Journal Accounting

This company case features AirAsia’s phenomenal debts-to-profits transformation after being “rescued” from the financial doldrums by Tony Fernandes’ bold idea of using a low-cost, no-frills strategy. Under his guidance, AirAsia switched from being a firm with $11 million debt to one with $8 million profits in the same year that it was launched, becoming a rare budget airline operating in the Asian region that will hopefully see more success than previous ventures like Cebu Pacific. AirAsia hopes that by using such a low-fare, no-frills approach, air travel is made so affordable that “now everyone can fly.” In particular, the pricing structures for AirAsia, together with Valuair (another budget airline, started by a former SIA pioneer), are described. With the addition of more low-fare airlines like Tiger Airlines in the Asian region following the success of AirAsia, it will be interesting to watch how the budget airline industry evolves in the next few years: Who will survive the challenges in the price competitive industry, and who will be the first to leave? Synopsis

This company case features AirAsia’s phenomenal debts-to-profits transformation after being “rescued” from the financial doldrums by Tony Fernandes’ bold idea of using a low-cost, no-frills strategy. Under his guidance, AirAsia switched from being a firm with $11 million debt to one with $8 million profits in the same year that it was launched, becoming a rare budget airline operating in the Asian region that will hopefully see more success than previous ventures like Cebu Pacific. AirAsia hopes that by using such a low-fare, no-frills approach, air travel is made so affordable that “now everyone can fly.” In particular, the pricing structures for AirAsia, together with Valuair (another budget airline, started by a former SIA pioneer), are described. With the addition of more low-fare airlines like Tiger Airlines in the Asian region following the success of AirAsia, it will be interesting to watch how the budget airline industry evolves in the next few years: Who will survive the challenges in the price competitive industry, and who will be the first to leave?

Teaching Objectives

This case’s teaching objectives are to:

1. Allow students to understand the pricing dynamics of the budget airline industry in Asia.

2. Allow students to evaluate the pricing strategy used by AirAsia to gain a share of the Asian travel market.

3. Allow students to consider issues related to initiating and responding to price changes.

4. Allow students to develop recommendations for Air Asia.

Discussion Questions

1. Describe and assess the internal