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AirAsia courts budget travelers

By Liang Qiwen (China Daily)
Updated: 2009-07-20 11:37

Passengers board an AirAsia flight at the low-cost carrier's terminal in Kuala Lumpur, Malaysia. The company has proven profitable in a tough economy. [Bloomberg News]

AirAsia is taking advantage of its position as a low-cost airline to increase market share among budget-minded travelers in a down economy.

"A low-cost carrier like AirAsia is better suited to maneuver challenging economic times, since more people are switching to low-cost carriers as their first choice when traveling," Kathleen Tan, regional commercial director for the airline based in Kuala Lumpur, Malaysia, told China Business Weekly.

Tan said the H1N1 influenza outbreak has added to aviation's financial struggles since the second half of last year.

However, the downturn in tourism and the economy also offers an opportunity to revaluate policies and embrace change, she said.

The airline on June 24 became the first to remove administration fees from the cost of an airline ticket.

Now all airlines except AirAsia add an administration fee to the ticket price. Those administration fees can run as high as 20 percent of the ticket price.

AirAsia passengers just pay the cost of the ticket plus tax, which has been absorbed into the posted ticket price.

"The air ticket price will be an all-in-one price. It increases the transparency of the air fare system for AirAsia and helps passengers better understand the air ticket fare structure," Tan said.

"Abolishing the administration fee will reduce the fare and thus boost sales volumes for the company," she said.

AirAsia has already proven profitable in a tough economy.

The company's current EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) is RM (Ringgit Malaysia) 46 million ($12.91 million) with 35 percent margins.

The airline recorded 21 percent growth to 3.1 million passengers year-on-year in the first quarter of this year.

The company reported year-on-year increases of 591 percent in core operating profits to RM 166 million for the first quarter, and a 33 percent increase in revenues to RM 714 million.

"It's also a year in which we are placing an even greater emphasis on innovation and quality," Tan said.

"With the abolition of the administration fee, we expect to see strong competition from other airlines, which to us is healthy in ensuring that we remain at the forefront," she said.

AirAsia last November became the first airline to abolish surcharges.

In addition to abolishing the administration fee in June, the company has added other incentives such as larger-sized baggage allowances, discounts on pre-booked on-flight meals and website and airport kiosk check-in procedures, she said.

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AirAsia also has implemented an "On Time Guarantee" policy that compensates passengers who experience flight delays of more than two hours.

AirAsia, which has carried 4 million passengers to China since its inception, has nine destinations in the country: Guangzhou, Shenzhen, Macao, Hong Kong, Guilin, Haikou, Hangzhou, Tianjin and Taipei.

"Our unique selling proposition is allowing us to continue to grow and expand in China," Tan said.

Tan said the airline is considering adding Chengdu as a destination and also will be adding more flights to existing cities in China.

AirAsia was founded in 1993 and began operations in November 1996 in Malaysia.

The airline was founded by the government-owned conglomerate DRB-Hicom, Malaysia's largest automotive company.

In December 2001, the heavily indebted airline was purchased by Malaysian entrepreneur Tony Fernandes, owner of Tune Air Sdn Bhd and a former executive for US-based Time Warner Music Group in Malaysia.

Fernandes was hailed in business circles for his fast turnaround of AirAsia, which posted its first profit in 2002.

The airline also quickly launched a series of new routes from its hub at Kuala Lumpur International Airport.

AirAsia began flights from Bangkok to Xiamen in 2005, becoming the first low-cost airline in Asia to gain entry to China.