Should Airasia Expand Its Long Haul Business?

Since the acquisition of AirAsia by Tony Fernandez in 2001, the company changed deeply its strategy. Indeed, the asian airline company has become one of the most performant low cost company, especially for short haul flights. This huge growth and those profits made Tony Fernandez thinking about a new opportunity, long haul flights. For this purpose, he decided to launch AirAsia X, an associate company that will deal with long haul flights.

Nonetheless, long haul and short haul flights are different markets, with different competitors. The question we can ask is: Should AirAsia expand its long haul business ? Why ?

To answer this question, we will verify if AirAsia X can compete on this market, and if yes, we will then explain where they should operate.

AirAsia X was created in the purpose of make people travelling long distance at low cost. Indeed, by using the knowledge and skills of AirAsia, Tony Fernandez wanted to conquest new markets like China, India or Europe and Americas.

The company is clearly positioning itself as a low cost carrier for long haul, looking for cost advantage strategy. Thanks to its relationship with AirAsia, AirAsia X has quickly succeed in transferring good skills of the parent company. If we look at the drivers of a cost advantage, you must create economies of scale in a first time. By loading at the maximum capacity its planes, AirAsia propose a decreasing price meanwhile the « quantity » (passengers) is increasing so, in this situation, we could describe it as an economy of scale.

Moreover, economies of learning must be put in place to keep a cost advantage strategy. Thanks to its partnership with the parent company, AirAsia X benefits of a fully trained crew, highly skilled, and with all the IT ressources needed. Indeed, they share web-based and telephone flight booking systems along with administrative and operational services. For a new entrant, it’s a huge advantage.

On the other hand, the asian airline company has succeed in keeping what made AirAsia successful, which is fuel efficient new planes, secondary airports and human resources practices.

AirAsia X benefits from the good reputation of AirAsia, which is seen as one of the top low cost airline company. This allows the company to enter easily and quickly on the long haul market, combined with its low price/low cost strategy. By offering the lowest prices on the market, they can catch the highest (Value-Cost)