Menu

A Significant Problem of the Airline Industry and the Profitability of the Company

0 Comment

The Rivalry is a major factor that influences the operation of a business in the industry. At present, there are 10 best budget airlines operating in Asia that has been rated by Smart Asia Travel, an online travel magazine (rediff.com, 2008) as Asia’s top 10 budget airlines. On the basis of cheap tickets, reliable schedules, decent service, route network and access, Air Asia has been rated number one by this travel magazine. Other budget airlines that follow are Jetstar Asia, Nok Air, Tiger Airways, Cebu Pacific, Virgin Blue, Air Deccan, Spice Jet, Viva Macau and Hongkong Express. Rivalry among the budget airlines is considered intense because of its big number that competes for the same number of customers and market shares. Thus, there is a continuing race for leadership in budget airlines. Others reasons that intensify rivalry among budget airlines are the high fixed costs that require airlines to implement strategies to attract passengers and fill the airlines into the full capacity to attain the lowest cost per unit. High fixed cost is required in operating an airline, thus Air Asia needs to sell to a large number of passengers in order to attain profitability. This situation leads to the increased rivalry. Because of these high fixed costs, a firm finds it hard to make an exit in the industry. Take, for example, the situation of Air Asia that incurred huge losses before 2001 when it was owned by the government. The takeover of Tony Fernandez, a private investor revived the business and steered it to profitability.