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 profitable strategy, Air Asia first determines different costs such as capital, fixed, variable, maintenance, labor, fuel, facilities, inventory, environment, and technology 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 strong engagement at all levels of services; for example in security, protection, 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 formidable puzzle of interest, as different ratios of constantly changing variables affect policy making, market segmentation, inventory control, performance system, etc. . Basically, implementing such a strategy was complex in nature, for example, providing direct services between two destinations increases the route LOS (level of service) but on the contrary, if the airline does not fill up with enough passengers, it will surely incur huge losses. .
2 different cost analyzes 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 usually occurs at the beginning of the project, as well as the investment or purchase of aircraft, cargo, aircraft, land, buildings, construction, alternative routes, train facilities high speed (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 capital investments of the airlines are very intensive and most of the potential project failed due to limited funds. For example, MAXjet airways, EOS and SilverJet failed in the initial stage of capital investment only due to lack of financing and competitive business models (Wensveen, Leick, 2009). Therefore, Air Asia is required to understand this issue so that the successful business requires 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, fixed costs also consist of ticketing operation, ground facilities, airport counter facilities, advance booking and dispatch of fleet aircraft that can be spread over more passengers as traffic density increases. .
2.3 Variable cost:
These costs are determined based on the costs of operation, maintenance, labor, fuel, facilities, inventory, environment and technology.
3 Cost of operation:
The effects of the operating cost are not quantified since the scope of the system varies according to the point-to-point service. Here, the basic operating costs are administration, ticketing, sales and promotion, passenger service, en-route airport maintenance, and landing costs. These operating costs have determined the level of various operations in the airline, including air service, such as cargo operation, employees.
3.1 Flight operating cost: This is 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 Ground operation costs: this cost incurred for airport station handling, landing fees, charges, cargo processing, passenger baggage, travel agency cost, ticketing, distribution, commission, reservation, ticket and sale etc
3.3 System Operating Cost – This cost includes the cost of passenger service (i.e. meals, entertainment, flight attendant and in-flight service and transportation related costs (i.e. regional airline partners providing regional air service , extra baggage fees and miscellaneous overhead).
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, where component maintenance cost was 20 percent and line maintenance was 17 percent. The maintenance cost also increases due to the direct operating cost such as for the daily operation of air flights. Therefore, the maintenance cost is crucial for Air Asia because this overall cost does not depend, although it varies according to the number of times due to service requirements, demand or other factors. For example, any engine or component failure hampers the airline’s services for a flight on time or even any disruption increases additional charges and minimizes the level of services that eventually drive passengers away.
5 Labor cost:
For Air Asia, labor cost is an important factor as it is related to salary, benefits, pay rate of cabin crew, pilot, staff and other employees. However, labor cost also includes aircraft services, cleaning and passenger handling, and catering. For example, providing services to customers such as catering, cleaning, or even in-flight emergency services require food product services. For these additional services, employers expect to receive additional incentives.
6 Fuel cost:
The constant fluctuations in the price of fuel also cause a great impact on the service of airlines in terms of competition in point-to-point service. This has been evident as approximately 20 percent of overall operating costs come from fuel, and due to price sensitivity, flexibility, and quick responsiveness, fuel price has a negative effect on ticket price. .
7 Installation cost:
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 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 issues is becoming a great challenge today to introduce new technologies, aircraft and new air flights. For example, Singapore Airlines tried to keep its 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 more ecological 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 maintain the market. This cost is hard to knock out, but since Air Asia is based in Southeast Asia; the rules and regulation are considerably favorable to sustain in the market. On the other hand, it is necessary to foresee the estimate of the cost of the environmental tax.
9 Technology costs:
Poor technology, like the traditional system, that is, manual ticketing, verification system, significantly decreases the level of service. Although the costs are differentiated, but to reduce a substantial amount of cost, for example, online booking, online support and online information could be minimized by a 24/7 online helpline of the week. For security and protection, RFID technology or 2D reader, barcode, electronic service can be used.
10 Conclusions:
In short, cost is always an important factor in all aspects such as marketing, operations, safety, technology, maintenance and environment for Air Asia. Although the cost is flexible and complex in nature, Air Asia could easily change its cost due to differentiating its market and taking advantage of the existing alliance. Here, the airline Air Asia needs to identify the proportion of the cost to invest in the right sector for a long period of time. Like, the company is already offering 20 percent lower flights than competitors; therefore, it is necessary 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.