Competition and profits in the airline industry: the case of AirAsia and Malaysia Airlines

Abstract

This case study examines the revenue and profitability of two competing airline companies - AirAsia (a low-cost carrier) and Malaysia Airlines (a legacy carrier) - over the period 2001 to 2013. After AirAsia entered the market, the revenue passenger kilometre and available seat kilometre of Malaysia Airlines declined in the mid-period (2005-2009). AirAsia had an increasing trend of revenue passenger kilometre and available seat kilometre over time, suggesting the successful strategy of a low-cost carrier. AirAsia had higher return on equity and return on assets than Malaysia Airlines. However, it had lower revenue per available seat kilometre than Malaysia Airlines, probably due to lower fares. The findings indicate that the financial and operating performance of the legacy carrier, Malaysia Airlines was affected by the entry of a low-cost carrier, AirAsia.