AirAsia vs Malaysia Airlines

The case provides an opportunity to formulate a late entrant's response to the competitive dynamics set in motion by its repositioning as a low-cost airline. It presents the dilemma before Tony Fernandes-the chief executive officer of AirAsia Sdn Bhd (AAB)-about how he should respond to the competitive retaliation from Malaysia Airlines (MA), the incumbent national carrier of Malaysia. Fernandes entered the Malaysian aviation industry in December 2001 by acquiring an ailing AAB. After acquiring the airline, he repositioned it as a "low-fare, no-frills" airline with the tagline "Now everyone can fly". He focused on all possible avenues to reduce the operations and maintenance costs and maximise the capacity utilisation of the planes. The initiatives yielded results, and AAB became debt-free within eight months of its renewed operations and reported a monthly cash flow of RM 18 million. With the utilisation of 4,000 seats daily and a passenger load factor of 70%, the airline repaid the loan of RM 100 million and earned a monthly profit of RM 2 million. In August 2002, MA retaliated by announcing its super saver offer that provided a full-service flight experience at 50% of the original fare. The tariff reduction resulted in a drop of 40% in AAB's bookings and threatened its survival. Fernandes had to respond to the new development.

• Competitive strategy
• Competitive forces
• Competitive advantage