MARKETING CASE STUDY

By Group 3
Mohamed Sallauddin Syabanlina Miskam Teoh Khiam Joo

Agenda
Situation Analysis SWOT Analysis WHERE NEXT ?

AIRCRAFT FLEET & FREQUENCY PLAN MARKETING ACTION PLAN FINANCIAL PLANNING CONCLUSION

SITUATION ANALYSIS

Situation Analysis
General Overview - Airlines Industry
- Market Industry for LCC - Consumer Behavior

Companys Background
- Incorporated in Malaysia as private limited company on 20th Dec 1993 - Commenced their operation as full service airline in 1996 - Hicom Berhad was the largest shareholder - 85% - Never been profitable ever since their operations as full service airline. - December 2001, Tune Air acquired majority stake in AirAsia - Converted to LCC - from Full service to low-cost, no-frills.

Situation Analysis

OUR MISSION
To be an affordable air transportation services, so that everyone can fly.

Situation Analysis
AirAsias Characteristics
- Low Air Fares - The Service (one type aircraft, single class, no frills) - Ticketless Airlines - Network ( point-to-point )

Customer Analysis
- Small & medium enterprise - Aiming for new market ( those travel by bus, taxi & train : domestic market)

Market Analysis
- Succeeded in domestic routes - Strong passenger growth trend since takeover.

Situation Analysis
AirAsia Passenger Movements
AirAsia Passenger M ovements ( Domestic Flight ) January 2002 - October 2003
Passeng er ('0 0 0 )
250

2002 2003

200 150 100 50 0

January

February

M arch

April

M ay

June M o nt h

July

August

September October

November December

Situation Analysis
Route / Destinations
- After takeover (Dec 2001), start flying to only 8 local destinations - Now AirAsia flies to over 13 domestic destinations.

Situation Analysis
Pricing
Destination Penang Alor Setar Kota Bharu Kuala Terengganu Johor Bharu Ipoh Kuantan MAS fare (Lowest) 79 85 79 79 71 50 56 Train 17 - 67 18 70 32 51 N.A. 18 126 10 40 21 41 Bus (Transnational) 23.50 25.50 26.10 25.10 20.30 11.30 14.30 AirAsia (Lowest) 9.99 29.99 29.99 29.99 19.99 N.A. N.A.

Situation Analysis
Promotion Strategies

Situation Analysis
Organization Chart
Board of Directors
(Chief Executive Officer) QUALITY (Snr Dir. Quality)

(Advisor to CEO)

FINANCE (Chief Financial Officer)

GROUND OPERATIONS (Chief Ground Ops. )

FLIGHT OPERATIONS (Dir. Flight Operations)

INFORMATION TECHNOLOGY (Chief Information Officer)

(COMMUNICATION Chief Engineer)

ENGINEERING (Chief Engineer)

BUSINESS DEVELOPMENT (Executive Director,)

Situation Analysis
Financial Condition
- 1998, poor performance due to economic downturn & limited number of routes and frequency - Recently, struck deal with foreign entity to take up 30% stake in airline - Tune Air sold 26% of its stake worth RM98.8 mil , to increase companys cash flow and strategy to avoid raising funds through borrowing. - The capital injection is to finance AirAsias expansion programs RM50 mil. - 1st airline in Asia to introduce internet booking (45% of business) - 1st airline to introduce booking and payment by phone in Malaysia - Highest e-commerce airline site in Asia ( total internet sales of more than RM90mil ) - First ever Arrangement with a telecommunications company for aircraft advertising - 1st airline to have SMS booking

Achievements

SWOT ANALYSIS

SWOT Analysis
STRENGTH & WEAKNESS
STRENGTH Industry Recovering from the undergone shakeup since 9/11, Iraq War, Terrorist Attack and SARS Economic, trade & tourism vehicular for country LCC is one of economic drivers Price-driven (cater new market) LCC offers prove to be sustainable & profitable Clearly differentiated and positioned Fresh & vibrant image WEAKNESS Fragile & sensitive Capital-intensive industry

Product

Predominantly pricedriven Point-to-point traffic

Promotion Utilization of mass media Embodies & projects a new brand essence Highly dependent on internet & ICT

High reliance on internet

SWOT Analysis
STRENGTH & WEAKNESS
STRENGTH WEAKNESS

Distribution

Extensive use of Internet and ICT Internet penetration still Minimum alliance with Travel Agents Low On-line booking is difficult for traditional travelers Offers cheapest fares in domestic market Practices an escalated multi-tiered pricing policy Low fares that full service airline unable to match Limited number cheapest price Some travelers perceive the low price as a gimmick

Price

SWOT Analysis
OPPORTUNITY & THREAT
OPPORTUNITY THREAT

Industry

Market growth ( from 20% to 50%) Availability of underutilized secondary airports Asian per capita income increase
LC market is an untapped & underserved AirAsia offers value for money LCC still new in Malaysia & surrounding region Numerous small airports Unconventional promotional strategy

Strict protective of regulated regime Sovereignty of traffic rights

ASEAN Countries are protective of their flag carriers Liberalization policies, minimize barriers to entry Internal competition MAS Easy to adopt & emulate

Product

Promotion

SWOT Analysis
OPPORTUNITY & THREAT
OPPORTUNITY THREAT

Distribution

Reliance on Internet

Misleading Advertisement Subjects to fraud and tampering

Pricing

Lower cost base made AirAsia offers Ignite price war most competitive price Continue to dominate the price-driven market segment

Where Next ???

Where Next ???

Market outlook marketing objective marketing strategy domestic expansion regional expansion

Where Next ???

Market Outlook
- LCC captured almost 8% of global market share and expect to grow to 25% by 2015 - Asia GDP growth ( 5% in 2002 and forecasted 5.7% in 2003 ) - LCC can capture 10% on Asian air travel business - Huge population give the opportunity for LCC to tap into the market - Internet penetration level rising rapidly
Country Malaysia Indonesia Thailand Vietnam Singapore Philippines All of Asia
South East Asia GDP 2001 2002 0.4 3.2 3.5 3.0 1.8 3.8 5.8 5.7 2.0 3.9 3.2 4.0 3.7 5.0

2003 5.0 4.4 4.0 6.2 5.6 4.5 5.7

Where Next ???

Internet Usage for South East Asia (Internet Users & Population Statistics for 10 countries and regions in South East Asia) Population (2003 Est.) Internet Users, (Year 2000) Internet Users, Latest Data Growth (2000-2003) % Population (Penetration)

ASIA

Brunei Darussalam Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Tahiland Vietnam

362,700

30,000

35,000

16.7 %

9.6 %

13,382,400 217,825,400 5,559,200 24,014,200 51,853,100 81,636,000 4,225,000 63,393,600 81,660,400

6,000 2,000,000 6,000 3,700,000 1,000 2,000,000 1,200,000 2,300,000 200,000

30,000 4,000,000 15,000 7,800,000 10,000 2,000,000 2,308,296 4,800,000 1,500,000

400.0 % 100.0 % 150.0 % 110.8 % 900.0 % 0.0 % 92.4 % 108.7 % 650.0 %

0.2 % 1.8 % 0.3 % 32.5 % 0.0 % 2.4 % 54.6 % 7.6 % 1.8 %

* The most recent usage information comes from data published by Nielson -NetRatings, ITU

Where Next ???

Marketing Objective
- To be the MARKET LEADER in Asia (1)
Cost/ASK

0.300 0.250 0.200 RM 0.150 0.100 0.050 0.000 Cost/ASK (1) As of FY2003

AirAsia 0.109

Ryanair 0.219

EasyJet 0.281

- Our Cost/Available Seat Kilometer is the lowest in the world.

Where Next ???

Marketing Strategy
- Adopt expansionary marketing strategy - The expansionary approach includes: 1. Increase penetration of existing domestic market through additional flight frequencies or introduce new destination. 2. Begin new services to identified regional points that are within 3.5 hours of flying time from Malaysia. 3. Set-up strategic alliances or partnerships in selected foreign countries void of LCC operations. 4. Maintain price leadership by offering the lowest possible price to passengers

Where Next ???

Domestic Expansion
- Lags behind MAS : Flight frequency to all domestic points (Pen. Msia)

Where Next ???

Domestic Expansion
- According to a survey published by Nielson, only 6% of Malaysian travels by air. - Significant frequency gap for flights to East Malaysia
SHEDULE COMPARISON BETWEEN MALAYSIA AIRLINES AND AIR ASIA Dom estic Service - East Malaysia (ex-Kuala Lum pur) 120 100 96 79 80 44 60 40 20 0 Kuching Sibu Miri Bintulu Kota Kinabalu Sandakan Taw au Labuan 35 14 7 28 7 14 11 0 14 11 35 14 21 7 7 7 7 7 61

Weekly Frequency

Destinations

MAS

Air Asia

Where Next ???

Domestic Expansion
- AirAsia had performed outstandingly well and generated hefty positive growth in passenger number to destination that we fly to
P a s s e nge r ('000)

1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

171.8% 105.3% -3.5% 10.2%

MAS and AirAsia Domestic Passenger Movement (All Airports) January - August (2002 -2003)
0.5%

-3.4%

-4.2%

-2.4%

-7%

-19.7%

100%

102.5%

102.6%

110.6%

115%

116.4%

em be r

Fe br

Se pt

ov

Month
M AS 2002 M AS 2003 Air Asia 2002 Air Asia 2003

ec em be r

ar ch

ne

il

ua ri

be r ct o

Ja nu

em be r

ay

ar y

ly

ug us

pr

Ju

Ju

Where Next ???

Performance of selected US aviation market where LCC operates
M arket Traffic Growth & Changes in Average Fare Year 2001

T r af f ic Gr o wt h ( %) / C hang es in A ver ag e F ar e ( %) 350%

303% 300% 250% 200% 150% 100% 7 9 % 50% 2 %8 % 0% -50% -24%

Albany Boston

193% 139%

71% 38% 20% 8% -1% 32% -3% 1 61 % 0% 14% 0% 14% 12% -4%
Syracuse

-24%
Buffalo Newark

-21%
Long Island New York John F. Kennedy

-25%
La Guardia Manchester Philedephia Pittsburg

-27%
Providence

-14%
Rochester

Market Traffic Growth Change in avarage fare

Departing Airport

Where Next ???

Domestic Expansion Plan 1. Add Kuantan as a new destination (Operate twice a day)

2. Top Priority to major domestic town as there is huge imbalance between MAS & AirAsia e.g. Penang, K.Kinabalu, Kuching 3. Increase services Kota Bharu, Johor Bahru, Miri & Bintulu
4. Add service from our secondary hub to various destinations

Beginning 2005, will start to strategise to establish our third hub in East Malaysia (Kota Kinabalu)

Where Next ???

Regional Expansion
- Will stick to its niche and fly to destinations/cities within 3 hour flight range from Malaysia

Within 3.5 Hours Flying Are All Of S.E. Asias Major Markets

Where Next ???

Population of Major Market
- Malaysia 24.4 mil - Singapore 4.2 mil - Thailand 62.2 mil - Indonesia 217 mil - Vietnam 79.7 mil - Cambodia 12.3 mil - Laos 5.5 mil - Myanmar 49 mil - Brunei 0.4 mil - Philippines 80 mil

- Growth in air travel are closely associated with the countrys GDP.

Where Next ???

Passenger Movements
Passenger Movement to South East Asia at KLIA January - December
Passeng er M o vement 2,500 2,000 1,500 1,000 500 0 Singapore Bangkok Phuket M anila M edan Jakarta Denpasar Surabaya B. Seri Ho Chi Begawan M inh City Hanoi Phnom Penh ('0 0 0 )

2001 D est inat io n

2002

2003 (e)

Where Next ???

Regional Expansion
- The accessibility to SEA countries largely determined by existing bilateral agreements between two countries

- Fully backed by Malaysian Government

- Other countries highly elated over LCC prospect - Therefore;

Thailand
2004/05 Indonesia

Brunei
Vietnam

Philippines
Laos

2005/06
2006/07

Cambodia

Myanmar

Where Next ???

Regional Expansion Traffic right
Country
Brunei Indonesia

Routing
KUL BWN KUL-JKT vv KUL-DPS vv KUL-SUB vv KUL-MES vv MES-PEN vv KCH-PNK vv BKI-TRK vv KUL-BKI-MDC KUL-KCH-BPN vv BKI-BPN vv KUL-PDG vv KUL-JOG vv

MAS Present Operation

2x weekly 7x B734 14x A330 14x B734 11x B734 10x B734 7x B734 7x F50 3x F50 2x B734 2x B734 2x B734 3x B734 3x B734

Entitlement
10x weekly

Unutilized
8x weekly

200 units

123 units

108 units

92.5 units

Where Next ???

Regional Expansion Traffic right
Country Cambodia Lao PDR Myanmar Philippines Routing KUL-PNH vv KUL-VTE KU-RGN KUL-BKI-MNL-KUL KUL-BKI-MNL-KUL KUL-MNL-BKI-KUL KUL-MNL-BKI-KUL KUL-BKI-MNL vv KUL-MNL vv KUL-BKI CEB vv MAS Present Operation 9x B734 Nil 3x A330 1x A330 1x B734 1x A330 1x B734 1X B734 1x B734 2x B734 Entitlement 1400 seats 3x weekly 4x weekly Unutilized Nil 3x weekly 1x weekly

9x weekly 2x weekly

Nil Nil

Where Next ???

Regional Expansion
Country
Singapore

Routing
KUL-SIN vv

MAS Present Operation

28x A330 28x A332 7x B734 3x B734 7x B734 TTL: 73x 14x A330 7x B734 9x B734 5X B734

Entitlement

Unutilized

Airline Level Dicussion

SIN-LGK vv BKI-KCH-SIN vv
Thailand Vietnam KUL-BKK vv KUL-HKT vv KUL-SGN vv KUL-HAN vv

Liberal Policy subject to airline discussion 3150 seats Malaysia / Vietnam

Where Next ???

Phase Period Catchments Area Possible Destinations

Thailand Indonesia Wave 1 2004 2005 Vietnam Brunei Cambodia Wave 2 2005-2006

Bangkok, Phuket, Chieng Mai, Pattaya Jakarta, Padang, Palembang, Medan Surabaya,Bali, Bandung,Solo, Jogjakarta Ho Chi Minh Hanoi Bandar Seri Begawan Phnom Penh

Philippines Wave 3 2006 2007

Lao PDR Myanmar

Manila
Vientiane Yangon

Where Next ???

Regional Expansion Kick-start LCC operation into selected countries by partnering with a company in that country. Circumvent the much protective traffic rights whilst exploit the abundant local population Enter & Replicate the business model to China & India Kota Kinabalu-become launch pad of our expansion to Brunei, Indonesia & Philippines.

Where Next ???

Develop Kota Kinabalu into a hub

BIMP EAGA

Fleet & Frequency Plan

Fleet & Frequency Plan

Regional Expansion
By June 2004, acquired 21 aircraft. 3 for domestic Thailand (JV) End 2004, fleet size will leap to 30 with possibly 6 aircraft for domestic Thailand & 24 for domestic Malaysia & Regional AirAsia is able to operate this frequencies from Malaysia by these dates :June 2004 (18 aircraft) December 2004 (24 aircraft) 504 frequencies per week 672 frequencies per week

Fleet & Frequency Plan

Regional Expansion
AIRASIA FLEET AND FREQUENCY PLAN 2004 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252 A.ex Kuala Lumpur 1.0 Within Pen. Malaysia Langkawi Penang Alor Setar Kota Bharu Kuala Terengganu Kuantan Johor Bharu 2.0 To East Malaysia Kuching Sibu Miri Bintulu Kota Kinabalu Sandakan Tawau Labuan 14 21 14 14 14 0 14 21 42 21 21 14 14 21 28 49 21 21 21 21 21 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252

35 7 14 0 35 7 7 7

49 10 21 7 49 14 14 14

56 14 21 7 56 14 14 14

Fleet & Frequency Plan

Regional Expansion
AIRASIA FLEET AND FREQUENCY PLAN 2004 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252 A.ex Kuala Lumpur 3.0 To Regional points Bangkok Phuket Chieng Mai Pattaya Jakarta Surabaya Bali Medan Padang Jogjakarta Bandung Ho Chi Minh Hanoi Phnom Penh Manila Vientiaen Yangon Bandar Seri Begawan 0 7 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7 14 7 7 7 7 7 7 7 7 0 7 0 0 0 0 0 7 14 14 7 7 7 7 7 7 7 7 0 14 7 7 7 7 7 14 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252

Fleet & Frequency Plan

Regional Expansion
AIRASIA FLEET AND FREQUENCY PLAN 2004 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252 B.ex Johor Bahru 1.0 Within Pen. Malaysia Langkawi Penang Alor Setar Kota Bharu Kuala Terengganu Kuantan 2.0 To East Malaysia Kuching Sibu Miri Bintulu Kota Kinabalu Sandakan Tawau Labuan 7 14 0 0 0 0 14 0 7 0 7 0 0 0 14 14 7 7 7 0 21 0 7 0 14 0 0 0 21 21 14 14 14 0 21 0 14 0 21 0 0 0 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252

Fleet & Frequency Plan

AIRASIA FLEET AND FREQUENCY PLAN 2004 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252 A.ex Johor Bahru 3.0 To Regional points Bangkok Phuket Chieng Mai Pattaya Jakarta Surabaya Bali Medan Padang Jogjakarta Bandung Ho Chi Minh Hanoi Phnom Penh Manila Vientiaen Yangon Bandar Seri Begawan Total 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 259 7 7 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 528 14 14 0 7 0 0 0 0 0 0 0 0 0 0 0 0 0 0 700 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252 As at 01 Jan 04 9 B737 aircraft Estimated frequency per week = 252

Marketing Action Plan

Marketing Action Plan

Product

Promotion

4Ps
Price Place

Marketing Action Plan

One type aircraft - Single class Low Fare & No Frills

Product

Brand Extension Go Holidays 1. DIY 2. THEME PACKAGES

Ticketless & Minimum Service

Marketing Action Plan

Mass Media

Travel Agents

ICT

Promotion
Sponsorship in local event

Collaboration with Artistes

Promotion Events - Public Area

Marketing Action Plan

40% Thru Internet -Internet penetration rate is increasing for developing country

Call Center

Place / Distribution
Travel Agency

Airport Station

Sales Office

60% Thru Conventional Counter Bookroom e.g. Thailand, Indonesia and etc

Marketing Action Plan

Innovative Cost (Optimizing Techniques) -Quick turnaround times -Max flight utilization -One type of Aircraft -Single Class Inventory & Revenue System -Continually reviews booking for all future flight

Price
(Low Cost)

Lower Price Go Holiday Package

-Ticketless -No Frills -No frequent flyer program

Financial Planning

Financial Planning
Year 2004
To float 25% of AirAsia shares. To raise RM600 to RM1 billion Use of fund - Purchase aircraft (aimed 30 aircrafts by late 2004) - Joint Venture with Singapore, Indonesia and India ( possibly China) To issue bond to raise RM150 million - Buy 4 used aircraft ( Boeing 737-300) - Working capital

Conclusion

Conclusion
Prove LCC generate multiplier effect to government, airport and traveling public who enjoy the economic benefit of LCC Regional Expansion - Access to traffic rights - Effective aircraft deployment - Funding

No stopping for AirAsia, as low price drives volume => PROFIT

Thank You