AirAsia’s business model under strain
BY KATHY CHU, GAURAV RAGHUVANSHI AND MEGUMI FUJIKAWA
WHEN Malaysian entrepreneur Tony Fernandes bought the struggling AirAsia in 2001, his goal was to build a budget airline group that could take advantage of the explosive travel growth he saw coming in the region.
To do that, Mr Fernandes made AirAsia into the McDonald’s of the aviation industry, bridging Asia’s checkerboard of sovereign states and aviation rules by rolling out franchise-like joint ventures under the AirAsia brand, in countries from Thailand and the Philippines to India.
In about a decade, that model turned AirAsia into a group encompassing nine carriers, of which the three listed companies had $2.3bn in revenue in 2013. While the number of annual airline seats in the Asia-Pacific region has doubled to 1.7-billion during the past decade, the number of seats available on budget airlines increased tenfold to 400-million, according to the Centre for Asia-Pacific Aviation (Capa).
But as the AirAsia group grapples with its biggest crisis yet — the aftermath of the December crash of a plane operated by its Indonesian affiliate — that franchise model and the growth on which it was premised could be under strain.
AirAsia’s once heady traffic growth is slowing as competition increases, causing profit to shrink at AirAsia’s Malaysian flagship company. AirAsia Thailand has become unprofitable [more …]