Recommendations for Air Asia With the Perspective of Different Cost AnalysisJacob
Based on the short distance operation strategy, the airline Air Asia in Southeast Asia offers profitable flight solutions for travelers. To formulate this cost effective strategy, Air Asia first determines different costs such as capital, fixed, variable, maintenance, labor, fuel, facilities, inventory, environment and technology to establish a new point-to-point airline service. To investigate different types of costs, Air Asia first identifies the potential market in Southeast Asia through a strong commitment at all service levels; for example in safety, security, customer service and benefits. Air Asia also established its strategy by creating strategic alliances with other airlines. This low-cost strategy of Air Asia airline also proved to be a formidable puzzle of interest, as different proportions of constantly changing variables affect policy formulation, market segmentation, inventory control, performance system, etc. . Basically, the implementation of said strategy was complex in nature, for example, providing direct services between two destinations increases the LOS route (service level) but, on the contrary, if the airline is not filled with enough passengers, the airline will surely incur in big losses. .
2 Analysis of different costs of Air Asia:
2.1 Cost of capital:
For Air Asia, the cost of capital is associated with the initial configuration of the project, which generally occurs at the beginning of the project, as well as the investment or purchase of aircraft, cargo, aircraft, land, buildings, construction, alternative routes, facilities of high speed trains (HST) for different route and so on. Recently, Air Asia is going to expand its air cargo market, which again requires a large capital investment. However, the capital investments of the airlines are very intense and most of the potential project failed due to limited funds. For example, MAXjet airways, EOS and SilverJet failed in the initial stage of capital investment only due to lack of funds and competitive business models (Wensveen, Leick, 2009). Therefore, Air Asia must understand this problem for successful businesses to require a sufficient amount of capital investment in the initial phase.
2.2 Fixed cost:
Here, Air Asia pricing should be determined based on capacity, seats, and utilities to minimize the total cost. In addition, the fixed cost also consists of ticketing operation, ground facilities, airport counter facilities, early booking and shipping of aircraft from the fleet, which can be extended to more passengers as the traffic density.
2.3 Variable cost:
These costs are determined based on the costs of operation, maintenance, labor, fuel, installation, inventory, environment and technology.
3 Operating cost:
The effects of operating cost are not quantified since the scope of the system varies according to the point-to-point service. Here the basic operating costs are administration, ticketing, sales and promotion, passenger service, airport maintenance en route, and landing costs. These operating costs have determined the level of various operations on the airline, including air service, such as cargo operation, employees.
3.1 Flight operation cost: Generally associated with aircraft, fleet, flight operation, as well as the cost related to equipment repair and depreciation and amortization.
3.2 Ground operating costs: this cost incurred for the management of the airport station, landing fees, charges, cargo processing, passenger luggage, travel agency cost, retail box office, distribution, commission, reservation, ticket and sales , etc.
3.3 System operating cost: This cost includes the cost of the passenger service (that is, food, entertainment, flight attendants and service related to the flight, and the cost related to transportation (that is, regional partner airlines that provide regional air service, additional baggage charges and miscellaneous general expenses).
4 Maintenance cost:
The next stage is the maintenance cost that is related to engine maintenance and component maintenance cost. In 2009, the engine maintenance cost ratio was 43 percent, where component maintenance cost was 20 percent and line maintenance was 17 percent. The maintenance cost also increases due to the direct cost of operation as for the daily operation of air flight. Therefore, the cost of maintenance is crucial for our Air Asia because this general cost does not depend, although it varies according to the number of times due to service requirements, demand or other factors. For example, any engine or component failure hampers airline services for on-time flights or even any interruption increases additional charges and minimizes the level of services that will eventually scare off passengers.
5 Labor cost:
For Air Asia, the cost of labor is an important factor as it is related to the salary, benefits, pay rate for cabin crew, pilot, products and other employees. However, the cost of labor also includes aircraft services, cleaning, passenger handling, and catering. For example, providing services to customers likes catering, cleaning or even in-flight emergency service requires product services. For these additional services, employers expect to receive additional incentives.
6 Fuel cost:
Constant fluctuations in fuel prices also have a major impact on airline service in terms of competition in point-to-point service. This has made it evident that approximately 20 percent of overall operating costs are incurred on fuel, and due to price sensitivity, flexibility, and responsiveness, the price of fuel has a negative effect on the price of fuel. ticket.
7 Installation cost:
Here, all kinds of aircraft, electricity, water, availability of spare equipment, machines, tools, ground maintenance filtering, pipeline and route maintenance costs are related to the cost of facilities.
8 Environmental cost:
The airline industry generally remains under pressure to lessen the negative impact on global warming and noise pollution. Increasing awareness of environmental issues is becoming a major challenge today to introduce new technologies, aircraft, and new flights. For example, Singapore airlines tried to keep their fleet as modern as possible. The new A380 is a cleaner and greener aircraft compared to the Boeing 747 per seat, but the introduction of this new service was really expensive.
The only solution is to become greener and greener is to adapt technology that does not pollute the air and does not increase global warming. For example, green gas could be an alternative solution to mitigate this problem and reduce costs. At Air Asia, it is very important to forecast future environmental threats to stay on the market. This cost is difficult to eliminate, but since Air Asia is based in Southeast Asia; The rules and regulations are considerably favorable to stay on the market. On the other hand, it is necessary to forecast the estimated cost of the environmental tax.
9 Technological costs:
Poor technology like the traditional system, i.e. manual ticketing, verification system, decrease the significant amount of service level. Although the costs are different, but to reduce a substantial amount of costs, for example, online reservations, online assistance and online information could be minimized with the 24/7 online helpline. For security, you can use RFID technology or 2D reader, barcode and electronic service.
In summary, cost is always an important factor in all aspects, such as marketing, operations, security, technology, maintenance and environment for Air Asia. Although the cost is flexible and complex in nature, Air Asia could easily change its cost due to differentiating its market and taking advantage of the existing alliance. Here, Air Asia airline needs to identify the proportion of the cost to invest in the right sector for a long period of time. As, the company already offers 20 percent lower flight than competitors; therefore, costs need to be controlled with proper budgeting, planning, and scheduling. In this case, Air Asia can also learn from the airlines Jet Asia and Singapore, how these successful companies operate their profitable businesses to stay in the market.