Airasia X: Can the Low Cost Model Go Long Haul?

On March 11, 2011, after a busy week in Kuala Lumpur at AirAsia X’s global headquarters, Darren Wright, head of commercial operations, sat in seat 44C on a late night flight back home to Australia. Wright, who had only recently been appointed to this position, was responsible for managing the airline’s direct revenue generating activities including ticket sales, ancillary onboard sales, and all global marketing and advertising activities. In addition, he served as the company’s country manager for Australia. While Wright observed the cabin crew selling duty-free merchandise to passengers, he reflected on five of his most pressing challenges: First, how best to leverage the extensive network of the regional sister company AirAsia in selecting new and profitable destinations for AirAsia X, the long haul1 venture of the group? Second, how to increase revenues without raising ticket prices? Third, how best to globally position the airline’s brand in non-Asian markets? Fourth, how to shift his marketing team’s mentality away from a start-up mindset? And finally, how to prepare for a global initial public offering within the next 12 months?

THE BEGINNING: AIRASIA AND THE BUDGET MODEL

In 2001, just a few days prior to the World Trade Center terrorist attacks in the United States, former music executive and entrepreneur Tony Fernandes launched AirAsia. Fernandes’ idea was to bring a low cost airline model to Malaysia similar to what Ryanair in Europe and Southwest Airlines in the U.S. offered. From the outset, Fernandes contemplated adapting a global, long haul element to the typically regional budget airline model. He believed he could provide affordable long distance intercontinental air travel for the rapidly growing new middle class throughout Asia, something that had not been done in that region and had been attempted with only mixed success in other geographic regions. AirAsia’s initial business plan included a route between Fernandes’ current home in Kuala Lumpur and his boyhood home in London, England.

However,