AIR ASIA

TABLE OF CONTENT PAGE NUMBER

CONTENT 1
1. INTRODUCTION 1-2
1.1 company profile 3-4
1.2 company establishment
1.3 airline industry in Malaysia and 4-5
6-7
Southeast Asia 7
2. AIRASIA PRICING STRATEGY 8
2.1 why the strategy “smart”?
2.2 company suggestion 9
2.3 why the company should follow

airasia strategy?
3. REFERENCES

1. INTRODUCTION

1.1. Company Profile
i. Company Name: Air Asia Berhad
ii. Country of Origin: Malaysia
iii. Company Vision and Mission:
a. Vision:
To be the largest low-cost airline in Asia and serving the 3 billion people who are
currently underserved with poor connectivity and high fares.

b. Mission:
- To be the best company to work for whereby employees are treated as part of a big

family
- Create a globally recognised ASEAN brand
- To attain the lowest cost so that everyone can fly with Air Asia
- Maintain the highest quality product, embracing technology to reduce cost and

enhance service levels

iv. Company tagline: “Now everyone can fly”

1.2. Company Establishment
In 1993, Air Asia Berhad was established and it is owned by DRB-Hicom which is an

government owned company and Air Asia Berhad start to operate in 1996. In 2001, the owner
of Tune Air Sdn. Bhd bought Air Asia Berhad from DRB-Hicom. Kuala Lumpur International
Airport (KLIA) became Air Asia’s main hub for Low-Cost Carrier Terminal (LCCT). In 2003, Senai
International Airport Is opened as Air Asia’s first secondary hub and there is where Air Asia
launched its first international flight to Bangkok, Thailand. The other Air Asia’s secondary hub
includes Kota Kinabalu International Airport and Penang International Airport and also Kuala
Lumpur International Airport 2 (KLIA2). Then, flight to other countries such as Indonesia,
Philippines, Brunei, China, Myanmar are launched in the following years.

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Air Asia is well known as Malaysian budget or low-cost airline even Asia’s biggest low
fare airline. With a strong tagline of “everyone can fly”, the brand successfully took place in
the mind of their customers.

Figure 1. Air Asia Tagline
AirAsia soon exceeded travel standards around the world and became the world's
leading airline through efficiency and efficiency in operational management. As from April
2020, AirAsia also has a route network serving over 59 international destinations in 18
countries . Consequently, innovative solutions and more efficient processes continue to keep
its low price

Figure 2. Air Asia Routes Map Source: dabrownstein.com
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1.3. Airline Industry in Malaysia and Southeast Asia
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 offers international flight destination across Asia. The
reason why LLC industry is so encouraging is because the demand of passengers who wants
to travel with cheap flight tickets and the demand is increasing from time to time

1.3.1 Major Characteristics
There are several characteristics in airline industry which is the nature of the product,

the structure of expenditure and the conditions of entering the market. The reason why
competition exist in the market is because the product that all the airline company offers are
almost identical and sometimes its hard for customers to differentiate the products. High
capital and operating expenses are one of the essential characteristics of the industry.
Another key feature of the industry is that market entry requirements vary between domestic
and international markets. Entry into the global market is extremely challenging as the results
of bilateral negotiations between governments are international flights and routes.

In fact, entry depends on the level of legalization or liberalization within domestic and
international markets. In order to increase demand, several countries are expanding their
local and regional markets. In addition, government plays an important role in market
management, and current players can have a major influence on new entrants.

1.3.2 Forces Driving the Industry
Global economic and safety and health problems are the major drivers of industry.

When the world or any nation is in economic crisis, demand for airlines will plunge. For
instance, a low rise in global airline passengers in the late 1990s has resulted in the Asian
financial crisis. From 1997 to 1998, the increase was only very minimal. Safety and health
problems are also an important industry driver. There are also unexpected safety related
events that takes place on 11th September 2001 tragedy in the US and its known as the 9/11
tragedy. The tragedy has impacted the industry significantly where the demand for the
services decreases. And the current virus outbreak which is the Covid-19 that strikes the world
has also impacted the industry where the government of every country has declared the
restriction order for any inbound or outbound of airline services.

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1.3.3 New Trend in the Industry
Is has been a new trend for the low-cost airline that has been gaining popularity

among passengers. Low-cost airlines such as Airasia, Malindo Air, Ryanair, Indigo, Scoots
Jetstart Asia and others has risen as the demand for low-cost airlines increases in the past few
years. Table 1 shows the “Southwest Strategy”, the basis or basic guideline for most low-cost
airline’s operations. The key of the strategy is to reduce costs as much as possible so that the
company can offer a low price for the passengers at all time. Based on historical performance,
it has shown that that the strategy can be easy to replicate but it is difficult to implement
successfully.

Table 1: the southwest strategy

THE SOUTHWEST STRATEGY
• Fleet is made up of one type of aircraft
• Service is limited on flights i.e. no free drinks or food or entertainment
• Service is based one single class i.e. no premium or business class
• Routes are point to point
• Turnaround time (from touchdown to take-off) in airports is short
• Airports used are secondary airports and not major ones
• Bookings made directly to airline, usually online, and not through travel agents

Source: Boone (2002)

2. AIRASIA PRICING STRATEGY
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 costomers may be willing and able to pay for their services according to their
own personal preferences.

Most of the airline company use differentiated pricing strategy which is another type
of price discrimination. It is used in order to sell their services at offering different prices to
various segments concurrently. 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.

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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.

figure 3. Odd pricing
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. Differentiated pricing 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 differentiated 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.

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2.1. WHY IS THE STRATEGY IS CONSIDERED AS “SMART”?

Differential pricing 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

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pricing. In figure 4 shows Air Asia domestic flight promotion after travel ban has been lifted
and the price is base on psychological pricing.

figure 4.
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.
2.2. COMPANY SUGGESTION
In this research, I would like to suggest Firefly airline company which is a subsidiary of
Malaysian Airlines company

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2.3. WHY SHOULD THEY FOLLOW AIR ASIA’S STRATEGY?
The reason why I suggest Firefly Airline to follow Air Asia’s pricing strategy is because

most of local passengers prefer Air Asia more than Firefly because of the price that offered
by Air Asia. Of course, Air Asia is the market leader in Low-Cost Carrier (LCC) in South East Asia
or even the world. Its really hard for Firefly to keep up with Air Asia. But thanks to its parent
company which is Malaysian Airline, Firefly still manage to sustain in the market even the
sales is not so promising. The main point is when it comes to LCC or Low-Cost Carries, Air Asia
is the first thing that pops in consumer’s mind. Firefly is just another alternative airline that
will come last to consumer’s mind when choosing Low-Cost airline. This is because Air Asia’s
pricing is much more effective compared to Firefly’s. As mentioned earlier, the differential
pricing used by Air Asia is the reason why they excel. For Firefly on the other hand, the pricing
strategy used is bundled pricing strategy, where the ticket price includes taxes, surcharges
and complimentary refreshments on board, on-time departures, 20-kilogram baggage
allowance. Even though the accumulated ticket price is fairly cheap, but it is still not
convincing for customers to use their service. This is because when buying a service especially
airline ticket, customers will consider several things such as flight destination, flight
frequency, service efficiency, comfortability and others. There are only 6 domestics location
that firefly have and that exclude destination to neighbouring countries such as Singapore,
Indonesia and Thailand where there are only 3 flight destination to those three countries.
Package personalization also not available like Air Asia. This is where Air Asia is differentiated
from Firefly and this is what customers value the most which means they can add or drop any
services that the want or they don’t.

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References

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AirAsia to face competition from Firefly. (2020). Retrieved 1 July 2020, from
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AirAsia: market share by country 2018 | Statista. (2020). Retrieved 1 July 2020,
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%2025%20countries.

AirAsia’s marketing strategies. (2020). Retrieved 1 July 2020, from
https://www.ukessays.com/essays/marketing/airasias-marketing-strategies.php

Man, M., & Justine, J. (2020). AirAsia In The Malaysian Domestic Airline Market:
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Team, M. (2020). AirAsia Marketing Mix (4Ps) | AirAsia Marketing Strategy |
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AirAsia. (2020). Retrieved 1 July 2020, from
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