In 2008, Air Asia was one of the most profitable airlines; the company was not even affected by the economic crises as it was comfortably earning a return on assets of 4% It came as no surprise as Air Asia won skytrax award as the world’s best low cost airline. Well deserving as well because in just 7 years it had efficiently expanded stretching over south East Asia, amassing an outstanding 11. 8 million customers from an initial 200,000, Air Asia created an empire for itself. In 2007, the company embarked on a new journey.
They were trying to get into the long haul market, having achieved tremendous success in the short haul market using a simple basic model air craft, the low-cost carrier (LLC) they wanted to gain market share in the long haul market, using the same basic model, the LLC, which in times past previous airlines that tried the same strategy had failed. But having success in the previous market, Air Asia believed that by sticking to their pricing strategy, the only significant problem they would encounter in the long haul market would be competition. Strategic issue There are 2 key strategic issues . Air Asia must choose between going into the competitive long haul market vs. remaining in the short haul market, therefore cancelling Air Asia X 2. Their ability to compete against already established long haul airlines who have efficient and working business models that give them competitive advantages like baggage- handling, frequent flyer promotions etc. Alternative suggestions Option one: merge Air Asia and Air Asia X Air Asia is an empire, established and profitable in its market segment. Air Asia X however is nothing close to becoming an empire is let alone be rofitable, instead of risking everything in a market where Air Asia X would struggle to compete, they are better of merging Air Asia and Air Asia X, with Air Asia the parent and Air Asia x the subsidiary, that way it is less risky and it could be easier for Air Asia X to launch under the same company Option two: discontinuing Air Asia X Air Asia could also decide to terminate the idea of Air Asia X. Apart from being risky, Air Asia operates of the LCC model which works effortlessly with the short haul market but is not the best model to use in the long haul market especially if you are new to a segment.
A full service network carrier’s business model is typically based upon the operations of a hub-and-spoke route network (Vespermann & Holztrattner 2010). Air France-KLM group currently operates the largest network between Europe and the rest of the world. The network is coordinated around the two intercontinental hubs of Roissy-Charles de Gaulle and Amsterdam-Schiphol airports. These two hubs ...
This is why Air Asia should consider discontinuing Air Asia X and continue operating as a short to medium haul flights which is their strongest competitive advantage. Option three: create an alliance between Air Asia and a competitor Another alternative could be forming an alliance with a long haul airline. By doing this Air Asia could maintain focus on their primary objectives and also have a share in the long haul market regardless of the share size.