AirAsia: An Analysis of Cost Structure, Revenue Stream, and Channels

This report provides a comprehensive analysis of AirAsia's business operations, focusing on its cost structure, revenue streams, and distribution channels. It begins with an executive summary and an introduction to AirAsia, highlighting its position as a leading low-cost carrier. The report then delves into AirAsia's cost structure, emphasizing its commitment to low fares and cost efficiency, including the lowest cost per available seat kilometer (CASK) in the world and strategies to reduce costs through automation and route rationalization. The analysis extends to AirAsia's revenue streams, exploring the sources of income beyond ticket sales, such as ancillary services like baggage fees, in-flight meals, and duty-free products, which significantly contribute to its overall revenue. Finally, the report examines AirAsia's distribution channels, including its lean distribution model, online sales, and partnerships with global distribution systems like Galileo International, to enhance accessibility and expand market reach. The report concludes by summarizing AirAsia's global market presence and its strategic focus on increasing its reach through various innovative methods.

[ENTREPRENEURSHIP & INNOVATION DIVERSITY]
2019

Executive Summary
For a company to remain at the top of the business, it is necessary for it to implement innovative
ideas and creativity on a regular basis for staying ahead of the competitors. AirAsia has been
performing business operations in airlines for about 25 years. Their cost structure has always
been consumer friendly and that in turn has helped the company earn good revenues in their
business. Sticking to the low fare structure principle AirAsia has chosen distribution channels
which further facilitate their business. The essay aims at exploring the management of AirAsia
from the point of view of the aspects of cost structure, revenue stream and the channels they
perform business through.

Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Cost Structure..............................................................................................................................................4
Revenue Stream...........................................................................................................................................5
Channels......................................................................................................................................................6
Conclusion...................................................................................................................................................7
Reference.....................................................................................................................................................8

Introduction
AirAsia is a low–cost Malaysian airline company whose headquarters is situated in Kuala
Lumpur. It is Malaysia’s largest airline by destination and fleet size. AirAsia Group operates on
scheduled international and domestic flights over 25 countries and more than 165 destinations.
AirAsia was established on December 20, 1993. The AirAsia group started its journey from 18
November 1996. The slogan of the company is ' now everyone can fly'. The key people
associated with the company are Tony Fernandez, co-founder, and CEO of AirAsia, Riad Asmat,
CEO, Datuk Kamarudinbin Meranun. More than 17,000 people are working for this company at
the moment. AirAsia operates on a cost of US$0.023 per seat available per kilometer which is
the lowest unit cost on the world. The requirements of its fuel for the next three years have been
hedged 100%. It has achieved a turnaround for air time of 30 minutes. The productivity of the
crew is better than that of the Malaysian airlines. The average rate of utilization of an aircraft per
day of AirAsia is 60 hours (Bailey, 2018).
Cost Structure
It was declared as a 'pioneer' of low-cost travel in Asia by the New York Times in the year of
2007. Klia2 is the main hub of AirAsia, the Kuala Lumpur International Airport (KLIA) that is
the low-cost carrier terminal situated in Sepang, Selangor, Malaysia. The airlines that are
affiliated with AirAsia are Thai AirAsia, Philippines AirAsia, Indonesia AirAsia, AirAsia India.
AirAsia has hubs in Ninoy Aquino International Airport, Kempegowda International Airport,
Don Mueang International Airport, Soekarno- Hatta International Airport. AirAsia has been
consistently for 10 years been named as the world’s best low-cost carrier in a row in international
travel and airline awards including in the year of 2018.
Being a low-cost airline it has maintained a cost structure that is lean for its customers. The
company has registered as the lowest cost seat available per kilometer (CASK). Therefore it is

the most cost efficient company among all its peers. Due to its low cost, it has become a success
in South Asia. The group has been able to keep its CASK within the RM0.12 to RM0.14 range.
With this range, it has been able to maintain strong competition among its peers. Moreover,
through different cost reduction processes, AirAsia aims to lower its CASK by another margin of
5-6 %. Experts suggest that this will be done by low marketing spending, closing of regional
offices, using more automation as well as route rationalization. It is also noticed that AirAsia
aims to increase its ancillary income to stay in the race of fair competition with other airlines.
RM50 per pax is targeted as the ancillary income of the group. This can be done by higher take-
up of the products such as the meals provided in the flights, baggage and moreover by the
introduction of new products (Shuk-Ching Poon, 2010). For example, the introduction of new
products may include the introduction of Wi-Fi in the flights, Forex cards as well as duty-free
products. The ancillary products of per person are estimated to be RM45 to RM48. If the group
is successful in meeting this target, then there will be a potential profit. Moreover, growth in the
number of passengers flying is estimated to increase in the coming years. This is expected at a
high rate because AirAsia had growth in passenger compound rate by 13.2%. Experts have also
shared that one of the biggest upper hands that AirAsia has is it has 60% domestic travel share
and 40% is based on the international travel share. AirAsia invests into cockpit training of the
staffs and has its focus fixed on utilizing resources which are more productive than others. The
online sales of AirAsia are always at a higher percentage (Jiang, 2013).
Revenue Stream
The source of revenue of an organization or company is known as a revenue stream. There are
majorly four kinds of revenue, namely recurring revenue, project revenue, service revenue or
transactions based revenue. However, the term, revenue stream in government generally refers to
the collection of different kinds of taxes. Ancillary services for any Airways include check-in
baggage, seat selection, cancellation, in-flight foods, and services. Generally, the prices of tickets
for AirAsia are lesser than other airlines but they generated 1.14 billion Indian rupees in one
financial year. This huge amount of money accounted for 18% of LCC’s total revenue collection.

According to AirAsia, Airlines check-in baggage is arguably the highest earners of ancillary
revenues for all low-cost airlines.
The customers of the airline often fail to carry luggage according to the restrictions in weight.
Hence, they often exceed the maximum limit on the baggage set by the airline. Hence, the excess
baggage is a huge contribution to the revenue generated by ancillary services. Also, they work on
the simple formula of keeping their prices low which increases the customers to a huge extent.
And, increasing customers leads to finally increasing revenues. The revenue of AirAsia Airlines
is also given a huge boost by low fuel prices. It is a major driver of profitability. The airline also
makes huge money from the duty-free as well as foreign exchange. Hence, they are vigorously
working in that sector to generate even more revenue. Ancillary services provide a huge boost to
the annual revenue of the airline although sometimes it may prove to be uncertain. Though, the
generation of revenue through these services may not be certain or continuous. Hence, the
officials are on their toes to make sure their customers get what they want (Ahmad, 2010).
Channels
The network which is used to acquire a product from the creator or manufacturer and deliver or
hand it over to the user is known as the distribution channel. Place, ownership utility and time
are provided by the distribution channel. They make the product available whenever it is needed,
wherever it is demanded and as per the required quantity. The key element of the marketing
strategy is the distribution channel. They are the boost which is very important for the global
reach of the airline and increasing the revenue. The above-mentioned points are the reasons
which make distribution channel absolutely necessary for any business, company or
organization.
The AirAsia Airlines have a fairly lean distribution channel which provides them the scope of
presenting to the customers a plethora of wide and innovative ideas for the distribution channels
to make it easier for them to book tickets and travel with the airline. Low fare airlines AirAsia
have recently expanded its reach and distribution network by collaborating with Galileo

International which allows it to have low fares and the inventory can be available on the Galileo
GDS platform. This is highly beneficial for low-cost airline as they do not need another platform
to launch their online booking portal and thus adding to the revenue. This is a very strategic
move taken by the airline which allows it to be more accessible than earlier. This move also
helps to expand the airline’s sales potential to the market which was earlier not responded. Also,
an integral part of the airline business is served by the travel agents. This partnership with the
company, Galileo International allows AirAsia Airlines to enhance awareness about the brand of
Galileo International globally while positioning AirAsia as the key player in the global market
(Yashodha, 2012).
Conclusion
AirAsia is the main sponsor of Singapore national football team, Malaysia national football
team, Queens Park, and Jamshedpur FC. Previously it was also the sponsor of Manchester
United and Asia red tour. It is a low-cost airline which is based in Malaysia but runs in the
market globally. It operates through 25 countries and runs through 165 destinations. As they are
low-cost airlines, they keep their prices low to increase the number of customers. As they run on
the policy that a larger group of customers produce larger revenues. The airlines also generate
huge revenue through ancillary services. This is how AirAsia runs on a global market and aspires
to increase its reach.

Reference
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