Low Cost / Full Service Literature Review

Length: 16 pages Sources: 10 Subject: Transportation Type: Literature Review Paper: #89866104 Related Topics: Deregulation, Southeast Asia, Asia, Malaysia
Excerpt from Literature Review :

At the same time, it will help to identify what issues will shape the future of air passenger transportation in Asia.

1.6: Hypothesis

The introduction of LCCs in the North American and European markets started a trend that is beginning to unfold in Asia (with the birth of Asian-based LCCs). Part of this is in response to the increases in passenger traffic and the effects of globalization. However, there have been similar airlines in the past, which have tried and failed using the same kinds of business models. A good example of this can be seen by looking no further than, Oasis Hong Kong. This was a low cost carrier that attempted to enter the medium to long haul leisure / business travel market between Hong Kong and London Gatwick. The problem was that they were no match for the FSCs, which offered: more flights and greater flexibility. This is a similar model that Thai Air Asia's parent company is attempting, with Air Asia X and the other airlines. As they have redefined the short to medium range travel destination markets in Asia and are aggressively expanding into a variety of international cities. A good example of this can be seen with the service that Air Asia X is providing between Malaysia and the Gold Coast of Australia. Then when you combine this with fact, that Virgin Atlantic's Richard Branson owns 20% of: the company and has formed a partnership with them. Highlights, how there will be increasing focus, on applying this model to destinations throughout Europe and possibly North America. (Taneja, 2008) the big question is: will this model continue to work for LCCs in the future? The answer to this question will all depend upon how they react, to various partnerships and the better service that is offered by the FSCs. As this is the most important fact that allows the LCCs, to able to offer the competitive prices, without providing these extra services. At the same time, LCCs could be on the verge of redefining the international travel market. Given the increasing open skies agreements and alliances that have been formed, Air Asia appears to be achieving this objective. Yet, there are also new challenges that the company will be facing in the future. To determine if the company is successful at achieving its objectives: a literature review, survey and analysis will be conducted that will test this hypothesis. Where, we will compare Thai Air Asia with Thai Airways, to see how the industry is changing. Once this take place, it will identify what possible issues could be affecting the industry in future and it will provide insights, as to how Air Asia is changing the Asian passenger air industry.

Chapter 2

Literature Review

2.1: Introduction

This chapter will examine the underlying trends that are occurring in the industry, by looking at how Thai Airways and Thai Air Asia are helping to reshape air passenger service throughout region. This will be accomplished by looking at a variety of different sources that will discuss: the past / current trends that have taken place in the sector, roles of various governments', the business model of LCCs, how FSCs are adjusting to these new trends and the challenges facing LCCs. These different elements will be essential in establishing a basic foundation, as to what changes are taking place and what the industry could look like in the future.

2.2: Past / Current Trends

Over the last several decades the industry has underwent tremendous changes. According to Doganis (2006), the trends that have been occurring in the airline sector since the early 1970's, have been helping to reshape air passenger service throughout Asia. Where, the industry accounted for just 13% of the world passenger traffic market share (during this time), as the majority of airlines were focused on European and North American air travel. Since that time a shift occurred, as the industry would begin to see above average growth. This information is significant, because it highlights the overall long-term trend that has been taking place throughout the region. Where, it is helping to provide insights, as to when the growth of the industry occurred and what were the effects upon...

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Where, the sharp increase in demand has provided enough stability in the industry, to make opening such businesses profitable. This information can be used with the research from the proposal, to corroborate the underlying trends within the industry. At which point, it can help confirm the different views that consumers have about the airlines.

Moreover, Tamasy (2008) discussed about the effects that Air Asia is having upon the industry. Where, their lower pricing structure and less frills, are helping to create intense competition. This has caused many of the different FSC's to begin creating their own LCC's or they are forming alliances with them. This information is important, because it can help to identify key buying patterns that are occurring and it helps to explain why such shifts are taking place.

The various ideas that are discussed, can explain how and to a certain extent why, these changes are occurring in the industry. At the same time, it can help to explain how the FSCs are evolving to adapt to these changes. This will provide an overall view as to what kinds of trends are occurring in the industry and what changes are taking place. Where, the information can be used in conjunction with other pieces of information (such as the one previously discussed) to highlight the extent of what is happening.

At the same time other sources are corroborating these shifts; according to the SWOT Analysis for Air Asia (2008), the information conducts a SWOT analysis of the different various: strengths, weaknesses, opportunities and threats that Air Asia could be facing in the future. The different strengths of the airline would include: they use information technology effectively, low costs, they have an outstanding brand name and a good management structure. The various weaknesses would include: lots of customer complaints and the airline does not own its own maintenance equipment / facilities. The different opportunities would include: rising income levels, strategic partnerships, fuel hedging and various open skies agreements. The various threats would include: volatility in the prices of airport fees / taxes and new carriers / existing players entering the market. These different areas are significant, because they highlight the overall scope of the problem that is being faced by the industry. As the different factors that affect Air Asia will also have an effect upon the entire sector. (Kulothunkan, 2010)

This research that was conducted previously helps to correlate a variety of factors that could be affecting the industry. Where, these different concepts can be used from the responses in the questionnaire, to determine the underlying elements that are affecting why consumers will chose one particular carrier over the other. This will help to improve the overall levels of understanding, as to what specific factors could be affecting these decisions and how they could impact the future. Once this takes place, the information can be corroborated with previous pieces of literature, to determine how the air line sector is evolving in response to these views.

2.3: The Role of Various Governments

Various governments throughout the region have had a major impact upon, the development of air passenger service. According to the piece of literature written by Bowen (2000), the author examined the changes of airline industry in Asia between 1979 and 1997. Where, they found that the industry's growth during this time was attributed mainly to: government spending in airport / infrastructure development and the liberalizing of the various air regulations. This information is important, because it can be used to highlight another factor that is helping contributing to the development of the industry in Asia. Where, these policies were utilized by a number of different governments throughout the region. This would have an impact in helping to shape how FSCs and LCCs would operate. As these policies would make it easy for startup airlines, to enter the industry and allow the larger carriers to adjust their cost structures.

This source of information is useful, because it can be used to show another factor that was helping contribute to the growth of the industry. As the various policies from governments during the time frame studied, would help provide the foundation for future growth. This will help with the research; by highlight the effect that these policies would have on the industry. At which point, this information can corroborate other research on the historical growth of the industry and what specific factors led, to the development of the airline sector.

Forsyth (2006) discussed the effects that the Association of South East Asian Nation (ASEN) is having…

Sources Used in Documents:

This information is useful, because it can highlight some of the different challenges facing the industry. Where, these different factors could affect the profitability of many carriers and the fares / services that they are providing to consumers. This can be used in conjunction with the results of the surveys; to see how the overall cost structure is having an impact upon both Thai Asia Air and Thai Airways. Once this takes place, it could provide a more complete picture, as to how these different challenges are affecting the industry and what could be the possible impact in the future.

Moreover, Gluckman (2007) discussed on the impact that Air Asia has had upon the industry. Where, their low costs and no frills have helped the company to be able to redefine the sector. The reason why is because Air Asia has a very low labor cost structure in comparison with the traditional airlines. Evidence of this can be seen by looking no further than the fact that their labor costs typically account for 17% of the total operating expenses for the company. While the industry average is 30% to 40%, of the total operating expenses that normal airlines must pay. At the same time, the company will fly to airports that are less congested (which have lower landing fees) and they fly reconditioned aircraft. The results of these actions were that Air Asia would redefine the industry by showing how low cost structures, could allow an airline to be competitive. The problem is that the labor costs of Air Asia are some of the lowest in the world. When you compare this to other low costs carriers in markets such as North America or Europe, this is just of fraction of what the LCCs are paying. Over the course of time, as incomes continue to increase, the cost of labour will rise towards the industry average. This is significant, because it shows how Air Asia has identified ways that it can compete over the short to medium term. However, over the long-term is when the airline will face the possibility of having it business model go through severe challenges, as it will not be able to maintain these low costs indefinably.

This information is important, because it shows how Air Asia and many of the other LCCs are able to remain competitive. As their overall labour costs, are significantly lower than any


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