Experts say that AirAsia’s unique selling proposition (USP) is its low fares and the airline can afford to offer those round-the-year because its unit costs are among the lowest. The airline earns 18 per cent of all revenue from ancillary sources.
Replicating the business model in India will be a challenge because of a high-cost structure and taxes.
AirAsia’s unit costs are significantly lower than Indian carriers on low-cost terminals, lower distribution costs, single aircraft type operation, higher aircraft utilisation, etc.
Unit costs or cost per available seat kilometre (CASK) refers to expenses on flying a seat (filled or empty) over a kilometre. A JP Morgan report shows AirAsia’s Cask as very low. One of the reasons for low operating costs is that fuel is not taxed in Malaysia. So, how does the airline keep its cost under control? About 85 per cent of AirAsia tickets are sold through its website, limiting agents’ commission.
In India, 70-80 per cent of tickets are sold through offline agents and portals. In Kuala Lumpur and Bangkok, AirAsia flies to low-cost terminals (there are none in India).
Benyamin Ismail, who handles the investor relations in AirAsia sayd that they get a rebate in landing and parking charges at Bangkok. Other aspects of cost optimisation include higher aircraft utilisation (12-14 hours a day), lower turn around time (25-30 minutes), use of dedicated kiosks for passenger check-in, and reducing the manpower requirement.
Another aspect where AirAsia differs from airlines in India is its stress on ancillary revenue. It sells tickets at rock bottom prices, but charges for virtually all services – onboard meals, entertainment, preferred seats, pillows, baggage and so on. Full service airlines give a preferential treatment to their executive class passengers, whereas AirAsia does the same at a charge.
Known as AirAsia Red Carpet, it offers passengers special check-in counters, priority baggage delivery and use of lounge for a fee. In 2011, 18 per cent of AirAsia’s revenue came from ancillary sources. (In Jet Airways the share is about five-seven per cent).
AirAsia believes in the no-frills, hassle-free, low-fare business concept and feels that keeping costs low requires high efficiency in every part of the business. Efficiency creates savings which are then passed on to guests. AirAsia’s service targets guests who will do without the frills of meals, frequent flyer miles or airport lounges in exchange for fares up to 80 per cent lower than those currently offered with equivalent convenience.
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