Tuesday, November 26, 2013

Airasia VS MAS

Airasia got the better out of the price war with MAS, although both airlines’ financials were hammered in the third quarter due to excessive discounts thrown to win passengers.

Going forward, most were of the view that Airasia would suffer less from a continuing price war, given its lower cost structure. While some said MAS could try to sustain the price war, that’s premised on the MAS being able to contain its operating costs.

Airasia stood a better chance than MAS when it comes to cutting prices. Airasia’s main focus is cost reduction and load factor optimization, where it had been making positive progress.

Airasia is handling it rather well. They are deploying modest capacity growth of about 10% and not fixated on battling for market share. However MAS could sustain the fare war better had it not over discounted its tickets.

MAS took on wrong strategy in the third quarter. It was more focused on passenger load. Had it been more selective in the discounts, it would have made profits during the price war.

MAS brought fares down sharply in the 3Q, even though its cost of operations is substantially higher than the low cost carrier. The idea was to gain traffic and increase the top line which should have helped the bottom line as well. But that assumption did not hold.

Operating costs increased as flights were fully booked but MAS did not churn out enough profit due to the high discounts in tickets to compete in the industry.

Being too focused on load factor will cause problems, you need to be balanced so that you achieve a decent level of yields.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.