Business firm that I have selected for this assignment is AirAsia Berhad. AirAsia originally founded by government which established in year 1993 and began to operate on November 1996, on year 2001 the heavily-indebted and on verge of bankruptcy AirAsia was bought by Mr. Tan Sri Tony Fernandes the owner of Tune Air Sdn Bhd for only RM1 with RM40 million worth of debt, many were shocked for the decision that he made especially with the RM40million debt. However, he takes the risk and managed to turn the company around and able to generate profit in year 2002 by launching new routes, flights to Thailand, Singapore and Indonesia also by having promotional fees as low as RM1. And today Tony Fernandes has turned AirAsia from RM40million debt into net income worth more than RM1.5Billion by increase new flying routes and developed hubs in Bangkok and Jakarta. Additionally on 2 April 2012 AirAsia had their first flight from Kuala Lumpur to Sydney and at the end of the year AirAsia has made net profit worth RM350.65million.

First of all Demand and Supply concepts can be found in AirAsia Berhad, Demand is defined  defined as desires and willingness to pay price for specific goods or services. As for demand in air travel, it has been increasing compare to years ago as air travel used to be a luxury services but now it has become needs for everyone. Therefore with such demanding air travel will remain inelastic as travelling to other countries with airplane has turn out to be one of the most common transport in the world. Demand for air tickets can be affects by substitute, complementary goods and level of income. For example substitute good such as MAS airline air tickets price is higher than AirAsia thus demands for AirAsia air ticket will increase significantly because price offered by MAS is more expensive while everyone prefers cheaper air tickets.

Below DIAGRAM 1A has shown how substitute good affect Demand Curve.

DIAGRAM 1A

During peak season such as Hari Raya, Deepavali, Chinese New Year, Christmas and school holiday as well. Demand for air tickets for both airlines company MAS and AirAsia increase tremendously but MAS price is slightly higher than AirAsia which make people to choose AirAsia as the price is cheaper. Therefore demand curve for AirAsia will shift to right due to more people prefer price offer by AirAsia. As for Supply, it can be affected by various reasons as well; State of nature, and Technology. For instance Natural Disaster, ash cloud caused by volcano eruption in Iceland has been affect all over the places in the world where most of the air transport has to cancel or postponed due to ash cloud so supply for air tickets will decrease because of natural disaster.

 Below DIAGRAM 1B has shown how Natural Disaster affects shifting of Supply Curve

DIAGRAM 1B

Throughout the Christmas holiday, many people will take this opportunity to go for vacation in other country, but due to volcano eruption has causes ash cloud started to spread to all over the world which will cause air pollution and air transportation unable to depart, hence supply for air tickets will decrease as people tend to stay at home rather than inhale polluted air which is the reason to fall sick and automatically supply for sir tickets will shift to left.

Another economics concept can be found in AirAsia is Market Equilibrium, market equilibrium is a situation for firms when supply of a good or product is same as demand, this happen when buyers and sellers agree on price and quantity.

 Below is the DIAGRAM 1C for example of Market Equilibrium

DIAGRAM 1C

As you can see that, the equilibrium price p is exactly same as quantity q where buyers willing to buy same amount of the sellers willing to sell. In place of AirAsia no matter how many air tickets they are offer to sell or pre-book consumers willing to buy because air tickets is like a need for us such as outstation businesses. They are travelling around the world to accomplish tasks; projects, presentation, meeting or arrangement by company to situated at another headquarters in another country. Besides that, during peak such as Hari Raya, Deepavali, Chinese New Year, and Christmas and school holiday as well AirAsia will increase the supply of air tickets because they know that in this period travelers will increase drastically as well as demand for air tickets due to many people tend go for vacation or visiting family in hometown during holiday. Therefore AirAsia will not face surplus or shortage issues when the amount they willing to supply have the same requirement of demand by customers.

Other than Supply and Demand, Elastic demand is practice by AirAsia. Elastic demand is defined as demand for good or services are strongly affected by the change in price. When the price of certain good or service is lower than others people will buy more and people will buy less if the price of good or service has increase. Say for example AirAsia offers discount as much as 50% air tickets hence quantity demand for air tickets will increase tremendously because it will attract more people to pre-book.

Below is DIAGRAM 1D to explain Price Elastic

DIAGRAM 1D

Air ticket original price is (P1) RM100 decrease to (P2) RM70 while the original quantity demanded for air tickets (Q1) 100 increases to (Q2), which can be conclude as Elastic Demand is one of the concepts can be easily affect AirAsia as diagram above has shown when a 30% decrease in price quantity demanded increase 100%.

On the other hand AirAsia counted in oligopoly market structure. Oligopoly defined as a situation of particular market controlled or dominates by few firms; oligopoly is kind of similar to monopoly where monopoly is controlled by one firm whereas oligopoly is controlled by at least two firms. AirAsia can be considered to oligopoly firm as result shown that it manages to dominate low cost airline market with net income worth RM1.88billion.

Below is an example of Oligopoly graph

DIAGRAM 1E

In an oligopoly, slightly little changes made by competitor firm may cause reactions to others. In normal market, each company try to maximize its own profit without bearing in mind of other competitors counter reaction, however in an oligopoly,  a company must consider the possible effects of its decision and action on other firms.

For instance, AirAsia travelers were offered to pay RM1 for air tickets whereas tax and fuel surcharge is normal price, reason is to cuts prices to understate the competitive firms; on the other hand lower fare actions made by AirAsia causes other competitors also offer low fare or even free fly for travelers in order to compete with AirAsia, at the end result in profits gain by everyone has been reduce.

On the other hand, based on the short run concept, short run is where a firm only able to influences prices through adjustment made to production level. When AirAsia was bought over by Tony Fernandes, there will be a short run and long run goals that the firm would like to achieve. Short run refer to less than a year and long run would be more than a year. So as the case for AirAsia, in the short run they would have just a few workers and small offices. Therefore in the short run price will be inelastic for the quantity demanded as it is not sensitive to price yet. Besides that, in the first year, AirAsia is known as a newbie in airlines industry where not many people know about it. When come to the long run, AirAsia became successful and starting to grow, thus they employ more pilots and air stewardess to work for them. As time passes, demand for AirAsia air tickets increase and it will become price elastic because many people would demand for it. Therefore AirAsia able to buy spare parts and services for aircraft, increase new routes, buying new landing rights and increase subsidiary in other country such as India, Thailand, Philippines and Indonesia. Because of long run strategy, AirAsia implement new plan to add production line which is AirAsia X is their first international operation brand and Asia’s largest low cost carrier and AirAsia X flying route is basically to Sydney Australia by the time it just established. Normally for those well-known airlines industries, in the long run it will be price elastic. As said earlier that many people would demand for it, because its offer lower price compares to other airlines industry and inflight service is equal to other well-known airlines. The diagram below shows the short run and long run curve. There are many short run curves because one long run period there will be many short run periods. As for my case, in the short run, many things must be done or improved by AirAsia. Then again, in the long run they have already been successful.

DIAGRAM 1F

In conclusion, with current co-founder and director I do believe that AirAsia can be compete with other well-known airlines company and continue to pursue their main goal “Now Everyone Can Fly” to increase more passengers and grow bigger to get acknowledgement to become the best and most preferred airlines company in the world if he, Mr Tan Sri Tony Fernandes stick to his “Low Cost Airlines concepts”. Overall what’s make AirAsia different from other airlines company is, AirAsia ticketless system where everyone can book online through computer also inflight check-in is available for all smartphone user and AirAsia trump card to compete with other success airlines company is their low cost airline where inflight services is alike to other airlines and most important is their price is cheaper.

REFERENCES

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