Company Profile

AirAsia - The Story So Far

The leading low fare airline in the Asia - AirAsia has been expanding rapidly
since 2001, to become an award winning and the largest low cost carrier in Asia.
With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international
destinations with 108 routes, and operates over 400 flights daily from hubs
located in Malaysia, Thailand and Indonesia. To date, AirAsia has flown over 55
million guests across the region and continues to spread its wings to create
more extensive route network through its associate companies, Thai AirAsia and
Indonesia AirAsia. AirAsia believes in the no-frills, hassle-free, low fare business
concept and feels that keeping costs low requires high efficiency in every part
of the business. Efficiency creates savings which are then passed on to guests
so that affordable air travel can become a reality. Through our philosophy of
‘Now Everyone Can Fly’, AirAsia has sparked a revolution in air travel with more
and more people around the region choosing AirAsia as their preferred choice of
transport. As AirAsia continuously strives to promote air travel, we also seek to
create excitement amongst our guests with our range of innovative and
personalized service.

Our Vision
To be the largest low cost airline in Asia and serving the 3 billion people who are
currently underserved with poor connectivity and high fares.

Our Mission
 To be the best company to work for whereby employees are treated as part
of a big family
 Create a globally recognized ASEAN brand
 To attain the lowest cost so that everyone can fly with AirAsia
 Maintain the highest quality product, embracing technology to reduce cost
and enhance service levels

Our Values
We make the low fare model possible through the implementation of the
following key strategies,

• Safety First:
Partnering with the world’s most renowned maintenance providers and
complying with the with world airline operations.
• High Aircraft Utilisation:
 Implementing the regions fastest turnaround time at only 25 minutes,
assuring lower costs and higher productivity.
• Low Fare, No Frills:
Providing guests with the choice of customizing services without
compromising on quality and services.
• Streamline Operations:
Making sure that processes are as simple as possible.
• Lean Distribution System:
Offering a wide and innovative range of distribution channels to make
booking and travelling easier.

• Point to Point Network:

Applying the point-to-point network keeps operations simple and costs,
low.

AirAsia X - The Story So Far

Introduced in January 2007, AirAsia X focuses on the low-cost, long-haul
segment and is based on the high frequency, point-to-point networks to long-
haul services business. Covering destinations between four and eight hours in
flight duration from Kuala Lumpur, AirAsia X compliments AirAsia's current
extensive route network.

AirAsia X’s cost efficiencies are derived from maintaining a simple aircraft fleet
and a route network based on low-cost airports, without complex code-sharing
and other legacy overheads that weigh down traditional airlines without
compromising on safety. Guests continue to enjoy low fares, through cost
savings that we pass on to guests.

AirAsia X’s efficient and reliable operations are fully licensed and monitored by
Malaysian and international regulators, and adhere to full international
standards.

AirAsia X is committed in offering X-citing low fares, X-emplary levels of safety

and care, and an X-traordinary in-flight and service experience to all our guests
- spreading the amazing AirAsia experience to exciting destinations in Australia,
China, India, Korea, Japan, Middle East and Europe.

AirAsia X’s destination network are connected to AirAsia’s extensive network of

105 routes, covering ASEAN countries and China, which provides seamless
connectivity for guests.
 AirAsia AirAsia X
Low cost short haul,
Concept Low cost long haul, no frills
no-frills
Within 4 hours flying
Flying More than 4 hours flying time from
time from departing
Range departing city
city
Airbus A320 with 180
Aircraft Airbus A330 with more than 330 seats
seats
Seat Economy seat and Premium(previously
Single seat
Type known as XL) seat
Free seating with
Seat Assigned seating with advance seat request
Xpress Boarding
Option option
option
Wide range of light Pre-ordered full meals are available
In-flight meals and snacks including Asian, Western, Vegetarian and
Dining available for purchase Kid's Meal. Light snacks are also available
onboard the aircraft for purchase onboard

Company Overview
It brings me great pleasure to welcome you to our
investor relations web section. For our existing
shareholders I say "Thank You" for your confidence
and support. And for you prospective investor; keep
reading and I hope you discover that the AirAsia
success story is nothing more than a combination of
focus on consumer needs, dedicated staff, hard
work, getting the basics right, cost control and the
passion to be the best!

We focus on really understanding consumer needs

and problems. By increasing our consumer insight,
we are able to develop new products that solve
these needs and problems.

For example, it was because of our guest 's suggestion that we decided to have
multiple languages in our websites - something of which we are eternally grateful.
It might seem like a simple suggestion, but the results are phenomenal. To date,
over half of our sales are via internet booking and it is steadily rising.
My philosophy is very clear: before a business can grow, it needs to have its costs
under control. It must be cost-efficient and profitable, and it must create value.
Costs that do not add value must be contained, reduced and even eliminated. I
have been asked by various people, "How much lower can your cost reduce? You're
already the lowest in the world!" My direct answer is if we do not strive to be more
efficient and choose to be complacent – our days are numbered. This is a
continuous task we have to face head on year on year; it is the critical ingredient to
operate a successful business.
Cost-efficiency, low complexity and profitability are always the cornerstones of
building a strong business. While a strong foundation does not guarantee a solid
house, it is the only basis upon which to build. So, we will continue to be dedicated
to cost-efficiency and expansion. It is a message that is well understood by each
AirAsia employee and I am proud to say this is our culture.

To the consumer, a strong AirAsia brand is a sign of dependability and leadership,

giving added confidence and assurance. AirAsia will not just be number one in size;
it will be number one in the minds of consumers. This is the passion of AirAsia and
trust me, we will never lose sight and passion of being the best.

Dato' Tony Fernandes

CEO, AirAsia Berhad
Investor Relations

Organizational Structure

The following chart shows the corporate structure and principal operating
companies for AirAsia.
Directors Biography

Dato' Abdel Aziz alias Abdul Aziz bin Abu Bakar,

Malaysian, aged 56, was appointed as Non-Executive Director
of the Company on 20 April 2005 and on 16 June 2008, he was
re-designated to Non-Executive Chairman. He is also the
Chairman of the Nomination Committee. Prior to this, he
served as an Alternate Director of the Company to Dato’
Pahamin Ab. Rajab since 11 October 2004. He also served
earlier as a Director of the Company from 12 December 2001
to 11 October 2004.

He is currently the Non-Executive Chairman of VDSL Network Sdn Bhd. He is also

the Chairman of PAIMM (Academy of Malaysian Music Industry Association) and
PRISM (Performance and Artists Rights Malaysia Sdn. Bhd.), a music performers
collection body. From 1981 to 1983 he was Executive Director of Showmasters
(M) Sdn Bhd, an artiste management and concert promotion company.

He subsequently joined BMG Music and was General Manager from 1989 to 1997
and, Managing Director from 1997 to 1999. He received a Diploma in Agriculture
from Universiti Pertanian Malaysia in 1975, his BSc in Agriculture Business from
Louisiana State University, USA in 1978, and an MBA from the University of
Dallas, USA in 1980.

Dato' Tony Fernandes was appointed as Group Chief

Executive Officer of the Company in December 2004. He was
Financial Controller at Virgin Communications London from
1987 to 1989, Senior Financial Analyst at Warner Music
International London from 1989 to 1992, Managing Director at
Warner Music Malaysia from 1992 to 1996, Regional Managing
Director, ASEAN from August 1996 to December 1999 and Vice
President, ASEAN from December 1999 to July 2001 at Warner
Music South East Asia.

Tony was actively involved in developing the Malaysian music industry and
received the title "Setia Mahkota Selangor'' from His Royal Highness King of
Malaysia Sultan Salahuddin Abdul Aziz Shah in 1999 in recognition of his
contributions and was also the recipient of the "Recording Industry Person of the
Year 1997'' by the Recording Industry Association of Malaysia. In addition, he
was awarded the International Herald Tribune award for the Visionaries &
Leadership Series in 2003 for his outstanding achievement with AirAsia, and was
named "Malaysia CEO of the Year 2003'' by American Express and the Business
Times. Tony was recently awarded "Emerging Entrepreneur of the Year Malaysia
2003'' in the Ernst & Young Entrepreneur of the Year Awards in 2004. He was
admitted as an Associate Member of the Association of Chartered Certified
Accountants in 1991 and became a Fellow Member in 1996.

Dato' Kamarudin Meranun was appointed as Director of the

Company on 12 December 2001. In January 2004, he was
appointed as Executive Director, Corporate Finance and
Strategic Planning of the Company. Prior to joining the
Company, he worked in Arab-Malaysian Merchant Bank from
1988 to 1993 as a Portfolio Manager, managing both
institutional and high net-worth individual clients' investment
funds. In 1994, Kamarudin was appointed as an Executive
Director of Innosabah Capital Management Sdn Bhd, a
subsidiary of Innosabah Securities Sdn Bhd.

Kamarudin then acquired the shares of its joint venture partner of Innosabah
Capital Management Sdn Bhd, which was later renamed Intrinsic Capital
Management Sdn Bhd. Kamarudin received a Diploma in Actuarial Science from
University Technology MARA (UiTM) and was awarded the "Best Actuarial
Student'' by the Life Insurance Institute of Malaysia in 1983. Kamarudin received
a B.Sc. degree with Distinction (Magna Cum Laude) majoring in Finance in 1986
and an MBA in 1987 from the Central Michigan University .

Conor Mc Carthy was appointed as Director of the Company

on 21 June 2004. He is currently the Managing Director of
PlaneConsult.com, a leading aviation business solutions
provider, which has clients including low fare airlines, full-
service carriers and airports. Prior to establishing
PlaneConsult.com, Conor was the Director of Group Operations
at Ryanair from 1996 to 2000. While he was with Ryanair, the
airline underwent a successful initial public offering on
NASDAQ and the Irish Stock Exchange.

Before his role with Ryanair, Conor was the CEO of Aer Lingus Commuter. Prior
to that, he was General Manager/SVP level in the Marketing and Strategic
Planning areas. He spent 18 years with Aer Lingus in all areas of the airline
business from Engineering, Operations and Maintenance to Commercial
Planning, Marketing and Route Economics to Finance, Strategic Management,
Fleet Planning and General Management. Conor joined Aer Lingus as an
Apprentice Avionics Engineer in 1978 and subsequently won a scholarship
through which he graduated in 1986 with a First Class Honors degree in
Engineering from Trinity College Dublin.

Independent Directors

Datuk Leong Sonny alias Leong Khee Seong was

appointed as Independent Director of the Company on 8
October 2004. He was the Minister of Primary Industries from
1978 to 1986 and a member of Parliament from 1974 to 1990.
Prior to this, he was a substantial shareholder of his family's
private limited companies, involved in general trading. He was
the Chairman of the General Agreement on Tariff and Trade's
Negotiating Committee on Tropical Products (1986 to 1990)
and was the Chairman of the Group of 14 on ASEAN Economic
Cooperation and Integration (1986 to 1987). Datuk Leong
graduated with a degree in Chemical Engineering in 1964 from
the University of New South Wales, Australia.

Fam Lee Ee an advocate and solicitor of the High Court of

Malaya, was appointed as Independent Director of the
Company on 8 October 2004. He is currently the senior partner
of Messrs YF Chun, Fam & Yeo. He has been Trustee of
Yayasan Pejati since 1996. He also serves as a director of Tiong
Nam Logistics Holdings Berhad since March 2002 and M-Mode
Berhad since September 2004. Fam received a BA (Hons) from
the University of Malaya in 1986 and an LL.B (Hons) from the
University of Liverpool, England in 1989.
 Dato' Mohamed Khadar Bin Merican was appointed
Independent Non-Executive Director of the Company on 10
September 2007. He is also a member of the Audit Committee
of the Board. He has had more than 20 years’ experience in
financial and general management. He has been an auditor
and a management consultant with an international accounting
firm, before joining a financial services group in 1986. Between
1988 and April, 2003, Dato’ Khadar held several senior
management positions in Pernas International Holdings Berhad
(now known as Tradewinds Corporation Berhad), a company
listed on the Main Board of Bursa Malaysia Securities Berhad,
including as President and Chief Operating Officer.

He was the first President of the Malaysian Association of Hotel Owners. He

currently manages his own financial consultancy practice. He is a member of
both the Institute of Chartered Accountants in England and Wales and the
Malaysian Institute of Accountants. He is also presently a Director of RHB Bank
Berhad, RHB Investment Bank Berhad (formerly known as RHB Sakura Merchant
Bankers Berhad), RHB Insurance Berhad and ASTRO All Asia Networks PLC.

Datuk Alias Bin Ali, was appointed Independent Non-

Executive Director of the Company on 23 September 2005. He
is also a member of the Audit, Remuneration and Nomination
Committees of the Board. Prior to this, he had a long and
distinguished career with the Government which began soon
after his graduation from the University of Malaya in 1970. He
started as an Administration Trainee Officer in the Statistics
Department. He subsequently joined the Prime Minister’s
Department as Administration Development Officer.

Whilst still with the department, he completed his Master in Business

Management and assumed the position of Head of Department (Consultancy) at
the National Institute of Public administration (INTAN) in 1975. Over the next 15
years with the Government, he held various senior positions in several Ministries
and Department including as Deputy Director of Training (Operations) in the
Public Services Department, Under Secretary (Establishment and Services) in
the Ministry of Works and Director of Industrial Development Division in the
Ministry of Trade and Industry. He moved back to the Prime Minister’s
Department in 1990 as Cabinet Under Secretary. In June 2000, he was appointed
Secretary General of the Ministry of Health, a post he held until his retirement in
March 2004. He received a Master in Business Management from the Asian
Institute of Management, Philippines in 1975 and a Bachelor of Economics
(Honours) from the University of Malaya in 1970. He is also presently a Director
of Integrated Rubber Corporation Berhad, FIMA Corporation Berhad, Mentakab
Rubber Company Berhad, CCM Duopharma Biotech Bhd. and Melati Ehsan
Holdings Bhd.
Strategy

Our Vision
To continue to be the lowest cost short-haul airline in every market we serve,
delivering strong organic growth through offering the lowest airfares at a profit.

Leanest Cost Structure

• Efficient and simple point to point operations
• Attracting and retaining hardworking and smart people
• Passion for continuous cost reduction
Maximise Shareholders' Value
• Resilient profit growth through our lower cost base
• Expansion of the AirAsia network in a prudent and disciplined
manner
• Invest and enhance the AirAsia brand to increase investors' returns
Safety
• Comply with the highest International Aviation Safety Standards
and practices
• Keep operations simple and transparent
• Ensure the security of our People and Guests
Passion for Guests' Satisfaction
• Maintain simplicity in every application
• Practice the unique and friendly AirAsia experience at every
opportunity
 • Recognise the linkage between guests' satisfaction and long-term
success
Transparency
• Transparency in decision-making and information sharing
• Optimum disclosure - higher than industry norms
• Timeliness in disclosing information
Human Capital Development
• Invest in both hard and soft skills
• Recognise all our People as contributors to our success
• Reward excellence and individual contributions
• Maintaining one brand across the Group

Ownership Structure

According to the register, the Group had as of 12 November 2009, a total of

approximately 21,969 shareholders.

Distribution Table According To The Number of Securities Held In Respect of Each

Type of Security as of 12 November 2009.

Number of % of Number of % of Issued

Shareholder Shareholders Shares Share Capital
Less than 100 58 0.3 1,363 0.0
100 - 1,000 6,062 27.6 5,576,391 0.2
1,001 - 10,000 13,012 59.2 56,041,858 2.0
10,001 - 100,000 2,378 10.8 66,507,784 2.4
100,001 to less than
456 2.1 1,469,211,850 53.3
5% of issued shares
5% and above of
3 0.0 1,160,277,334 42.1
issued shares
2,757,195,58
Total 21,969 100 100
0

Major Shareholders

As of 12 November 2009, about 26% of the total share capital was owned by
TuneAir Sdn Bhd. AirAsia is a substantially owner managed company, the
cumulative ownership by the board of directors constitutes approximately 28% of
 the share capital.

No. of shares % Share

Shareholder name
owned capital
Tune Air Sdn Bhd 715,458,382 25.95%
Employees Provident Fund Board 313,341,200 11.36%
Genesis 165,808,552 6.01%
Nomad Investment Partnership 138,400,000 5.02%
Lembaga Tabung Haji 86,633,430 3.14%
PUBLIC 1,337,554,016 48.51%
Total 2,757,195,580 100.0%
Last Updated: 24 November 2009

Analyst Recommendation

All opinions, estimates or forecasts and recommendations regarding the company's

performance made by contributing analysts are theirs alone and do not represent
opinions, forecasts or predictions by the company or its management. AirAsia does
not ascribe their validity and therefore won't be held liable for analyst's
recommendations.
Recommendation Price Target Summary
Summary Mean Target 154
Buy 11 Median Target 156
Neutral 3 High Target 210
Sell 4 Low Target 109
Total 18 # Contributors 18
* Last update: 25
November 2009

Price Last
Name Company Recommendation
Target Update
Chin Lim Morgan Stanley Neutral 135 25 Nov
Benard Chin ECM Libra Buy 167 23 Nov
Raymond Yap CIMB Buy 190 23 Nov
Paul Dewberry Merrill Lynch Buy 195 23 Nov
Anuar Aziz Credit Suisse Buy 180 23 Nov
Angeline Tan TA Securities Buy 210 23 Nov
Liong Chee How Kenanga Research Buy 166 23 Nov
Wong May Pearl Affin Buy 144 23 Nov
Ajith UOB Buy 167 23 Nov
Kong Heng Siong Alliance Research Buy 156 23 Nov
Juliana Ramli DBS Vickers Neutral 110 23 Nov
Khair Mirza Maybank Neutral 135 23 Nov
Ng Sem Guan OSK Research Sell 128 23 Nov
Joshua Ng RHB Sell 123 23 Nov
Michelle Foong Deutsche Bank Sell 109 23 Nov
Hafriz Jeffry AmResearch Buy 196 9 Oct
Norly Hashim CLSA Buy 190 22 Sep
Chin Lim Morgan Stanley Neutral 135 14 Aug
Damien Horth UBS Sell 110 13 Aug
Vince Ng KAF Buy 200 12 Aug

Ratings for Recommendations:

The definitions for analysts' recommendations may vary depending on the
brokerage, but, in general, they may be defined as:

Buy: over the next twelve months, analysts expect this stock will outperform the
average total return of the stocks in the analysts' coverage universe.
Neutral: over the next twelve months, analysts expect this stock will perform in line
with the average total return of the stocks in the analysts' coverage universe.
Sell: over the next twelve months, analysts expect this stock will underperform the
average total return of the stocks in the analysts' coverage universe.

Consensus

Consensus earnings estimates

Figures in RM million 2009F 2010F 2011F
Revenue (Average) 2,904 3,369 3,837
Revenue (max) 3,263 3,819 4,398
Revenue (min) 2,706 3,009 3,216

N. Income
480 521 560
(Average)
N. Income (max) 745 776 1,027
N. Income (min) 365 208 0

# contributing
18 18 16
analyst

Last update: 25 November 2009

Comments
Consensus are updated on a continuous basis. Last update shows when estimates
or forecasts for one or several contributing analysts have been updated. None of
the analysts' estimates are older than four months.

Airline 101

ASK Available seat kilometers, which is the total number of seats available
on scheduled flights multiplied by the number of kilometers these
seats were flown. ASK will generally be used as the denominator
when calculating ‘unit cost’
RPK Revenue passenger kilometers, which is the number of paying
passengers carried on scheduled flights multiplied by the number of
kilometers those seats were flown
Load factor RPK divided by ASK
Breakeven Revenue per RPK divided by Cost per ASK
load
factor
Block The time between the departure of an aircraft and its arrival at its
hours destination, as recorded in the aircraft flight log
Aircraft The amount of time that an aircraft spends in the air carrying
utilization passengers
Cost per Total operating expenses (excluding finance costs and taxation)
ASK divided by ASK. In the airline industry, this is comparable to ‘unit cost’
Revenue Total revenue divided by ASK
per ASK
Revenue Total revenue divided by RPK
per RPK
Sector The length of the journey flown by the aircraft
length
Sector Number of times a sector is flown
flown
Bilateral Air Services agreement between to governments
Seat Pitch The distance between one seat and the same point on another seat
directly in front or behind
First The freedom to fly across another state without landing
freedom
Third The freedom to put down in another state revenue passengers, mail
freedom and freight taken on in the state of airline registration
Fourth The freedom to take on in another state revenue passengers, mail
freedom and freight destined for the state of airline registration
Fifth The freedom that enables airlines to carry passengers to one country,
freedom and then fly on to another country (rather than back to their country
rights of origin)
Sixth The privilege for an airline registered in one state to take on revenue
freedom passengers, mail and freight in a second state, transport them via the
state of registration, and put them down in a third state
Seventh The privilege for an airline registered in one state to take on revenue
freedom passengers and freight to a second state and to put them down in a
third state without the journey originating, stopping or terminating in
the state of registration
‘A’ checks The basic inspection and routine servicing conducted on an aircraft
every 250 hours flown to ensure that the aircraft is in an air-worthy
state to continue flying
‘C’ checks The maintenance performed on an aircraft approximately every 11
months
‘D’ checks The complete overhaul performed on an aircraft approximately every
seven years
Light Daily routine checks on the aircraft, including daily pre-flight checks
maintenan and overnight checks, as well as ‘A’ checks
ce
Heavy The ‘C’ and ‘D’ checks performed on a aircraft
maintenan
ce
Aircraft The act of pushing an aircraft back from a gate or away from other
push back aircraft at parking areas, to allow for an aircraft to begin taxiing under
its own power

Flight Profile

Idle Takeoff Climb Cruise Landing

Exhaust gas
466 1,026 809 696 459
temperature (°C)
Fuel burn rate (liters /
15 108 87 47 27
minute)
Thrust (lbs) 1,222 47,000 19,975 4,418 3,337

There are generally five phases in every flight. Each phase is unique and has exerts
different characteristics on the engines and structure of the aircraft.

Idle
Even when the aircraft is sitting idle in the runway, the engines is burning 15 litres
of fuel every minute and producing more than 1000 lbs of thrust.

Takeoff
This is the only stage of a flight whereby full power is applied. At full throttle, a
CFM56 powered Airbus A320 can accelerate to 320 kmh in under 60 seconds. The
intensity of the engine is so much that the exhaust gas temperature is
approximately 1026 oC, equal temperature of an erupting volcano!

Climb
The time taken for ascend depends on the weight of the aircraft, a heavier aircraft
will take more time to reach the cruising altitude.

Cruise
When reaching cruise mode, pilot will decrease the engine's thrust to the optimal
setting of fuel burn and thrust produced in order to conserve fuel.

Landing
During landing, a commercial aircraft will touch on the runway at over 240 kmh.
Thrust is redirected forward to help slow the plane.

Flight Speed
The maximum cruising speed of the Airbus A320 is 903 kmh, but the aircraft
typically flies at an economical cruising speed of 840 kmh. Before the aircraft can
reach cruise mode, significant amount of time is required to climb to the suitable
cruising altitude and not to mention time taken before being allowed to take-off
and land. Therefore, flight journey time is not necessarily proportional to the
distance travelled. The table above depicts the average speed of a typical flight
versus the stage length.

Facts that figure

•Every 3 minutes, an AirAsia aircraft is either taking off or landing somewhere in

Asia.
•Our aircraft flies an average of 2.8 million kilometers each year; that’s an equal
distance to the moon and back, four times over.
•Our pilots and cabin crew travel 500,000 kilometers every year; roughly circling
the Earth 13 times.
•Our aircraft consumes approximately 14 million litres of fuel each year.

•Our aircraft makes contact on the tarmac approximately around 13,000 kilometers
every year, about half the distance a normal passenger car puts in every year.
BUT, our aircraft will require 16 tyre changes every year.

What Is Low Cost?

In this section, we address the following subjects:

History of the LCC

How LCC can offer such low fares?
Why can’t the full service carriers match LCC fares?
How low cost fares are structured
Common misconceptions on LCC

History of the Low Cost Carrier (LCC) back to top

The LCC boom began about 36 years ago when Southwest Airlines roam the skies
of USA. Rollin King and Herb Kelleher got together and decided to start a different
kind of airline with four set of principles: fly one type of aircraft to keep down
engineering costs; keep overheads down; turnaround aircraft as quickly as
possible; and abandon loyalty or air miles schemes. They began with one simple
notion:

“If you get your passengers to their destinations when they want to get there, on
time, at the lowest possible fares and make darn sure they have a good time in
doing so, people will fly your airline.”

And you know what? They were right. Southwest Airlines is now the third largest
airline in the world in terms of number of passengers carried and also one of the
most profitable airlines in the world. Southwest Airline’s success spruced up
interest in the LCC concept to all corners of the world. LCC now commands
approximately 30% market share of the domestic USA traffic. In Europe, the LCC
phenomenon spread much later with Ryanair in 1991, but the growth has been at
a much faster pace. Southeast Asia embraced the LCC concept last, but the
growth trajectory is the fastest. The LCC concept continued to spread throughout
the world with WestJet in Canada in 1996, Virgin Blue in Australia in 2000, GOL in
Brazil in 2001, AirAsia in Malaysia in 2002, Kulula in South Africa in 2003 and Air
Deccan in India in 2004.
The reason for the success of the new low cost carriers is very simple - move the
maximum number of passengers at the minimum of cost. The concept of LCC is
based on the idea that people would fly a lot more often if it were more affordable.
LCC airline’s main mission is to make air travel the most simple, convenient and
inexpensive form of transportation in the world. The fare differential between the
full service carriers (FSC) and LCC can be as high as 40%-60% cheaper.

How LCC offer such low fares? back to top

The key to delivering low fares is to consistently keeping cost low. Attaining low
cost requires high efficiency in every part of the business and maintaining
simplicity. Therefore every system process must incorporate the best industry
practices.

The key components of the LCC business model are the following;

1. High aircraft utilization

Aircraft is kept flying as much as possible, the first flight starts as early in the
morning commercially possible and the final flight typically ends at midnight. A
fast turnaround is critical to ensure time spent of the ground is minimal – an
airline makes money when the aircraft is flying, not when the aircraft is parked.
AirAsia’s turnaround time is 25 minutes; compare that against 1 hour for a FSC.
On average, AirAsia’s utilization per aircraft is 12 block hours per day, a FSC might
do about 8 block hours per day.

2. No frills
The underlying business for a LCC is to get a person from point A to point B.
Everything else is considered to be luxury item or “frill”, of which can be acquired
for a small fee. Among many of the frills that AirAsia has do away are;

• No free food & beverages. Why give away something that you don’t
appreciate? Passengers are most welcome to purchase food & drinks at an
affordable price from the cabin crew.
• Free seating. There is no assigned seating. Passengers receive a generic
boarding pass and they will have to take any of the available seats.
• Ticketless airlines. Less hassle for the customer, who doesn't have to worry
about collecting tickets before traveling, and cost-effective for the airlines
(paper, printing, distributing).
• No refund. Airlines waste a lot of money when passengers do not show up
for a flight due to refunds and rescheduling. Whether a passenger shows up
or not, the cost of flight to the airline is the same. LCC are unforgiving to no
show passengers and do not offer refunds for missed flights.
• No loyalty programme. We believe our customers are loyal to our low fares,
so who needs frequent flyer miles programme then.

3. Streamline Operations
Making the process as simple as possible is the key of a successful LCC.

• Single type of aircraft. Pilots, flight attendants, mechanics and operations

personnel are specialized in a single type of aircraft, which means, among
others, that there is no need for costly re-training of staff, for maintaining a
stock with parts for different types of aircraft, for knowledge and skills in
order to operate and maintain different types of aircraft with their own
characteristics, or for new work requirements.
• Single class seating. There is only one class seating, i.e first class, and
passengers are free to sit where they choose. Should you want to have the
privilege to choose your seats, you can by purchasing Xpress boarding.
• Standard Operating Procedures. SOPs are important to ensure same level of
competence among all the staff. This way we can ensure the homogeneity
of service throughout the company.

4. Basic Amenities

• Secondary airports. Low cost carriers mostly fly to and from airports that
are not necessarily the busiest, for example, London - Stanstead rather than
London - Heathrow. These are often referred to as secondary airports.
Operating from so called secondary airports is cheaper than from the bigger
major airports and they are also a lot less congested and “turnaround
times” for aircraft are a lot shorter. For instance, to minimize fees AirAsia fly
 into Clark Airbase which is 70km away from Manila as appose to flying into
Manila Ninoy Aquino airport.
• Business Lounges. Forget about it.

5. Point to point network

Point to point network. LCC shuns the hub-and-spoke system and embraces the
simple point-to-point network. Almost all AirAsia flights are short-haul (3 hour
flight or less). No arrangements have been made with other airline companies on
connecting flights, on possibilities of flight transfers, nor on having the luggage
labeled and passed through from one flight to another.

6. Lean Distribution System

Distribution costs are something that FSC most often ignore. Very often, FSC relies
on travel agents and from their posh sales office. Furthermore, FSC always blows
the budget by complicating their distribution channels by integrating their
systems with multiple Global Distribution Systems. LCC will keep their distribution
channel as simple as possible and will cover the whole spectrum of the clientele
profile. For example, AirAsia can cater to the most sophisticated European traveler
via internet and credit card sales. And at the same time, AirAsia has an
established system to sell our tickets to the most remote and technology deprived
locations, such as in Myanmar.

• Internet Sales. The bulk of sales (±65%) are done via the airline’s website,
whereby the fares are paid using a credit card. This is the most cost
effective distribution channel.
• Sales office. AirAsia only has a few sales offices. We only establish a call
centre if we are confident the sales derived from the centre will be worth it.
Furthermore, we are not fixated with having our sales office in the posh side
of town.
• Travel agents. LCC avoids reliance for sales via travel agent as much as
possible. This means that the airlines do not pay any commission to a travel
agent, which would otherwise have been reflected in the fares. Also, as they
do not use travel agents, they do not use, nor participate in the world wide
reservation systems and thus save costs, which again are reflected in their
pricing.

• Call centres. Ticket sales can be done via telephonically; this is a simple and
cost effective method.

Why can’t the full service carriers match LCC fares? back to top
FSC can offer fares as low as LCC and have been known to do so from time to
time, but it is always a temporary measure. The answer to the obvious follow up
question, FSC have no mathematical chance of matching LCC’s operating cost.
And without the most competitive cost structure, you can’t price yourself to the
cheapest every time, unless you have a nefarious intention to sink the company
into Chapter 11.

The rationale for the vast cost difference is quite simple. Imagine FSC to a 5-star
hotel, it offers complete luxury for a sumptuous experience. And now equate LCC
to a 3 star hotel, it is fairly basic but it get’s the job done. It obviously cost much
more to operate a 5-star hotel; you have to offer many facilities, hire many
employees and not to mention a posh real estate to begin with. A 3-star hotel on
the other hand does not need a posh location, less employees as most services
are do-it-yourself and offer only basic facilities.
Market forces have it that when a player undercuts, the competitor will follow. In
the end, those with the lowest unit cost and best cash resource will persevere. In
the event of FSC engaging in a price war with LCC, conventional wisdom dictates
that it is silly to go down that road. The products and clientele are vastly different,
and there is little value proposition for FSC to capture LCC clientele as they are
very low yield market. No matter how clearly history teaches us, there will be time
again when we have to engage in a price war with a FSC. And that is exactly why
AirAsia’s main focus to lower cost perpetually, so that it can evade and fend off
any sort of irrational competition.

How are low budget fares structured? back to top

Unlike other airlines, low cost fares are not based on complicated restrictions. All
fares are quoted one way to allow customers the flexibility to choose where and
when they would like to fly. Also, where most traditional airlines will only offer
cheap flights if the customer stays a Saturday night, or even a Sunday night, and
therefore cheap fares will not be available for a one-way or a day-return business
or shopping trip. Such a condition does not apply to low cost airlines.
LCC adopts a simplistic fare structure based on time value relationship for seats.
Generally speaking, the earlier you book the cheaper the fare will be. There are a
total of 12 fare buckets; each fare bucket is priced accordingly to our specification.
The first few tiers are targeted to value conscious passengers, but they can only
get their hands to those extremely cheap tickets if they book way ahead of time.
The mid tier buckets targets the captive market. Ones the revenue collected is
sufficient to cover all the operational cost of the flight, the system will then move
on to the top tier fare bucket. This is when prices start to creep up and our profit
grows.

This is yield management from the perspective of a LCC. Want cheap fares, book
early. If you book your tickets late, chances are you are desperate to fly and
therefore don’t mind paying a little more. Conversely, a FSC will do things totally
apposite; they try to charge as much as they can early on and drop their fares in
the last minute due to fear of flying empty seats.

Yield management is an exhaustive process that combines elements of science,

psychology, market dynamics and most of the time basic common sense. Our
yield management team continuously stress test the fare buckets in order to get
the maximum revenue for every flight. Achieving the best mix (fare over load
factor) is a never ending process and is a continuous learning process.

Common misconceptions on LCC back to top

When talking about LCC, some quarters will react with cynical and sometimes
preposterous views. We've been asked before if a passenger must stand in a flight
due to lack of seats or there will be chickens in the flight. Such misconceptions are
not surprising, given the fact that scheduled, low-fare flights are a relatively new
phenomenon in the world. We list down below some of the most common
misconceptions with regards to the LCC:

i. Are the aircraft safe?

Absolutely! The number one priority for AirAsia is safety, and that’s a trait
that we never compromise. AirAsia complies with the highest international
standards and procedures.
ii. Are they flying old planes?
We are rejuvenating our fleet with brand new Airbus A320 aircraft. Going
forward, we will have the youngest fleet of any airline in Asia.
iii. Do they have well trained and qualified personnel?
Yes. Our cabin crew is among the best trained and best paid.
iv. What service can one expect?
A service that will get you from point A to B, safely, comfortably and on time.
v. Do they fly on time?
Our on time performance is now above industry average. And it is
continuously improving as we induct more brand new Airbus A320 aircraft
into our fleet.
vi. Do I have to stay through weekends to get the best fares?
No such nonsense. Our tickets are point to point and fare is based on
demand for a particular flight. There are no ridiculous restrictions to get the
cheapest fare; you just have to be faster before anyone else snaps it up
first.
vii
Do LCC really offer the cheapest fare at all times?
.
Yes. Our business model stipulates that our fare must be at least 20%
cheaper than a competing FSC at all times. Anything less, in our view, will
steer passengers to our competitors.
Industry resources

The following companies and organizations provide useful data regarding our
industry.

International Society of Transport Aircraft Trading (ISTAT)

ISTAT is the organization that accredits all the aircraft appraisers; it serves as the
official voice for the entire commercial transport aircraft secondary marketplace.
ISTTAT also establishes and promotes standards for many aspects of the purchase
or sale of commercial transport aircraft, including appraisals and a code of ethics.
www.istat.org

Avitas
AVITAS is a full-service aviation consulting firm for all facets of the aviation
industry. AVITAS is renowned as one of the leading advisor to airlines, financial
institutions, maintenance facilities, manufacturers, government agencies and law
firms.
www.avitas.com/index.jsp

Airfax
Airfax is an aviation market letter provides up-to-date, accurate and
comprehensive information on the worldwide availability of commercial transport
aircraft. Airfax produces two market letters; "Jet Transport Aircraft” and “Regional
& Commuter Aircraft” which provides information for turboprop and regional jet
aircraft.
www.airtrading.com/stats.htm

Boeing
Boeing is the second largest aircraft manufacturer of the world. Our current fleet
comprises of Boeing 737-300. Follow the link below for information regarding the
aircraft, industry overview, technical specifications and industry outlook.
www.boeing.com/commercial/cmo/flash.html

Airbus
Airbus is the market leader of commercial aircraft manufacturing. Our future fleet
comprises of the latest Airbus A320 family. Follow the link below for information
regarding the aircraft, industry overview, technical specifications and industry
outlook.
www.airbus.com/media/gmf.asp

General Electrics Aircraft Engines

GE is the world’s leading producer of large and small jet engines for commercial
and military aircraft. Our current fleet of Being 737-300 utilizes engines from GE.
www.geae.com/

Performance Statistics
At AirAsia, we strive to give our guests the highest standard of
service at the lowest fares. But this is never done at the expense
of the safety of our guests. Because we know that the quality of
our service will affect our guests, we make every effort to ensure
that they measure up to your expectations and value for your
travel plans.

In accordance with industry standards, an 'on-time' departure is

one that departs from the designated bay no more than 15
minutes from the scheduled departure time.
FAQ

FAQs
Questions and answers from various sources are regularly posted here. Do not
hesitate to call us or send an email should you have further questions.

Q: Where does AirAsia stock trade under and what ticker?

A: AirAsia is traded on the Bursa Malaysia under the ticker AIRASIA and code
number 5099. You can locate us via Bloomberg and Reuters under the ticker
AIRA MK Equity.

Q: I am interested to buy AirAsia shares. Where can I buy them?

A: AirAsia shares can be bought or sold via most major banks or stockbrokers.
AirAsia does not sell or buy shares from the public and you have to purchase
shares via stockbrokers or banks. AirAsia shares are traded on the Bursa Saham
Kuala Lumpur under the ticker AIRASIA or our code number 5099.

Q: I am interested in your financial reports, company information, and

anything relating to your marketing strategy. What can you send me?
A: As a matter of policy, we do not produce information packs. All the relevant
information can be found here in our website. Please click on the menu
‘Reports’ and you will access all our financial reports. The website also provides
comprehensive information such as press releases, management profile,
history, industry overview among many other things.

Q: Is AirAsia Syariah compliant?

Yes, we are accredited by the KL Syariah Index . Our business is principally
transporting people to destinations; we do not serve alcohol, pork or distribute
any pornographic related materials. Using the Dow Jones Islamic Index (DJIX) as
a benchmark, we conform to all the financial screen and basic principles in
order to be accredited as a Syariah compliant business.

Q: What is AirAsia’s dividend policy?

A: AirAsia does not pay dividends nor do we foresee paying dividends in the
near future. The business is in the early stages of development and capital is
required to be reinvested for the future’s well being. We believe this will
ultimately yield the most beneficial returns when viewed on a long-term basis.

Q: Does AirAsia have any frequent flyer mile program?

A: No. It is too expensive for us and our fares are already the lowest in the
industry.

Q: How do you manage to offer such a low fare? Can you make a profit?

A: We will not be doing business if we are not profitable and in fact, we are
among the most profitable airline company in the world. The details of the
business model are explained comprehensively in our reports and
presentations.

Q: Are your planes safe?

Of course AirAsia is safe. Saying otherwise is like claiming the world is square.
AirAsia is safe, with a planeful of humour too; we will have it no other way! And
no, having a ball of a time on a soaring plane does not mean compromising
safety. Give us more credit; AirAsia is a lot smarter. We realize that in keeping
you safe, we keep ourselves safe.

Q: Are you going to add more routes?

A: We constantly look for opportunities and ways to expand our network.
Assuming plane delivery is in schedule and our on-going discussions with
multiple Government agencies yield favourable results, we aim to introduce
between 15 to 20 routes in every year. Most of these routes will be cross-
connecting our existing destinations and hence improve the network spread.