Air Asia did not target the traditional customers of Airlines and did not compete with the strong local player Malaysian Airlines but it focused on the multiethnic population of Malaysia that included Chinese, Indian, Indonesian, Thai, etc. who never traveled or cannot afford the airline fare.

1. Analysis & Outlook
Blue Ocean Strategy – Air Asia Innovation & Blue Ocean strategy targeted non customers
Air Asia did not target the traditional customers of Airlines and did not compete with the strong
local player Malaysian Airlines but it focused on the multiethnic population of Malaysia that
included Chinese, Indian, Indonesian, Thai, etc. who never travelled or cannot afford the airline
fare. Basically traditional airlines never focused on these set of customers, Air Asia founder
Tony Fernandes saw a potentially untapped and uncontested market space in this category in
South East Asia. There were Southwest Airlines in United States and Ryan Air in Europe that
operated on similar low cost model that were hugely successful. Tony Fernandes took over a
struggling airline and turned it into a highly profitable brand. The customer segment that Air
Asia targeted was first time flyers, middle class flyers, students, laborers going home for
vacation and other highly price sensitive customers. Air Asia created a value innovation
propositions to the customers by focusing on factors that are of great value to the customers such
as point-to-point travel system, easy booking system, no frills, destinations where traditional
airlines did not fly, etc. which ultimately aided Air Asia to reduce cost and increase the value to
the customers. Air Asia is no frills airline that follows a quick turnaround model and offers low
fares to customers. Air Asia grew at a fast pace with good profitability and ventured into other
businesses like hotels, etc. Branding is also key to Air Asia’s success – along with its low cost
operations.
Air Asia operated to destinations like Bandung, Angkor Wat, Chiang Mai and other small city
destinations where no other airlines flew and it not only transported tourists, first time flyers but
also the laborers who go home for vacation for whom time is a very critical factor. Most of the
Air Asia customers do not need luxury airport lounges or seats in airplanes, food or attendant
services as these flights are short haul most of them for only one hour. By eliminating all these
services and through highly efficient online ticket booking system without any agent’s
involvement Air Asia is able to offer low fares and more frequent flights to high demand
locations lead to huge profitability to the company. The frequency of the flights is achieved by
short turnaround time. The Air Asia group's philosophy is to make sure the route is profitable
within 12 months. If it's not, it will not operate the route. Every subsidiary airline within Air Asia
group tailors its operations according to its own individual needs unlike a traditional network
carrier. In an interview to INSEAD Knowledge, Tony Fernandes said “What does the market
want? Nine times out of 10, when you go for what the market wants, it’s something that’s
different. That’s why invariably everything we’ve done is kind of Blue Ocean, except for Air
Asia X (Air Asia’s new long-haul operations) which is completely Blue Ocean. But we weren’t
the first to invent low-cost travel, we weren’t the first to invent a low-cost hotel. We’ve taken it
to another level, but we’ve been a bit Japanese in taking it, and adapting it, and making it better
for our part of the world.” This comment shows that attitude of Tony Fernandes who believes
that businesses need to constantly innovate and try to create blue oceans that not only bring value
to customers but also profitable to the companies. Air Asia has rewritten the boundaries of
aviation industry in the South & South East Asia by creating a new user segment in the industry.
Rajesh Prabhakar Analyst Bio @ http://analysiscasestudy.blogspot.com/