Essay about Low-cost Carrier and Competitive Advantage

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Today’s ever changing world economy seems to be vibrant and affluent with economic activity that enables society to grow and prosper. Even against every economic downturn the economy seems to balance itself to both re emerge and reinitiate itself on the route to wealth creation and prosperity. This growth mechanism is essential to the transformation of the world economy over the past centuries, and decades. The key characteristic of the economy’s transformation however is its ever ending ability to supply and sustain the constantly emerging needs and wants of society, with the help of innovation. Markets nowadays are much more evolved than markets a hundred years ago, and that is because they have been injected with constant innovations that transform them to new levels. Constant innovations such as the internet, cars, planes, Facebook, Smartphones, online shopping etc., have both revolutionized and further developed the economy. The idea of an innovation is widely known, however the depth of its meaning is not so, due to the multiple discrepancies associated with it. Innovation is defined by Swann (2009) as “the successful exploitation of new idea.” Furthermore (Frankelius, 2009) stated that it is “the application of better solutions that meet new requirements, inarticulate needs, or existing market needs. This is accomplished through more effective products, processes, services, technologies, or ideas that are readily available to markets, governments and society.” As such on a larger scale innovation helps the economy grow by developing its market structures that consist of firms continuously innovating to gain competitive advantage in the marketplace. Competitive advantage is an advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retains more customers than its competition (Investopedia, 2013). The ideal of innovation and competitive advantage is evident in the case of AirAsia Asia’s most successful budget airline. Entrepreneur Tony Fernandes is closely associated with AirAsia’s development. Fueled by his interest in low cost budget airlines, he and Conor McCarthy, former operations director of Ryanair, quickly initiated a plan for a budget airline that would serve the growing Southeast Asian Market. Fernandes was encouraged by the then Prime Minister of Malaysia, Dato Sri Dr. Mahathir Mohamad to instead acquire a struggling government owned airline, AirAsia and reemerge it. As such AirAsia was acquired with only 1 Malaysian Ringgit (RM), but however carried along RM 40 million worth of debts (Grant, 2013). However with a successful exploitation of the Malaysian market for leisure and business travels, and a successful strategy of internationalization, AirAsia would rapidly grow to become a success. AirAsia’s success is closely associated to an innovative strategy, which resulted in a competitive advantage. The strategy itself consisted of developing and diffusing the radical innovation of implementing and operating a low cost carrier (LCC) model in South-east Asia, increasing market share through continuous process innovations and innovative pricing, fostering internal innovation, and finally sustaining innovation by securing further market opportunities.

The first step of AirAsia’s competitive advantage was to radically innovate by introducing in Malaysia the LCC model to meet the “market needs” of society, which were inexpensive domestic transportation. This demand for cheap travel transportation was in effect a result of a rising prosperity and increase market for leisure around Southeast Asia. As such the ideal of a market underutilized allowed AirAsia to quickly establish itself on its frontiers. This radical innovation and establishment in the market allowed Airasia to gain competitive advantage by fully operating the budget airline on minimum cost, which led to cheaper ticket prices. After establishing its radical innovation Airasia looked to diffuse
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