Air Asia Threats

AIR ASIA THREATS

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Full service air lines start cu cut costs to compete

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Entrance of other LCCs

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High f uel price decreases yiel yield

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Accident, terrorist attack, and disaster and affect cu customer confidence

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Aviation regul regulation ation and government pol policy

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Increase in operation cost in produ producing valu value-added e-added services

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System disr u ption du due to heavil heavily rel reliance on onl online sal sales

Certain rates like airport departu departure, secu security charges and landing charges are beyond the control control of air line operators. This is a threat to all all air lines especiall especially y low cost air lines that tries to keep their cost as low as  possibl  possible. For exampl example, Changi airport in Singapore charges SGD21 for every person who departs from Singapore. Air Asia¶s profit margin is abou abo ut 30% and this has al a lready attracted many competitors. Most of the f ull ull service air lines have or pl planning to create a low cost su su bsidiary to compete directl directly with Air Asia. For exampl example, Singapore Air lines has created a low cost carrier Tiger  Airways. Users¶ perception that bu budget air lines may compromise safety to keep costs low.

Swine f lu spread. If swine f lu continues to spread and there is a major outbreak in Southeast Asia, all carriers, including AirAsia could be significantly affected. LCCs in Mexico ± the epicenter of the outbreak ± have reported traffic reductions in the order of 50% and the country¶s f ull service carriers have abandoned their international expansion plans. This does not appear likely at this stage, although Japanese cancellations have escalated recently.

Oil price f luctuations Oil price hikes spare no air line. Aviation turbine f uel (ATF) cost andother operational costs (all g overnment controlled) are the same for all air lines, whether it is alow cost air line or not. This add s significantly tocosts of carriers like AirAsia, especially since f uel costs as a percentage of total costs are higher at 26% for low cost air lines, compared to 20% for f ull service air lines.

Overcapacity Aircraft manufacturers continue to build and deliver new aircraft, adding new capac ity. In off pe ak periods and on certain routes, this leads to overcapacity problems.Overcapacity f uels an immi nent price war in the hope of filling empty seats. Wor ldwide, overcapacity pressures have at time s lowered ticket prices to unreasonable levels, erodingbottom lines and acting as a threat.

Diminishing yields per passenger  Overall, industry-wide demand for air travel in Asia Region has increased, but fares (average per  f light) have not. Although more passengers are f lying, they are paying less to do so.Not only are f ull service air lines collecting less fare revenue from the passengers they f ly, they are also f lying fewer passengers than they used to. Low-cost air lines are f lying more passengers at lower prices .Controlling costs and maintaining cost differentiation is absolutely critical to overcome thisthrea t.

Skilled competition The Asia Region skies are witnessing a bloody battle for market shares.A much anticipated fare war has broken out across Asia Region skies. AirAsia is still a gowing air line company, but a medium-big player in the Asia Region skies. They are vulnerable to price cuts by large existingplayers with deep pockets. Aviation experts are betting could start a debilitating price wa r to push the f ledgling no frills air lines off the tarmac - permanently.