Anyone out there who doesn’t know about AirAsia? I will be surprised!! If you are a traveler continuously updating yourself with packages offered by various different travel agencies, than all such travel enthusiasts at least for once visited AirAsia website and checked out there offers. And once checked, the entire community started looking for international credit cards just to grab one ticket to Malaysia and why not, when a 370 USD air fare is discounted to 123 USD, even those who never thought of travelling to Malaysia will jump for a move.Now the big Q, by offering such a low rate, how does AirAsia manage their business? Here are few strategies worth pondering.
1. AirAsia sold tickets for entire one year within 2 weeks.
2. They will earn interest. A ticket sold in February scheduled for November, earns them interest for 9 months. This is additional buck to the pockets.
3. Not only air tickets, they also had cheap hotels to offer. So not only a buyer bought the air tickets, also booked hotels through AirAsia.
4. To add more, you also had cheap offers to other regions. So now a buyer bought air tickets not only for Kuala Lumpur (KL), but from KL to Langkawi.
5. And guess what, who wants to travel alone. So a buyer influenced his/her friends to tag in along as well. So one interested person ended up influencing few more.
6. Did you notice that rates where higher especially on weekends. So AirAsia had a slot, different rates on different days as per demand. Maybe a buyer hoped he/she will be able to buy return tickets for 123 USD, but on his/her chosen day, the total price was 170 USD. Still, why miss the chance just for 3,500 Taka only, the offer still is very cheap. So many such buyers paid little more than the cheapest offer.
7. Other additional services also had a price, like choosing your seat, price for luggage, and bus tickets to the City Central. All these ads up another 20-30 USD.
So just one buyer seeing one discounted offer ended up providing the followings to AirAsia:-
1. Buying return Tickets to KL, either at the cheapest rate or higher.
2. Buying return tickets from KL to other regions (Langkawi).
3. Booking and paying for hotels.
4. Buying additional services
5. And most importantly, influenced others to buy and thus acting as a sales person.
Now the reality, exactly how many people who bought a ticket in February scheduled to travel in November will actually be able to make it? There is a very high chance that many will not make it, and sad but true, if you want to re-schedule your flight, than you almost end up paying a fee equal to your original ticket price. So a customer who misses his flight either ends up paying another 150+ USD to reschedule the flight, or misses the flight completely, no refund by the way. Many such buyers will actually not make it which in return reduces Air weight saving AirAsia’s fuel cost and leaving paid hotel rooms empty which can be resold.
So all in all, many sources of income for AirAsia which makes up for their reduced ticket price. If you are a Bangladeshi businessman having big dreams, why not learn the all round the year discount concept, you not only generate entire one year sales in a week time, you also make your buyers sale for you. In current recession period, discount stores are bound to hit big in the market. Just go grab it.
Mahboob Hossain
Mahboob Hossain is working in World’s number one Market research company and is actively involved in writing, teaching and business counseling.
11 comments:
Wish we get this message earlier. Thanks a lot.
Good job Mr. Mahbub. Well thought article.
The write up has rightly highlighted a few key points of Air Asia business model- multiple sources of revenues through ancillaries selling, multiple channels of sales . But at the same time, it seems to be over generalizing/simplifying a few things. For example, the article says that AirAsia will earn interest for 9 months as they sold November tickets in February. I wish the world could be so simple. Hardly any business keeps its extra cash in the banks to earn interest. This is a stupid business concept. In 99% cases if management hoards the extra cash in Bank without any plan for investment in new project, either the company will become a target for hostile take over by vulture investors/corporate raiders or there will be a proxy war to replace the company management. I strongly believe that AirAsia will most likely utilize the extra money to finance its need for cash as debt (bank loans) is very costly and hard to get these days.
Any business must know how to manage its end to end activities efficiently. If they can’t do so, just discounting won’t bring any success. AirAsia or any low cost AirLines’ business model revolves around some basic principles flying one type of plane ( this would keep spares/maintenance cost low-volume effect ) , spreading the cost/reaping economies of scale by utilizing aircrafts to the maximum possible limit, drive down cost each year by hard negotiations with suppliers( fuel, insurers), only sell seats, no lounges nothing, minimum ground handling etc. In addition to these many other value-adding activities are involved as mentioned in the original article. It sounds simple but very tough to do in a coordinated manner. This is why traditional Airlines such as British Airlines or Malaysian Airlines tried to emulate low cost airlines but miserably failed.
So, going for discounting could not be a good idea if that particular business must need to understand how the discounting fit it with its core business model. This is very easy to say but very difficult to do.
The offer given by Air Asia has somewhat created opportunities for many people who are very frequent travellers to Malaysia; It has also brought a wider scope for revenue earnings for Malaysia through mass tourism and infrastcuctural development.
I would agree that with our esteemed friend regarding the business concept undertaken by the airlines. To promote the airlines to the public, I would suggest that this marketing strategy is not so feasible even if the question of revenue comes into question.
There are better way forwards to such a campaign and I would suggest that they should look for better prospects in the future if they consider to survive in the market.
The offer given by Air Asia has somewhat created opportunities for many people who are very frequent travellers to Malaysia; It has also brought a wider scope for revenue earnings for Malaysia through mass tourism and infrastcuctural development.
I would agree that with our esteemed friend regarding the business concept undertaken by the airlines. To promote the airlines to the public, I would suggest that this marketing strategy is not so feasible even if the question of revenue comes into question.
There are better way forwards to such a campaign and I would suggest that they should look for better prospects in the future if they consider to survive in the market.
I agree with you very much. This kind of promotion activity could result in cash bleeding, thus self destructive unless and otherwise business is having other strong sources of cash flow which is the case for AirAsia. Copying an isolated business idea from one sector, a busines from any other sector can achieve its big dreams in "LA LA Land" not in real business world. I wish the write up could be with more thoughtful analysis of facts rather than just coming up with plain or rather ridiculous thinking that extra revenue will be utilized for earning bank interests or something like that, GOD SAVE US.
If Air Asia considers this campaign to be like any other telecom promotional activities, they are well out of their league..
I would suggest that they should wake up and look into the real world for once.
I agree with you that copying never helps with any sort of promotional activities.. it turns out to be a total 'DISASTER'..
Effortless shot. It is a great way of marketing. You have done a very good job with it, nice post. Keep it up!!!!!
Air asia has a good service record.
Thanks
I appreciate the labor you have put in developing this blog. Nice and informative.
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