Recommendations for Air Asia from the perspective of a different cost analysis
1. Introduction:
Based on the strategy of short-haul operations, Air Asia airline in Southeast Asia offers cost-effective 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 cost 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 to all levels of services; for example, in safety, security, customer service and benefits. Air Asia also established its strategy by building strategic alliances with other airlines. This low-cost strategy of the airline Air Asia also proved to be a puzzle of formidable interest, as a different proportion of constantly changing variables affect policy making, market segmentation, inventory control, performance system, etc. . Basically, implementing such a strategy was indeed complex in nature, for example providing direct services between two destinations increased route LOS (service level), but on the contrary, if the airline does not fill with enough passengers, the airline will surely incur at huge losses. .
2 Different cost analysis 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 in the same way, the investment or purchase of aircraft, cargo, aircraft, land, buildings, construction, alternative route, facilities of the high speed train (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 airlines’ capital investments are very intensive and most of the potential project failed due to limited funds. For example, MAXjet airways, EOS, and SilverJet failed in the early stage of capital investment only due to lack of funding 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, the Air Asia price should be determined based on capacity, seats and utilities to minimize the total cost. In addition, the fixed cost also consists of the ticketing operation, ground facilities, airport counter facilities, advance booking and dispatch of fleet aircraft, which can be distributed among more passengers as the number of passengers increases. traffic density.
2.3 Variable cost:
These costs are determined based on operating, maintenance, labor, fuel, facilities, inventory, environmental, and technology costs.
3 Operating cost:
The effects of operating cost are not quantified as the scope of the system varies from point to point. Here the basic operating costs are administration, ticketing, sales and promotion, passenger service, en-route airport maintenance, and landing cost. These operating costs have been determined at the level of various operations in the airline, including air service, such as cargo operation, employees.
3.1 Flight operating cost: generally associated with the aircraft, the fleet, the flight operation, as well as the cost related to equipment repair and depreciation and amortization.
3.2 Land operating costs: this cost incurred for airport station management, landing fees, charges, cargo processing, passenger baggage, travel agency cost, retail ticket office, distribution, commission, reservation, ticket and sales, etc.
3.3 System operating cost: This cost includes the cost of passenger service (i.e. food, entertainment, flight attendant and in-flight service and costs related to transportation (i.e. regional partner airlines providing regional air service, expenses additional baggage and miscellaneous overheads).
4 Maintenance cost:
The next stage is the maintenance cost which is related to the maintenance of the engine and the maintenance cost of the components. In 2009, the engine maintenance cost ratio was 43 percent, while component maintenance cost was 20 percent and line maintenance was 17 percent. The maintenance cost also increases due to the direct operating cost as for the daily operation of air flights. Therefore, the maintenance cost is crucial for our Air Asia because this overall cost does not depend, although it varies depending on the number of times due to service requirements, demand or other factors. For example, any engine or component breakdown hinders the airline’s services for the flight on time or even any disruption increases additional charges and minimizes the level of services that eventually scare the passenger away.
5 Labor cost:
For Air Asia, the cost of labor is an important factor, as it is related to salary, benefits, rate of pay for cabin crew, pilot, animals and other employees. However, the cost of labor also includes aircraft services, passenger cleaning and handling, and catering. For example, providing a service to customers such as catering, cleaning or even emergency service during the flight requires services of food products. For these additional services, employers expect to receive additional incentives.
6 Fuel cost:
The constant fluctuations in the price of fuel also have a great impact on the service of the airlines in terms of competition in the point-to-point service. This has been evident that approximately 20 percent of overall operating costs are generated from fuel and, due to price sensitivity, flexibility and speed of response, the price of fuel has a negative effect on the price of fuel. ticket.
7 Cost of installation:
Here all types of aircraft, electricity, water, availability of spare equipment, machines, tools, ground maintenance filtering, pipeline and route maintenance costs are related to the cost of the facilities.
8 Environmental cost:
The airline industry is often always under pressure to reduce the negative impact on global warming and noise pollution. The growing awareness of environmental problems is becoming a great challenge today to introduce new technology, airplanes and new air 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 sustain in 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 hold in the market. On the other hand, it is necessary to forecast the estimate of the cost of the environmental tax.
9 Technology costs:
Bad technology, such as the traditional system, that is, manual ticketing, verification system, lowers a 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 can be minimized by a 24/7 online helpline weekdays. For security, RFID technology or 2D reader, barcode, e-service can be used.
10 Conclusions:
In summary, cost is always an important factor in all aspects such as marketing, operational, safety, technology, maintenance, environmental for Air Asia. Although the cost is flexible and complex in nature, Air Asia could easily change its cost to differentiate its market and take advantage of the existing alliance. Here, Air Asia airline needs to identify the cost ratio to invest in the correct sector over a long period of time. As, the company already offers 20 percent lower flights than its competitors; therefore, you need to control costs with proper budgeting, planning, and scheduling. In this case, Air Asia can also learn from Jet Asia and Singapore airlines, how these successful companies operate their profitable business to stay in the market.