Integrated Cost Leadership and Differentiation Strategy in Airasia

Running an airline business is unavoidable costly. In order to cover these expenses, airlines forced to markup their airfares. However, AirAsia challenged the norms and they attempted to offer the lowest prices compared to other airlines. AirAsia has successfully positioned themselves in the mind of customers as the low cost carriers and these has become one of their comparative advantages. Low fares concept established by AirAsia not only for the introductory promotion purpose but also offer regularly. The intention of AirAsia for exercising low cost concept isto capture more customers that previously not able to afford airlines’ fare and gain larger market share.

Besides, for companies that operate under the cost leadership strategy, cost drivers control is essentially important. Compared to the other airline in this industry, AirAsia is operate as no frills approach whereby it minimized all the non-essential features to keep the airfare as low as possible from time to time. Low price is their main key to compete in this highly competitive industry. Other than that, in AirAsia, there are no reserved meals and seating was offered. The seating in the flights are based on first come first serve basis. Although, AirAsia has an option for passengers to pre-select their seats, but usually passengers will not purchase because they have to pay extra. Therefore, AirAsia view this as their strategy to attract passengers to turn up on time at the departure gate and at the same time their flight can depart online. This could results in more routes can be fly each day and boost the sales performance. In return, more profits can be generated as a result of effective and efficient operation.

AirAsia target different customer segments using different strategy. They provide unique and distinctive feature to customers that willing to pay a premium price. For example, AirAsia allowed their passenger to have additional options to customize their on-flight experienced. Passengers can pay more for comfortable and enlarged seat cushion, on board WiFi service by subscribing Rokki plan, upgraded neck pillow and blanket. However, passengers that are not interested to these premium features, they may continue enjoying low fares without affecting their choice of preferences.

AirAsia apply differentiation strategy in their operation by rewarding their customers through the “Big Loyalty” program. Through this program, members are allowed to earn points for every single cents spent on their products and services. For example, passengers can earn points for expenses they spent on purchasing air ticket and travelers can get rewards on expenses they spent on booking accommodation through AirAsia Go program. Besides, AirAsia also capture advantages as the first mover in introducing E-booking and self check through its website. All these strategies are able to create value for AirAsia customer and build their loyalty toward AirAsia.

Through cost leadership strategy alone, AirAsia will only be able to capture the price sensitive customers by providing lowest airfare as compare to its competitors. But this strategy would eliminate non essential features that passengers might concern such as on board entertainment and more comfortable seats and lead customers to switch to other airline service providers. Although through differentiation strategy, AirAsia able to attract customers that willing to pay premium price for unique features but it will loss current customers that are sensitive toward airfare.

Therefore, AirAsia apply integrated strategy by offering lower fares with unique features such as “Big Loyalty” program. AirAsia also provide some add-on features at the options of customers to enjoy a more comfortable journey. Through integrated strategy, AirAsia able to cater both price-sensitive customers as well as the customers who wish to have a more comfortable journey through the add-on features.