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AirAsia X

Mini Case

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The St.Gallen MBA Admissions 2013Case Study Analysis

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Published for exclusive use by the University of St. Gallen. It is not permitted to reproduce this material.

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Introduction to the Case Study Analysis

Dear MBA candidate,

Congratulations on your choice to apply for the St.Gallen MBA! As part of our admissions

process, we would like to get to know you better and get an impression of your analyticcapabilities. For that matter, we ask you to work on this mini case study.

Do not be intimidated by the fact that this exercise focuses on an economic topic, especiallyin the case that you have no prior business education. There is no single right solution to thiscase, and we do not expect you to deliver a perfect textbook solution. We are moreinterested in the way you approach problem sets, your logical reasoning and your ability todevelop a consistent line of argument when it comes to proposing a solution.

Depending on the case setting, you are asked to assess or critique a decision that hasalready been made, develop and propose a solution to an identified problem, or make anactual decision. When working on the case, both the insiders perspective (manager, CEO,CFO, employee, etc.) and the outsiders perspective (financial analyst, consultant,stakeholder, shareholder, etc.) are an option for the angle of your analysis. Please let usknow what perspective you chose.

Be aware that not all the information is necessarily given in the case, so you can base certainarguments on assumptions, as long as you introduce them in your analysis.

On the following page, you will find some guiding questions that we expect you to answer inyour mini case analysis. The maximum length of your answers is 500 words.

Here are some tips you can keep in mind when writing your analysis:

There is no right or wrong answer. Focus more on analytics and logical reasoning

Remember that what really happened is not always what should or could havehappened

Be creative in identifying the scope of potential problems and solutions

Chose a role/perspective that you can identify with, and work on the case from thatparticular angle

Try to answer most of the guiding questions in an integrated manner, rather thenanswering each and every question separately

Have some fun in solving the case study

Good luck in the case preparation!

The St.Gallen MBA Admissions Team

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Guiding Questions to the Mini Case

1) What are the potential rewards of AirAsia withdrawal from certain routes?

2) What are the risks of this decision?

3) What unique advantage(s) does AirAsia possess compared to other airlines?

4) Is the low-cost business model for airlines sustainable?

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AirAsia X to cut long-haul services

By Sarah Mishkin and Rose J acobs

J anuary 12, 2012

High costs and low demand have pushed AirAsia X, the long-haul, low-cost airline launchedby Malaysian entrepreneur Tony Fernandes, to withdraw from Europe and cut flights to India.

Azran Osman-Rani, the airlines chief executive, said that high fuel prices and costs relatedto Europes emissions trading scheme compromise our ability to offer the low fares thatAirAsia X is known for, while the weak European economy and exorbitant taxes such asthe UKs air passenger duty had depressed demand. The cuts underscore the difficulties thatairlines face in trying to adapt a low-fare model for longer routes where fuel costs, andpassenger expectations, are higher.

Longer distances limit the impact of traditional cost efficiencies, such as reducing turnroundtimes in order to squeeze in extra flights. There are no gains to be had sweating the assets,said Gerald Khoo, an analyst at Espirito Santo. With seven- to 14-hour flights, even if youcut your turnround times, youre not going to get in an extra one.

AirAsia X, an affiliate of Kuala Lumpur-based AirAsia, will stop flying to London, Paris andNew Delhi at the end of March and to Mumbai by the end of this month. The airline now flies

to London Gatwick six times a week, Paris and Mumbai four times weekly, and daily to NewDelhi.

Mr Fernandes said on Twitter that the airline would instead expand elsewhere, includingJ eddah, Korea, J apan, Australia and China. Pioneer AirAsia X is learning. Its now got themagic formula and will soar. One aircraft type and the right range, tweeted the entrepreneurknown for his trademark red baseball cap.

The move also reflects the budget airlines new co-operation with Malaysian Airline System,the countrys flag-carrier. AirAsia and MAS agreed to a share swap and partnership lastAugust. The unprofitable MAS is trying to revive itself by focusing on the premium end of themarket. The airline has pulled out of some budget routes on which it had competed withAirAsia and will upgrade its own service to London by using a new A380 on the route.

Despite AirAsia Xs troubles with its long routes, other Asian airlines are also trying out low-frills models. Singapore Airlines is in the process of launching a low-cost affiliate, Scoot,which it first announced last May. Its first route will be between Sydney and Singapore and itis expected to begin flying later this year.

Scoot will compete directly with J etstar, the highly successful budget subsidiary of AustraliasQantas. The fast-growing J etstar is joining up with J apan Airlines and Mitsubishi Corp, the

J apanese trading company, to launch J etstar J apan.

Source: http://www.ft.com/cms/s/0/042e0a30-3d14-11e1-8129-00144feabdc0.html, accessed J anuary

2012