By Chin Pei Ling
Many people buy into the idea that there is no free lunch in this world. With this mindset at the back of most minds, few people actually understand the low-cost carrier business model to believe it is capable of offering such insanely low-ticket prices and still make profits.
Even low-cost airlines themselves do not always succeed. More than a dozen low-cost airlines were shut down in 2008 during the global economic meltdown. These shutdowns demonstrated the hypothesis that not every airline gets it right and that the low-cost carrier business model is not as simple as it appears. The low-cost carrier business model requires discipline and tenacity to implement.
So, what exactly did AirAsia do right? What works in contributing its tremendous success? We will look at several factors covered in our first book, The AirAsia Story as well as uncover a few more innovative business practices which worked for AirAsia in recent years.
#1: Tan Sri Dr. Tony Fernandes – AirAsia’s brand icon
We chose to make Tony the number one factor for AirAsia’s profitable business model because we believe that AirAsia would not have been able to implement its aggressive business model without Tony’s doggedness in pushing for what’s best for AirAsia.
His tenacity in pursuing various channels including the media when governments turned a deaf ear on him is extremely admirable. He goes out of his way and does everything possible to ensure he gets what he wants for AirAsia. His personal credo is, “Believe the unbelievable. Dream the impossible. Never take ‘no’ for an answer”.
#2: Strong Allstars work culture
Tony believed that people were the greatest asset to an organisation. On building human capital, Tony confessed that he hires people with the right attitude then gives them opportunities to earn promotions. He also believes in planning for succession and that bosses should leave and give space for a new person to take over.
#3: Discipline in the LCC business model
If you thought that the third key factor would be the low-cost carrier business model itself, you are sadly mistaken. The business model itself can only do so much, it is the discipline in maintaining the LCC business model relentlessly that truly marks the success of a LCC.
The LCC business model is characterised by the following key components: high aircraft utilisation, no frills, streamlined operations, secondary airports, point-to-point network and a lean distribution system.
These are the key components to a successful LCC business model – all of which not work successfully without the resilience and uncompromising discipiline to deliver these LCC principles.
#4: Long-term growth, not short-term profits
During the global economic meltdown in 2008, AirAsia stunned the public when it increased flights, added routes and boosted capital investment when other airlines had cut back, shed jobs and grounded planes. Tony was quoted as saying that they would not sacrifice long-term growth for short-term profits.
#5: Iron grip on cost structure
AirAsia has built a reputation of keeping an iron grip on costs and paying attention to details. Tony believed that every LCC can do whatever it wants with fares, but without the right cost structure, the LCC will definitely lose money. The right revenue structure needs to be matched with an equivalent cost structure.
Extracted from The AirAsia Story 2 by Chin Pei Ling.