Started-up right after the 911 terrorist incident in the US, AirAsia was able to benefit from the reduced cost structure from leasing cost to operating cost. The company focus on the low budget airline model which was pioneered by JetBlue and Southwest in the US, Ryanair and Easyjet in Europe. Similarly, AirAsia mainly earned its revenue from the market segment of customers visiting friends and relatives (VFR) and small business travellers. AirAsia’s low cost business model along with the right timing had paid off by ascending the airline to be able to expand its operating significantly.
By the year 2010, AirAsia showed the record of over 70 aircraft in operation compared to only two when the company started up. In addition, AirAsia also aimed to expand its operation internationally through various joint venture in Thailand and Indonesia, long-haul expansion to Australia, Paris and the US, etc. In order to ensure its financial capacity, the airline made its IPO in 2004 which resulted in impressive financial performance afterwards: revenue increased 52% from 2006 to 2007, EBIT grew 223% and net profit grew 147%.Profit did struggle and drop from 2007 to 2008 but quickly recovered and grew 591% from 2008 to 2009. AirAsia has the advantage that there are almost no interregional highways and railways, which means airline is the best mean to travel around Asia. However, with the rapid growing competition from other budget carriers from Thailand, Singapore, Hong Kong and even joint ventures from other regions, AirAsia profit growth might experience some difficulties.
Moreover, the airline also has to confront the risk of rising fuel cost, which can significantly damage the low cost low budget carrier business model. Why is the business model highly dependent on excellent Managerial Accounting information? AirAsia business model is based on the principle of no-frill low budget airline. Its target is to decrease its input costs by for example, reduce as much as value added services like in-flight meals or entertainments or aircraft operating cost as possible.Having to face the risk of stiff competition from other low budget carriers as well as the threat of rising cost of fuel, AirAsia needs more than just cutting cost, but also raising profits to attract investors.
In addition, “funding aircraft acquisitions with equity and affordable debt will be much more difficult in the near future, only those airlines that have exhibited an ability to wisely increase capacity will be able to grown their operation” . Top KPI to monitor and manage AA’s business: Revenue, Net Profits, Operating Cost (very important for a budget airline), Cost per available-seat-kilometer (ASK)
