AIRASIA (2)

AIRASIA

WRITTEN REPORT BY MUHAMMAD AMMIR ALCSOAAIWIARR'-LSRCIINONESEORT.1
HADI BINMOHD HASNUL HADI

CCOOMMPPAANNYY''SS
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In 1993, Air Asia Berhad was established and it is

owned by DRB-Hicom which is a government owned

company and Air Asia Berhad start to operate in 1996. AirAsia soon exceeded
In 2001, the owner of Tune Air Sdn. Bhd bought Air
Asia Berhad from DRB-Hicom. Kuala Lumpur travel standards
International Airport (KLIA) became Air Asia’s main around the world and
hub for Low-Cost Carrier Terminal became the world's

(LCCT). In 2003, Senai International Airport Is opened leading airline through
as Air Asia’s first secondary hub and there is where Air efficiency and
Asia launched its first international flight to Bangkok, efficiency in
Thailand. The other Air Asia’s secondary hub includes operational

Kota Kinabalu International Airport and Penang management. As from

International Airport and also Kuala Lumpur April 2020, AirAsia also

International Airport 2 (KLIA2). has a route network

Then, flight to other countries such as Indonesia, serving over 59

Philippines, Brunei, China, Myanmar are launched in international

the following years. Air Asia is well known as Malaysian destinations in 18

budget or low-cost airline even Asia’s biggest countries .

low fare airline. With a strong tagline of “everyone can Consequently,
fly”, the brand successfully took place in the mind of innovative solutions
their customers.
and more efficient

processes continue to

keep its low price

AAIIRRLLIINNEE

IINNDDUUSSTTRRYY IINN MMAALLAAYYSSIIAA
AANNDD SSOOUUTTHHEEAASSTT AASSIIAA

The airline scene or market here in
Malaysia and Southeast
Asia is very competitive especially
when it comes to Low-Cost Carrier
(LLC).There are 22 Low-Cost airline
company in Southeast Asia and most
of them offersinternational flight
destination across Asia. The reason
why LLC industry is soencouraging is
because the demand of passengers
who wants to travel with cheapflight
tickets and the demand is increasing
from time to time

1 2 3

MAJOR FORCES NEW TREND IN THE
CHARACTERISTICS DRIVING THE INDUSTRY INDUSTRY

There are several characteristics in airline Global economic and safety and health Is has been a new trend for the low-cost
industry which is the nature of the product, problems are the major drivers of industry. airline that has been gaining popularity
the structure of expenditure and the When the world or any nation is in among passengers. Low-cost airlines such
conditions of entering the market. The economic crisis, demand for airlines will as Airasia, Malindo Air, Ryanair, Indigo,
reason why competition exist in the market plunge. For instance, a low rise in global Scoots Jetstart Asia and others has risen as
is because the product that all the airline airline passengers in the late 1990s has the demand for low-cost airlines increases in
company offers are almost identical and resulted in the Asian financial the past few years. The “Southwest Strategy”,
sometimes its hard for customers to crisis. From 1997 to 1998, the increase shows the basis or basic guideline for most
differentiate the products. High capital and was only very minimal. Safety and health low-cost airline’s operations. The key of the
operating expenses are one of the essential problems are also an important industry strategy is to reduce costs as much as
characteristics of the industry. Another key driver. There are also unexpected safety possible so that the company can offer a low
feature of the industry is that market entry related events that takes place on 11th price for the passengers at all time. Based on
requirements vary between domestic and September 2001 tragedy in the US and historical performance, it has shown that
international markets. Entry into the global its known as the 9/11 tragedy. The that the strategy can be easy to replicate but
market is extremely challenging as the tragedy has impacted the industry it is difficult to implement successfully.
results of bilateral negotiations between significantly where the demand for the
governments are international flights and services decreases. And the current
routes. In fact, entry depends on the level virus outbreak which is the Covid-19
of legalization or liberalization within that strikes the world has also impacted
domestic and international markets. In the industry where the government of
order to increase demand, several every country has declared the
countries are expanding their local and restriction order for any inbound or
regional markets. In addition, government outbound of airline
plays an important role in market services.
management, and current players can have
a major influence on new entrants

AAIIRRAASSIIAA''SS PPRRIICCIINNGG
SSTTRRAATTEEGGYY

A seller discriminates price when they charge different prices for various segments of customers.
the perfect price discrimination type. From the seller's point of view, charging the customer based
on the maximum amount that they are willing to pay or in other word is to charge customer
relatively below the value to customer (VTC). The aim is to use the very fact that various customers
may be willing and able to pay for their services according to their own personal preferences. Most
of the airline company use price segmentation strategy which is another type of price
discrimination. It is used in order to sell their services at offering different prices to various
segments at the same time. days remain before departure, total demand forecast by price point,
the current load factor booked, competitive pricing in force are the factors that influence the price.
An integrated software is used so that forecast the demand at a higher accuracy and precision. Air
Asia's price strategy is differential pricing. Air Asia sells different passengers the same airline ticket
at a different price point. Second-market discounts are another more frequent type of differential
price where the company charge different consumer segments with different price. New airline
strategy is used to determine the new selling price for new flight destinations. The most or
commonly used new airline pricing strategy is the penetration pricing strategy. Penetration pricing
strategies is used to boost the demand and by offering low fare price for new destinations. If the
airline company like Air Asia wants to launch new fare price, Psychological pricing strategies is
used. Premium pricing, odd-even pricing, reference pricing and traditional pricing are all different
forms of psychological pricing. In this case, odd-even pricing strategy is implemented by Air Asia
where Air Asia sets the price with off number (e.g. RM19.99) or sets the price with even numbers
(e.g. RM20.00) to indicate higher quality. For certain products and services, they are priced way
beyond its marginal cost. For example, a regular ticket price may be start at RM29.99 but premium
fare may start at RM49.99. by giving an option between regular or premium fare, it will reveal
consumer’s price sensitivity which is the willingness to pay for the product. Price segmentation
strategy is regularly used by airlines and travel companies because they selling their services to
different market segments. Airlines and other tourism firms sell passenger goods and services
simultaneously to various market segments at different rates regularly. Airfare price transparency
has become more visible thanks to the Internet, technological advances and the growth of low -
cost airlines. Passengers found that comparing fare between different flights and the various
airlines is much easier.

WWHHYY IISS TTHHEE SSTTRRAATTEEGGYY
IISS CCOONNSSIIDDEERREEDD AASS
““SSMMAARRTT””??

Price segmentation that Implemented by Air Asia is considered as a smart pricing strategy is because
the strategy sets or offer different price for different customer segments it means that Air Asia can
increase their revenue from charging higher price for affluent customers segments who demands for
extra services. Using this strategy also allows Air Asia to increase their sales volume by offering cheaper
or economic price to other segments of their customers. There are four different packages offered by
Air Asia for domestic flight which is low fare package, value fare package, premium flex package and the
flatbed package. All of these packages offer flexibility and personalisation to the passengers.

For the low fare package which starts at a very low fare that only includes flight ticket and cabin
baggage as complimentary where extra charges will be charged for additional services or products. This
is great for passengers who are only buy the ticket to get from point A to point B and only if necessary,
they will add other things such as in-flight meal, checked baggage and etc. this Implementation  of
offering lowest fare such as the low fare package will increase the flexibility of passengers. for some
airlines like Malindo Air for example, the rate is flat. Which mean there are no other package like Air
Asia offered, this will limit the price flexibility of their passengers. the price is relatively low but for some
passengers, because of the short haul flight they don’t even need some of the services like meals
checked baggage or even the airline points because most of the domestic flight only takes about 45
minutes or less than an hour to reach the destination. These what makes differential pricing that
implemented by Air asia considered as smart because It targets various customer segments, it
increases the passenger’s personalisation of their flight packages and thus increase the revenue and
add the same time it also increases customer satisfaction and customer loyalty

Furthermore, the psychological pricing strategy used by Air Asia also played an important role to
make sure that the company excel among its competitors. Psychological pricing is widely adapted and
implemented by various companies whether in what industry they in. this type of pricing strategy is
very effective when the company wants to launch new services or new flight destinations or even
launching a promotional campaign. For example, after the government lift domestic travel ban on June
10th, Air Asia immediately promotes their domestic flight to public and most of the price offered are
based on psychological pricing. In figure 4 shows Air Asia domestic flight promotion after travel ban has
been lifted and the price is base on psychological pricing. The reason of using this strategy is to
immediately increase the sales of the company. Using psychological pricing also can gain immediate
attention of potential passengers to become the BIG members in order to get the promotional price as
stated in the advertisement.

AAIIRRAASSIIAA''SS CCLLOOSSEESSTT
CCOOMMPPEETTIITTIIOONN

i would consider that Malindo Air is the closest competition that airasia has at the moment. this i s
because, Malindo Air is also an Low-Cost Carrier airline company that operates in Southeast Asia just
like airasia. just like airasia, Malindo Air also offers reasonable ticket price. there are 45 flight
destination that offered by Malindo Air including Perth, Australia . Compared to Airasia which has over
150 flight destinations. Malindo Air has over 800 weekly flights and the airline has code share
agreements with Turkish Airlines and Batik Air and interline agreements with All Nippon Airways,
Etihad, Oman Air, etc. this is what makes Malindo Air is the closest competitor to Airasia.

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as we all kmow that during the pandemic covid-19 outbreak, Malaysian government has imposed travel
ban.meaning citizens are not allowed to travel anywhere whether domestic or international during the
Movement Control Order MCO period. this has affected Airasia financially as the company has to put its
operation on pause during the MCO period. according to News Straits Times, the company has
reported a net loss of RM803.85 million in its first quarter results, compared to a net profit of RM96.09
million. After the government has lifted the travel restriction, the company is able to continue its
operation but at reduced frequencies. The flight also has to reduce its passenger capacity in order to
comply with the government Standard Oeration Procedure (SOP). because of the flight has to reduce
the number of passengers. the company has decided to increase the price of the tickets in order to
accomodate with the cost of each flight and also to help the company to bounce back from the
pandemic.

CCOOMMPPAANNYY SSUUGGGGEESSTTIIOONN

In this research, I would like to suggest Firefly airline company which is a subsidiary of Malaysian Airlines company

WWHHYY SSHHOOUULLDD TTHHEEYY
FFOOLLLLOOWW AAIIRRAASSIIAA’’SS
SSTTRRAATTEEGGYY??

The reason why I suggest Firefly Airline to follow Air Asia’s pricing Furthermore, the psychological pricing
strategy is because most of local passengers prefer Air Asia more than strategy used by Air Asia also played an
Firefly because of the price that offered by Air Asia. Of course, Air Asia is important role to make sure that the
the market leader in Low-Cost Carrier (LCC) in South East Asia or even company excel among its competitors.
the world. Its really hard for Firefly to keep up with Air Asia. But thanks Psychological pricing is widely adapted
to its parent company which is Malaysian Airline, Firefly still manage to and implemented by various companies
sustain in the market even the sales is not so promising. The main point whether in what industry they in. this type of
is when it comes to LCC or Low-Cost Carries, Air Asia is the first thing pricing strategy is very effective when the
that pops in consumer’s mind. Firefly is just another alternative airline company wants to launch new services or new
that will come last to consumer’s mind when choosing Low-Cost airline. flight destinations or even launching a
This is because Air Asia’s pricing is much more effective compared promotional campaign. For example, after the
to Firefly’s. As mentioned earlier, the differential pricing used by Air Asia government lift domestic travel ban on June
is the reason why they excel. For Firefly on the other hand, the pricing 10th, Air Asia immediately promotes their
strategy used is bundled pricing strategy, where the ticket price includes domestic flight to public and most of the price
taxes, surcharges and complimentary refreshments on board, on-time offered are based on psychological pricing. In
departures, 20-kilogram baggage allowance. Even though the figure 4 shows Air Asia domestic flight
accumulated ticket price is fairly cheap, but it is still not convincing for promotion after travel ban has been lifted and
customers to use their service. This is because when buying a service the price is base on psychological pricing. The
especially airline ticket, customers will consider several things such as reason of using this strategy is to immediately
flight destination, flight frequency, service efficiency, comfortability and increase the sales of the company. Using
others. There are only 6 domestics location that firefly have and that psychological pricing also can gain immediate
exclude destination to neighbouring countries such as Singapore, attention of potential passengers to become
Indonesia and Thailand where there are only 3 flight destination to those the BIG members in order to get the
three countries. Package personalization also not available like Air Asia. promotional price as stated in the 
This is where Air Asia is differentiated from Firefly and this is what advertisement.
customers value the most which means they can add or drop any
services that the want or they don’t.

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