Air Asia is one of the award winning and largest low fare airlines in the Asia expanding rapidly since 2001. With a fleet of 72 aircrafts, Air Asia 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. Today, Air Asia has flown over 55 million guests across the region and continues to create more extensive route network through its associate companies. Air Asia 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. Through the corporate philosophy of "Now Everyone Can Fly", Air Asia has sparked a revolution in air travel with more and more people around the region choosing Air Asia as their preferred choice of transport (Wong, 2009).
The Nature of Costs
Total cost for airlines can be discussed into two categories: Fixed cost and Variable cost.
Fixed Cost
Businesses define fixed costs as any costs that do not fluctuate during the fiscal year. Fixed costs are not affected in any way by changes in production, revenue or expenses. Companies with high fixed costs, such as airlines, experience cash flow problems when business slows because they cannot cover their baseline fixed costs. Companies attempt to lower fixed costs by outsourcing their work force, reducing office space and other strategies. Fixed costs for airline include items such as rent for buildings, lease payments, maintenance of property, utilities, insurance, interest on loans, etc. (Marquis, 2012).
Variable costs
Variable costs can be defined as expenses which keep changing in proportion to the activities of a business. Variable costs can be calculated as the sum of marginal costs over all units produced. Variable costs form one of the essential components and an important management tool in calculation of total costs. Besides, all variable costs are direct costs (costs which can be easily associated with a particular cost object). Variable costs are, sometimes, also referred as unit-level costs for they vary with the number of units produced. Usually, these variable costs keep on Increasing at a constant rate in proportion to labor and capital. Variable costs for airline industry would include aircrew salaries, fuel, landing fees, and passenger refreshments. The cost varies with the number of flights and duration of trips (Analysis, 2012).
Semi-variable cost
A semi-variable cost is a cost that contains both fixed and variable cost elements. Thus, the fixed element of the cost will be incurred repeatedly over time, while the variable element will only be incurred as a function of volume. Here are several examples of a semi-variable cost (Marquis, 2012).
Example
A production line may require $10,000 of labor to staff it at a minimal level per day, but once a certain production volume is exceeded, the production staff must work overtime. Thus, the basic $10,000 daily cost will be incurred at all volume levels, and is therefore the fixed element of the semi-variable cost, while overtime varies with production volume, and is therefore the variable element of the cost (Marquis, 2012).
Direct Costs
Direct costs are costs that can be easily traced to a particular object (also called a cost object), such as a product, the raw materials used to manufacture a product, or the labor associated with the work to produce the product. Direct costs are often, but not always, variable costs. Variable costs increase as more units of the product are manufactured. As a result, raw materials are variable and direct costs. But, if there is a supervisor overseeing the manufacturing of this particular product, their salary is probably the same regardless of how much of the product is manufactured, so it is a fixed cost. Direct cost for airline would be Flying Operations, (such as Flight Crew Salaries, Expenses and Training Aircraft Fuel & Oil Insurance & Uninsured losses Lease/Rental of aircraft), Direct Maintenance and overhaul (such as Labour Repairs) Materials, Depreciation & Amortisation For Flight Equipment (Such as Expense of Interchange Aircraft, Other Depreciation & Amortization) (Peavler, 2011).
Indirect Cost
Indirect costs are those which affect the entire company, not just one product. Indirect costs can be fixed or variable costs. Often, they are fixed costs with an example being the rent an enterprise pay on their building. Sometimes, they are variable. An example would be electricity or water bill which can change monthly (Peavler, 2011).
Indirect cost for an airline industry would be Landing & Airport Charges, Route facility charges, Station Expenses, country tax, Ticketing, Sales & Promotion, General & Administration (Peavler, 2011).
Method of Cost Reduction
The method of cost reduction emphasises on lowest costs, though not necessarily the lowest price, in the market (Marcus, 2010).
Low Fare, No Frills
Air Asia's intense focus on providing air travel with no frills leads to substantial costs saving. The absence of in-flight services reduced pre-flight preparations such as the loading of food and drinks, cleaning time and the cost of meals and administration, investment in kitchens equipment for storing, heating and serving of meals can be avoided altogether (Marcus, 2010).
Investment in latest technologies and Efficient Operations
Air Asia has heavily invested in purchasing the most modern aircraft A-320s. The new aircraft allow Air Asia to enjoy substantial lower fuel cost as these modern airplanes had lower fuel usage by as much as 12%. Fuel accounted for almost 50% of the total operating costs and thus it is an important component of cost saving for Air Asia .By operating a single aircraft type allows Air Asia to achieve efficiency in executing its primary and secondary activities. Consequently, this leads to higher productivity which in turn allows the company the option to expand their operations with the same number of employees and right size its manpower requirement. Improved productivity means more revenue for Air Asia. The extreme drive to achieve high efficiency in operations allows Air Asia to clock the fastest turnaround time of 25 minutes. This invariably leads to comparatively better productivity as the company was able to utilise its aircraft for an average of 13hours per day as opposed to 10.5 hours by other airlines. Again, improved productivity means more revenue for Air Asia (Marcus, 2010).
Low Fixed Costs
Air Asia's ability to acquire low rates for long-term maintenance contracts and aircraft leases led to substantial cost savings. It was reported that Air Asia's average contractual lease charge per aircraft decreased by more than 60% from 2001 to 2004. Similarly, its aircraft maintenance contract costs were also reported to be substantially lower than any other airlines. In view of the airline's high safety and maintenance standards, Air Asia was also able to procure favourable rates on its insurance policies. All these help lower fixed costs (Marcus, 2010).
Lean Distribution System
The use of e-ticketing helps to save the cost of issuing hardcopy tickets, which were estimated at US$10 per ticket. The company also saved on agents' commissions' and avoided the need for large and expensive booking and reservation systems. This too helps slower the overall costs (Marcus, 2010).
Minimise Personnel Expenses
Air Asia implemented flexible work rules and streamlined administrative functions which allowed employees to perform multiple roles. This human resource policy facilitated Air Asia in lowering its personnel costs. In 2004, it was reported that Air Asia had the lowest staff-to-per aircraft ratio (106 staff per aircraft as compared to 110 employees per aircraft registered by other low cost carriers) and this helps lower staff cost (Marcus, 2010).
Use of Secondary Airports
Typically, Air Asia operates out of secondary airports, which involve lower landing, parking and ground handling fees. These airports were also less busy and had shorter runways, thus helped reduce fuel consumption while aircraft queue for take-off or taxi on the ground. As many secondary airports were older, they were often close to urban areas and were thus more attractive to some travellers. In short, the use of secondary airports can increase sales and help to keep operating costs low (Marcus, 2010).
The ability to lower cost and at the same time widen profit margin (through increase productivity). This provides Air Asia the options to either lower its prices and gain market share and sales from rivals or keep its prices at present market level and make more profit for every unit sold. This inevitably helps Air Asia in its defence against aggressive competitions especially when it comes to price war from strong rivals (Marcus, 2010).
Adoption of Management Accounting System/Tools
The followings are few system implementations that Air Asia has done in its marketing and sales activities (Yield Management System and Computer Reservation System) as well as operation activity (Enterprise Resource Planning System).
Yield Management System (YMS)
It is also known as Revenue Management System; it understands, anticipates and reacts to the behaviour of customer to maximize revenue for the organization. This takes into account the operating costs and aids Air Asia to optimize prices and allocate capacity to maximize expected revenues. The optimization is done on two levels in Air Asia (Wong, 2009):
Seat (Every seat is considered an opportunity to maximize revenue. Seats are available at various prices in different points of time. A reservation done at a later date will be charged more than the one done earlier - for the same seat) (Wong, 2009).
Route (By adjusting prices for routes/destinations that have a higher demand when compared to others). The effective method however is to combine these two levels for all flights, all routes so that both the seat and the route are effectively priced for all the flights. Air Asia has realized increased revenue (3-4%) for the same number of aircrafts by taking advantage of the forecast of the high/low demand patterns, effectively shifting the demand from low period to high period and by charging a premium for late bookings. Over the past couple of years, Air Asia have actually lowered prices (essential for LCC) as the YMS has given them the window to increase their revenue by offering higher discounts, more frequently during off-peak times while raising prices only marginally for peak times (Wong, 2009).
Computer Reservation System (CRS)
Air Asia's CRS (Open Skies by Navitaire) has helped it to grow at a dramatic pace in the past couple of years
"Navitaire's Open Skies technology has truly enabled Airasia's growth from 2
million passengers to 7.7 million passengers in less than two years. Open
Skies scaled easily to accommodate our growth."
- Tony Fernandes -
CEO - Air Asia
It is an integrated web-based reservation and inventory system. It includes Internet, call centre, airport departure control and more. It is a direct sales engine that effectively eliminates the middleman (travel agents) and the sales commissions that need to be paid to them. Centralized customer data is also maintained by Open Skies and this helps Air Asia to track booking and schedule flight activities with real-time, on-demand reporting feature. The vast booking information that is provided online to the customers acts as a force that brings more customers to use the website thus reducing the customer support costs. An important feature is that Open Skies seamlessly integrates with the already implemented YMS so that the systems can be used in unison for pricing and revenue maximization (by providing information on bookings, schedules etc.) and driving down the costs of operation at the same time. This CRS enabled Air Asia to introduce the first ticket less travel option and also provides features such as advanced boarding passes in addition to online booking that enabled the growth of Air Asia as these features attracted customers that did not have the time for purchasing tickets from counters and coming in 1 hour early for securing a seat on the aircraft. Air Asia has proposed to implement a Wireless Delivery System (WDS) to expand it reaches via mobile phones. With this, potential customers will be able to book tickets via their mobile phones. This is a strategic move for growth as the Asia-Pacific region has a larger population of mobile phone users rather than internet users (Wong, 2009).
Enterprise Resource Planning System (ERP)
Air Asia has recently (May 2005) opted for a full-fledged ERP system implemented by Avanade consultants. By implementing this package Air Asia is looking to successfully maintain process integrity, reduce financial month-end closing processing times, and speed up reporting and data retrieval processes (Wong, 2009).
Target on Potential Customer's requirement
Safety First
Safety is the single most important criteria in every aspect of the operations, an area that Air Asia will never compromise on. Air Asia complies with the conditions set by regulators in all the countries where the airline operates. In addition, Air Asia partners with the world's most renowned maintenance providers to ensure that its fleet is always in the best condition (AirAsia, 2006).
High Aircraft Utilisation
Air Asia's high frequency flights have made it more convenient for guests to travel as the airline implements a quick turnaround of 25 minutes, which is the fastest in the region. This has resulted in high aircraft utilisation, lower costs and greater airline and staff productivity (AirAsia, 2006).
Streamline Operations
Making the process as simple as possible is the key to Air Asia's success. Air Asia is working towards a single aircraft fleet; this greatly reduces duplicating manpower requirements as well as stocking of maintenance parts. There is only one class seating, i.e. first class, and passengers are free to sit where they choose (AirAsia, 2006).
Lean Distribution System
Air Asia offers a wide and innovative range of distribution channels to make booking and traveling easier for its guests. Air Asia's ticketless service provides a low cost alternative to issuing printed tickets (AirAsia, 2006).
Point to point network
The LCC model shuns the hub-and-spoke system and adopts the simple point to point network. Almost all Air Asia flights are short haul (3 hour flight or less). The underlying business is to get a person from point A to B (AirAsia, 2006).
Development and implementation of e-commerce
Air Asia was the first budget airline company which practiced business-to-consumer (B2C) transaction in the airline industry in Asia. Furthermore, it has been the biggest stimulator of local e-commerce activities. Since Air Asia introduced online booking air ticket through its website in May 2002 and used computer network to conduct its business operationally, it had recorded about 40% of the total revenue which were made via Internet transactions. The following are some reasons why Air Asia's E-Commerce websites flourish in the recent years (AirAsia, 2012).
Multi-lingual
Air Asia is the first airline in Asian to introduce a multi-lingual website with its new Bahasa Malaysia and Mandarin websites. It is much more convenience for all races, especially in a multi-racial country like Malaysia, to book online and browse through the whole content of the site including latest promotions, new updates and information about the airline such as latest quality statistics (AirAsia, 2012).
Air Asia Vista Gadget
It allows customers to instantly manage and access live travel information and web-based services directly from their Windows Vista desktop computers. With the leading-edge technology, such as Windows Vista, it enhances the customer experience with Air Asia and the quality of customer service. Moreover, the collaboration between Air Asia and Microsoft allows Air Asia to expand their marketing channels by providing instant information on Air Asia's promotions and updates to the region (AirAsia, 2012).
Air Asia online system is conducted worldwide
For sure, everyone can get their transaction done by using phone call, facsimile, mail and etc. but Air Asia online system enables people to complete any transaction through internet. For instance, a customer from Bangalore, India can book air ticket to depart from Low Cost Carrier Terminal (LCCT) to Perth, Australia (AirAsia, 2012).
Air tickets can be booked 24-7
As long as Air Asia has a reliable e-commerce host, the web runs 24 hours a day and 7 days a week to generate sales. For examples, Air Asia usually allows customers to book free air tickets during 12 mid nights (AirAsia, 2012).
Security and reliability
Air Asia protects information and information system from unauthorized access, use, disclosure, disruption, modification, or destruction so that the customers' data is safely kept and access to suitably controlled. All transactions will go through a secure transaction line by the company's financial institution and handled by the bank, thus, ensuring a highly secure line that will in still customers with trust (AirAsia, 2012).
No need to wait!
The Internet is evolving at a rapid pace. Obtaining a Web presence is essential, those businesses that were making huge profit margins a few years ago, are beginning to see the market flatten out with increased competition. There's still the potential to make a lot of money through e-commerce, and Air Asia is now on the track (AirAsia, 2012).
PART B
Ratio analysis
MAS RM'000
AirAsia RM'000
Ratio
Formula
2008
2009
2010
2008
2009
2010
Liquidity ratios
Net Working Capital =
Current assets-current liabilities
1879235
(8277550)
(1443613)
222912
315044
-167082
Current ratio =
Current Assets/
Current Liabilities
1.35x
0.85x
0.74x
1.09x
1.3x
1.56
Acid test or Quick ratio =
Quick assets/
Current Liabilities
1.27x
0.78x
0.66x
0.48
0.86
1.27x
Efficiency Ratios
Inventory Holding Days =
Inventory/ cost of sales *365
9.12
11.51
21.43
2.33
3.41
3.41
Debtor Turnover ratio =
Net credit sales/
Average debtors
45.18
45.05
45
157.87
100.42
84.32
Creditor's Turnover ratio =
Net credit purchases/
Average Creditors
57.85
67.2
77
87.18
142.87
158.32
MAS
AirAsia
Ratio
Formula
2008
2009
2010
2008
2009
2010
Capital Structure Ratio
Gearing = Long term borrowing / (long term borrowing + equity)
0.55
0.80
1.23
0.73
0.79
0.85
Interest Cover = EBIT / interest Expense
5.03
6.33
6.23
-0.64
2.43
2.8
Debt-Equity ratio =
Long term debt /
Shareholder's Equity
58.3%
91.2%
101.2%
-20%
35.2%
30.8%
Profitability
ratios
Gross Profit margin =
(Gross profit âˆ- 100) /
Sales
-1.10%
-7.90%
-9.42%
-13.50%
28.80%
35.6%
Net Profit margin =
Net Profit after tax before interest /
Sales
1.80%
4.10%
3.20%
-30.40%
19.90%
29.90%
MAS
AirAsia
Ratio
Formula
2008
2009
2010
2008
2009
2010
Return on
Investments
Return on Assets (ROA) =
Net Profit after Taxes âˆ- 100 /
Total Assets
2.4%
5.8%
5.8%
-5%
4%
8%
Return on Capital Employed (ROCE) =
[(Net Profit after Taxes) âˆ- 100] /
total capital employed
3.26
6.85
7.15
-4.58
9.42
10.23
Return on Total Shareholders' Equity =
(Net Profit after Taxes âˆ- 100) /
Total shareholders' equity
5.87%
67.02%
67.02%
-31%
19.32%
29%
MAS
AirAsia
Ratio
Formula
2008
2009
2010
2008
2009
2010
Investment
ratios
Earnings per Share (EPS) =
Net Profit of Equity holders/
No. of Ordinary Shares
-0.21
0.21
0.21
0.15
0.30
0.45
Dividend Pay-out Ratio
= Dividend per share / net profit
0
0
0
0
0
0
Dividend Yield =
Dividend per share /
Market Value per share
0
0
0
0
0
0
Price- Earnings ratio (P/E) =
Market value per Share /
Earnings per Share
-1.21
6.57
6.30
20.40
9.07
31.30%
Comparison of MAS and Air Asia
Profitability and return on Investment Ratios
MAS airline have high revenue comparatively to Air Asia. However, gross profit percentage and net profit percentage calculated above indicates Air Asia generates better return than MAS from 2009 to 2010 financial year, except year 2008.
One reason is Air Asia has better operation efficiency, which generates gross profit more than 20% with its leaner operation expenses, in all years except 2008. MAS with business strategy going beyond Expectations had over run their operation cost to the extent that is non-sustainable by core operating revenue income.
However, MAS could rely on Other Operating Income and Derivative Gain to generate positive net profit, ROCE and ROSF/ROE between financial years 2008-2010 as shown in analysis. Unfortunately the incomes gained for MAS from the non-core service business (generated from sales of plane, properties, gain from hedging against fuel and currency, and etc.) are not consistent.
Air Asia on the other hand, generally shows a consistent positive ROCE with growth from 2009 to 2010(except 2008, to be explained later) comparatively with MAS, most likely because of their growing and profitable core airline service operation. There is an exceptional in 2008, where Air Asia had performed poorly against MAS in all four profitability ratio. Looking at Air Asia 2008 income statement, Aircraft Fuel Expenses was exceptionally higher than 2009 fuel spending, despite other operating expenses remained lower, in lined with the financial year revenue. One reason is due to crude oil price fluctuation. Crude oil price in 2008 had climbed at significantly pace, resulted to Air Asia taking position to hedge against the rising fuel cost. Shortly after this, crude oil price plummet to low value, resulting Air Asia operating with high fuel cost. Worse, when the quantity of fuel hedge at high price would flow over to following financial year, Air Asia decided to write off the high cost fuel against market price of the time, in 2008 financial year as Loss on Unwinding of Derivatives eroding the operation profitability, thus the loss reported in year 2008. This is also done to allow Air Asia to compete competitively for new financial year, instead of carrying the burden from wrong decision in fuel price hedged. MAS may or may not have taken any position in fuel price hedging. But the any decision made at that time gave them the benefit of performing better than Air Asia in financial year 2008. Nonetheless, MAS after adopting new Financial Reporting Standard 139 (FRS139) that establishes the principles for recognizing and measuring financial assets, financial liabilities and certain contracts to buy or sell non-financial items, had to write-off contingency losses in the balance sheet resulting to drop in equity to 0.74billion in 2009, from4.19billion recorded in 2008. This adoption makes the ROCE and the ROE computed difficult to compare against Air Asia return to investor. Base on the computed figures, Air Asia can be said to perform better than MAS in ensuring consistent return to the shareholders.
Efficiency and Liquidity
Comparing 2008, 2009 and 2010 financial years, Air Asia current ratio and quick ratio had increased, whilst MAS in the same years experienced dropped in both ratios. Current ratio is comparison of business liquid assets with current liabilities. Hence the increase of Air Asia current ratio signified increase in company current assets significantly against their current liabilities from 2008 to 2010.This is noticeable for the current. The major increase was vastly contributed by cash build up, available in form of deposits, cash and bank balances, as we can observe from Air Asia balance sheet. MAS current assets on the other hand, dropped from RM6.6billion in 2008 to RM4.7billion in 2009, and had increase in current liabilities, possibly contributed from hedging activities against fuel, currency and interest rates amounting RM584.8million as show in MAS balance sheet. Such movement of assets and liabilities, can be undesirable at some extend, because with ratio of 0.86 means MAS current assets is about adequate to payback 86% of its current liabilities, so the business maybe experiencing some liquidity problem. Air Asia and MAS has a special circumstance in quick ratio computation. Noticeably, its movement trend is similar to current ratio trend. Reason is because both airline companies are service base providers. Thus inventory required to ensure business continuation, comparatively to other current assets, is relatively small, which is observable in the quick ratio calculation. Thus, we can say the quick ratio changes are similar to current ratio changes explanation. Air Asia operation outsource their aircraft major maintenance, while MAS carry many major maintenance internally. This resulted to Air Asia require fewer inventory comparatively to MAS, hence the minor change of Air Asia quick ratio compared to its current ratio, while MAS which carry more inventory for maintenance purposes would have relatively larger drop in quick ratio against its current ratio. Mentioned, service industries usually carry minimal stock. This explained the low number of inventory holding days for both airline companies, because the value to the stocks is relatively low compared to their revenue. Hence the small changes in number of holding days for both airlines. MAS inventory holding days increased from 9.1 to 11.5 days was mainly due to drop in cost of sales, a direct result of drop in 2009 revenue, while its inventory increased slightly in value. Air Asia and MAS passenger flight service would receive advance payment before deliverable. Such practice would inevitably bring down receivables payment days (RPD) quite considerably on average basis, with receivable incomes from cargo freight, advertising, on-line merchandising, and etc. Despite lower in 2009 financial year by MAS, the RPD stand almost the same in both 2008 and 2009 years which could possibly means the receivable as a whole could fall proportionately. The changes in Air Asia receivables would could be due to stronger higher income generated from their passenger airline sector which brings the other income revenue substantially lower by proportion, or Air Asia might had improvement in their collectibles from incomes generated from the non-core service deliverables.
Payable payments days (PPD) for both airlines had increased though at different rate from 2008 to 2010. In Air Asia, the PPD increased substantially from 87.2days to 142.9days. Air Asia was operating with relatively high fuel cost, this commodity product would be paid as used, or be strictly given only short-term payment period. Therefore on average, the hedging activities but Air Asia would substantially reduce the PPD of year 2008. Else, Air Asia might have chosen to shortened payables period in 2008 in return for better savings from other suppliers in order to reduce losses incurred from the hedging activities. MAS circumstances would be similar, and may not be very active in the hedging activities, thus the differentiation within the two years is not as large as Air Asia. The above contribute to the cash conversion cycle's management, which measures the number of days a company's cash is tied up in the production and sales process of its operations and the benefit it gets from payment terms from its creditors. The shorter this cycle, the more liquid the company's working capital position is. Therefore in summary, whatever the circumstances maybe, Air Asia had certainly improved its liquidity vastly from 2008 to 2010, while MAS too made improvement, in the capital management, but in a smaller way compared to Air Asia.
Capital Structure
Air Asia and MAS business operations had been financed by both internally by the shareholders as equity, and externally by loans borrowed. From 2008 to 2010, Air Asia had increased their long term borrowings substantially against equity increased, thus raising their gearing ratio. With the borrowings, Air Asia can leverage on the funds available to finance its business expansions such as acquiring more aircraft, expanding its Low Cost Carrier Terminal facilities, basically to generate higher revenue turnover that cannot be supported by equity alone. Such decisions were made with expectation to generate higher returns to the shareholders, simply because at high gearing, any changes in operating profit will lead to a proportionately greater change in ROSF ratio. The increase in borrowings funded Air Asia activities to generate better return. Thus the ROSF/ROE value increased from 19.32% to 29%, a favourable return to equity owners. However, with increased borrowings in year 2008, the negative profit incurred from operations, inevitably declined the ROSF/ROE value of Air Asia to -30.93, which would totally devastate the shareholders. Provided the profits before the interest and taxation can cover the interest, as in Air Asia for year 2009 to 2010, tends to be beneficial to the shareholders. As for MAS, they more or less maintained their gearing ratio from 2008 to 2010, by injecting the same proportion of capital accordance to loans borrowed. The increase in 2009 gearing was mainly due to the incorporation of FRS139 standard required which reduced the equity as a whole. It may also due to such standard adoption, that MAS decided to reduce the borrowings in order to lower its gearing value that may have cut down the 2009 operations size.
MAS has high interest cover ratio 2009 financial year, due to other income from sales of plane and property. As these are non-sustainable, the interest cover can be seen to fluctuate from year to year, and may take away the confidence of investors who analyses this ratio. Undoubtedly, increasing financial loans has another benefit to the shareholders that is the tax-deductibility of loan interest. The higher the loans, the higher the finance cost which is tax-deductible for both airliners, hence the precedence in acquiring higher loans.
Investment Ratio
From 2008 to 2010, EPS value of Air Asia generally increased and sustained with earnings of RM0.21 per share in 2009, which most certainly would make existing investors satisfied with company performance while attracting new investors with its lower P/E ratio that indicates the share price is not overly overvalued. As for year 2008, the year with many unforeseen circumstances such as crude oil price fluctuation, economy crisis, spread of H1N1at year end and etc., and the EPS and P/E ratio reflected poorly. In this year and beginning 2009, there were many transactions of Air Asia share, with existing investors disposing the shares in order to cut losses as they dropped, while new investor staking opportunity to buy and keep the lower share price with expectations of gaining share price value towards future. MAS that have lower issued of ordinary share compared to Air Asia, tend to performed better in calculated EPS value. By right, existing investors would be satisfied with MAS EPS achievement. However analysing the P/E ratio, the high value in 2008 would imply either the public had high confidence over MAS future business, or could be an indicative of share price being overvalued. Unfortunately, the market had higher stringer perceive of second scenario of MAS share price being overvalued in 2008, which probably explain the dropped in share price in year 2009. Hopefully, with the better EPS and lower P/E ratio in year 2009, MAS can retain the existing investors' confidence as well as attracting new investors.
Conclusion
Low cost carriers have reshaped the traditional airline business model and have significantly changed the competitive dynamics of the industry. The successful model strictly adheres to the containment of operating cost. The successful of Air Asia in ASEAN significantly show the importance of e-Commerce assisting Air Asia to simplify their operation, efficiency, productivity and high utilization of assets to offer low fares. Overall, Air Asia seems to value added in operation and optimum the strength of their organization in order to gain competitive advantages. Value is not determined by the firm but by buyers in the amounts they are willing to pay for the product or services (Rayport et. Al, 2003). Customers are willing to accept their cost leader strategy which is no frills, hassle-free in exchange for low fares. Sustainable competitive advantage is a journey not a destination it is like tomorrow which is inescapable but never arrives (Chaharbaghi and Lynch, 1999). Air Asia should thus poised to challenge their competitor by implementing technologies to enable it to position them as a forerunner in technology, industry leading punctuality, the 5-Star quality in airline industry.
