The lowest of low-cost carriers: the case of AirAsia

Abstract

In December 2001, just a few months after the terrorist attacks on New York and Washington left the international airline industry reeling, a new Malaysian company called ‘Tune Air’ purchased a small underperforming domestic Malaysian airline known as ‘AirAsia’ for 1 Malaysian ringgit and the assumption of 40 million ringgit in debt. Within 11 months of acquiring the company, Tune Air had fully repaid this debt and by January 2003 the company was operating six aircraft domestically. In 2006, AirAsia boasted a fleet of 35 Boeing 737-300 aircraft and eight Airbus 320 aircraft with orders for 100 more A320s (Vietnam News 2006) and was forecast to carry nine million passengers to 52 domestic and international destinations. AirAsia's meteoric rise is the result of the confluence of opportunity and skillful application of the low-cost Carrier (LCC) aviation business model. This model, which has its origins in the success of Southwest Airlines (see Gittell 2003) and Michael O'Leary's ‘Ryanair’, has been implemented around the world and consists of a number of common elements such as reduced inflight service, point to point travel, high aircraft utilization, single fleet type, ticketless passenger reservation systems and considerable functional flexibility in staffing. In this article we trace the rise of AirAsia's success and the nuances of the low-cost aviation model it has pursued. We draw upon established theory from the fields of strategy and strategic human resource management to explain AirAsia's minimalist approach to human resource management. In particular, we apply Porter's (1985) well known theory of generic business strategies and Schuler and Jackson's model linking HR practices to competitive strategy, to argue that the airline's successful quest for market cost leadership has been supported by a strict focus on Legge's (1995) ‘hard’ variety of HRM. It is further argued that while a number of the components of the Southwest Airlines model are evident, there are also significant differences in AirAsia's management of human resources. In particular, it is argued that the airline has adopted a far stronger cost minimization and ‘hard’ HRM path that is closer to Ryanair's model, which has proved highly successful for the airline in South East Asia.