertising• Sarcastic or humorous in nature• No-Pro tour• Television commercials for CNN

Focused Approaches to Corporate Entrepreneurship

New Venture Groups Business Incubators

Funding

Physical Space

Business services

Mentoring

Networking

Long Haul Vs Short Haul and the Challenge of Single Brand

1 Same customer demographic expected a different comfort level on long haul flights compared to short haul flights

“Opening Up Skies to Everyone”

2 • Business travellers who book X’s flat bed seats know X only as Air Asia. Customers didn’t understand that X is a separate airline.

Global IPO• Decision to list in Stock Exchange

• Credibility to X’s business model as Singapore airline announced it’s plan to launch long haul budget carrier

• KLSE• Pros:

• Good books of Malaysian Govt and Ministry of Transport• Easier to get approvals and licenses to operate in different

routes• Credibility to X’s business model – way to attract Malaysian

Investors• Projected Growth Figures of 56% by 2014 for air travel in

Asian Market

• Cons: • Little value for Malaysian investors holding shares of Air

Asia• Even after listing on KLSE, Govt may impose restrictions on

certain routes and exercise monopoly

• Hong Kong Exchange/New York Exchange• Pros:

• Likely to have new investors on board• Due to the success of parent brand• First mover advantage of long haul low cost carrier

• Strong brand presence and brand awareness programmes such as sponsorship agreement with Manchester United

• Cons:• Likely disputes with Malaysian Govt.• Could slow down expansion plans• Prohibit the carrier to service lucrative foreign destinations

USD2.3 million operating profit at a margin of 0.5% in the year 2010.

Global IPO

• Meeting Revenue Targets • Increase fares • Increase number of passengers• Focus on high volume yielding routes• Revenue from Cargo

• Decreasing cost by operational excellence• Light weight seats• Lean Crews• Cross training to take up multiple jobs• Focus on secondary airports for operation

• Improving Financial Ratios• By improved inventory system

• X’s IPO scheduled for Late 2011 or Early 2012• Strategic action AirAsia X must tackle in order to effectively prepare for a global IPO

• Balancing Domestic Political Relationships

• Success of X helped the Malaysian economy

• Limiting factor to growth – Malaysain Govt.

• Analyzing vital routes and a plan to share equal rights or sharing of rights in some mutually agreed ratio

• Decreasing cost by operational excellence

• Light weight seats

• Lean Crews

• Cross training to take up multiple jobs

• Focus on secondary airports for operations

Thank You