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Richard Ivey School of BusinessThe University of Western OntarioIvEy908M54THE ASCENDANCE OF AIRASIA: BUILDING A SUCCESSFUL BUDGET AIRLINE IN ASIAProfessors Thomas Lawton and Jonathan Doh wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation, The authors may have disguised certain names and other identifying information to protect confidentiality.Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, NM 3K7; phone (519) 861-3208, fax (519) 661-3882; e-mail [email protected]Copyright © ma, Richard Ivey School of Business Foundation Version: (A) 2010-07-21INTRODUCTIONIn September 2001, Tony Fernandes left his job as vice-president and head of Warner Music’s Southeast Asian operations, one of the most visible and prominent positions in Asia’s music industry. He reportedly cashed in his stock options, took out a mortgage on his house and lined up investors to take control of a struggling Malaysian airline with two jets and US$37 million in debt. Three days later, terrorists destroyed the World Trade Center.’Within two years, AirAsia had demonstrated that the Iow-fare model epitomized by Southwest and JetBlue in the United States, and by Ryanair and easyJet in Europe, had great potential in the Asian marketplace. AirAsia’s success rapidly spawned numerous imitators and competitors. Despite its success to date and continued growth, could AirAsia maintain momentum and continue to expand across Asia and globally? Would the influx of new entrants result in a shakeout such as had occurred in North America and Europe, compromising AirAsia’s future in this increasingly competitive market?2Market Liberalization and the Rise of Low-Fare Airlines in the Asia-Pacific RegionFollowing late on the global trend, low-fare, budget airlines (LFAs) were rapidly established across Asia. Air Do began operating in Japan in 1998, followed by Skymark in 2000. Carriers modeled on leading American and European budget airlines also emerged in Thailand (PBAir and Air Andaman) and in Cambodia (Siem Reap Air). In late 2001, AirAsia was relaunched in Malaysia as a no-frills operation. In the Philippines, Cebu Pacific Airways, also expressly modeled on Southwest, focused on cost containment by selling online and operating out of secondary airports. India’s first budget airline, Air Deccan (nowWayne Arnold, “A Continent Divided by Water, Now United by Air “New York Times January 1, 2004. p W1. 2 Ibid.

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