1.

INTRODUCTION

1.1

AirAsia - No frills!
Welcome aboard AirAsia! When AirAsia was launched as a low fare, no frills

carrier in January 2002, it began operations with the mission to make flying affordable so
everyone can fly. With four routes and two planes to start with, its low fares, no frills
concept was introduced to Malaysians. The low fares were certainly good news to many,
a majority of whom had never flown before.
As I reckon AirAsia (www.airasia.com) is among the biggest airways in our
country. Besides being famous, this is one airline that offers customers most reasonable
ticket pricing. AirAsia does its offers and discount for flight tickets frequently and it does
have attracted a lot of consumer and in times they are tickets discounts up to a price
that sometimes we as a purchaser cant believe our eyes. As we know AirAsia is a
ticketless airline which means it doesnt require a ticket to board a plane. All you need is
your identification card and they will check your reservations made earlier thru telephone
services, online booking and the latest is thru AirAsias GPRS its a based ticketing
system.

This new and improved service of AirAsia is the only one of its kind in the world.
Its easy and will save people a lot of time. All the customer need to do is just follow its 8
simple steps thru ones hand phone. This service requires ones phone to be installed
with the GPRS service system that can be provided by the telecommunication network
retailers or store. In other words, AirAsia is promoting and practicing E-Commerce in
their everyday operation. (Please refer to Appendix 1)
1.2

Electronic Commerce (E-Commerce)

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Electronic Commerce is exactly analogous to a marketplace on the Internet.

Electronic Commerce (also referred to as EC, e-commerce eCommerce or
ecommerce) consists primarily of the distributing, buying, selling, marketing and
servicing of products or services over electronic systems such as the Internet and other
computer networks. The information technology industry might see it as an electronic
business application aimed at commercial transactions; in this context, it can involve
electronic funds transfer, supply chain management, e-marketing, online marketing,
online transaction processing, electronic data interchange (EDI), automated inventory
management systems, and automated data collection systems. Electronic commerce
typically uses electronic communications technology of the World Wide Web, at some
point in the transaction's lifecycle, although of course electronic commerce frequently
depends on computer technologies other than the World Wide Web, such as databases,
and e-mail, and on other non-computer technologies, such as transportation for physical
goods sold via e-commerce.
E-Commerce according to Person Halls book E-Commerce started in 1994 with
the first banner ad being placed on a website.
According to the October 2006 Forrester Research report entitled, "US
eCommerce: Five-Year Forecast And Data Overview, "Low-cost carrier online booking
revenues will top the quarter-trillion-dollar mark by 2011. The driver of this growth? A
segment of consumers that is extremely comfortable with technology and values
convenience above all else in the online booking experience. As AirAsia begin to wade
through their copious data base and understand the who, what, when, where, why, and
how of this segment, they will benefit from targeting its customers.

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The commercialization of the Internet and the World Wide Web during the 1990s
presented a golden opportunity for thousands of companies scattered across the globe.
Large multimedia companies realized that the Internet provided them with the means to
better coordinated their worldwide operations, to slash certain operation costs; to market
their goods and services to millions, if not billions, of new customers; and generally, to
become more efficient, more competitive, and more profitable.

The owners and

managers of throngs of small and mid-sized companies recognized that the Internet
gave them, for the first time, a feasible method for expanding their operations into
international markets.

Electronic commerce or e-commerce is the part of e-business that deals with the
buying and selling of goods and services electronically with computerized business
transactions using the Internet, networks, and other digital technologies. It is also
defined as short for electronic commerce; this general term refers to the emerging
market for conducting business transaction across the web. Though still in its earliest
stages, most industry analysts project steady growth for e-commerce over the next
several decades. Instead, many futurists envision a day when the majority of all buying
and selling is consummated across the web.

Commerce is the interchange of goods or services, especially on a large scale.

In the past, trading typically took place face-to-face between parties. Over the centuries
and decades, trading has continued to become more sophisticated. At this time, a large
percentage of transactions are no longer done face-to-face, but are conducted over a
telephone or via mail, with the exchange of new Plastic money.

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The major difference between the way in which electronic commerce has been
conducted until now and the way it is now proposed to operate relates to a paradigm
shift: moving from using a closed private network, in which two parties have previously
established some type of agreement, to utilizing an open public network such as the
Internet, without any prior knowledge of the buyer.

In effect, that is how regular

commerce takes place: anyone can walk into any store and buy something without
having to be previously known by the store personnel. The Internet and the ancillary ecommerce software allow transactions between parties that do not previously known
each other.

As E-Commerce is buying and selling processes supported by electronic means,

primarily the internet. There are many ways in which electronic commerce transaction
can be classified. One is by booking at the participants in the e-commerce transaction.
There are three major e-commerce categories.

Firstly, business-to-consumer (B2C) e-commerce. The popular press has paid the
most attention to B2C e-commerce the online selling of goods and services to final
consumers. It involves retailing products and services to individual shoppers. Growing
Internet diversity continues to open new e-commerce targeting opportunities for
marketers. Internet consumers differ from traditional offline consumers in their
approaches to buying and in their responses to marketing. The exchange process via
the internet has become more customer initiated and consumer controlled. People who
use the internet place greater value on information and tend to respond negatively to
messages aimed only at selling.

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Traditional marketing targets a somewhat passive audience. In contrast, emarketing targets people who actively select which Web sites they will visit and what
marketing information they will receive about which products and under what conditions.
Thus, the new world of e-commerce requires new marketing approaches.

The second categories is Business-to-business (B2B).Although the popular press

has given the most attention to business-to consumer (B2C) Web sites, consumer good
sales via the web are dwarfed by B2B (business-to- Business) e-commerce. Using B2B
trading networks, auction sites, spot exchange, online product catalogs, barter sites, and
other online resources to reach new customers, serve current customers more
effectively, and obtain buying efficiencies and better prices. Most major business-tobusiness marketers now offer product information, customer purchasing, and customer
support services online.

Finally, is Consumer-to-consumer (C2C) e-commerce. It is online exchanges of

goods and information between final consumers. Much C2C e-commerce and
communication occurs on the web between interested parties over a wide range of
products and subjects. C2C can involve interchanges of information through forums and
Internet newsgroups that appeal to specific special- interest groups. Such activities may
be organized for commercial or noncommercial purposes. A forum is discussion groups
located an commercial online services such as AOL and Compuserve. A forum may take
the form of a library, a chat room for real time message exchanges ,or even a classified
and directory. C2C means that online visitors dont just consume product information
increasingly, they join Internet interest groups to share information ,with result that word
of web is joining word of mouth as an important buying influence. Word about good

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companies and products travels fast. Word about bad companies and products travels
even faster.

1.3

Historical development

The meaning of the term "electronic commerce" has changed over the last 30
years. Originally, "electronic commerce" meant the facilitation of commercial transactions
electronically, usually using technology like Electronic Data Interchange (EDI) and
Electronic Funds Transfer (EFT), where both were introduced in the late 1970s, for
example, to send commercial documents like purchase orders or invoices electronically.

The 'electronic' or 'e' in e-commerce refers to the technology/systems; the

'commerce' refers to be traditional business models. E-commerce is the complete set of
processes that support commercial business activities on a network. In the 1970s and
1980s, this would also have involved information analysis. The growth and acceptance
of credit cards, automated teller machines (ATM) and telephone banking in the 1980s
were also forms of e-commerce. However, from the 1990s onwards, this would include
enterprise resource planning systems (ERP), data mining and data warehousing.

In the dot com era, it came to include activities more precisely termed "Web
commerce" -- the purchase of goods and services over the World Wide Web, usually
with secure connections (HTTPS, a special server protocol that encrypts confidential

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ordering data for customer protection) with e-shopping carts and with electronic payment
services, like credit card payment authorizations.

Today, it encompasses a very wide range of business activities and processes,

from e-banking to offshore manufacturing to e-logistics. The ever growing dependence of
modern industries on electronically enabled business processes gave impetus to the
growth and development of supporting systems, including backend systems,
applications and middleware. Examples are broadband and fibre-optic networks, supplychain management software, customer relationship management software, inventory
control systems and financial accounting software.

When the Web first became well-known among the general public in 1994, many
journalists and pundits forecast that e-commerce would soon become a major economic
sector. However, it took about four years for security protocols (like HTTPS) to become
sufficiently developed and widely deployed. Subsequently, between 1998 and 2000, a
substantial number of businesses in the United States and Western Europe developed
rudimentary web sites.

Although a large number of "pure e-commerce" companies disappeared during

the dot-com collapse in 2000 and 2001, many "brick-and-mortar" retailers recognized
that such companies had identified valuable niche markets and began to add ecommerce capabilities to their Web sites. For example, after the collapse of online

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grocer Webvan, two traditional supermarket chains, Albertsons and Safeway, both
started e-commerce subsidiaries through which consumers could order groceries online.
The emergence of e-commerce also significantly lowered barriers to entry in the
selling of many types of goods; accordingly many small home-based proprietors are able
to use the internet to sell goods. Often, small sellers use online auction sites such as
EBay, or sell via large corporate websites like Amazon.com, in order to take advantage
of the exposure and setup convenience of such sites.

As for Airasia, in terms of e-commerce business models, it falls under the

categories of Business-to-Consumer (B2C) because it consists of the sale of product or
services from a business to the general public or an end user. For example,

AirAsia can also be considered as practicing Business-to-Business e-commerce

business models as it consists of the sale and exchange of products and service
between businesses. For example, and the type of business industry AirAsia focus on is
low-cost airline carrier services.

It is not easy for new firms to establish a profitable e-commerce business in an

entirely new market niche. Thousands of firm in the e-commerce era discovered they
could spend other peoples invested capital much faster than they could get customers
to pay for their products and services. In most instances of failure, the business model of
the firm was faulty from the very beginning. In contrast, successful e-commerce firms

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have business models that are able to leverage the unique qualities of the Web, avoid
legal and social entanglements that can harm the firm and produce profitable business
results. But what is a business model and how can you tell if a firms business model is
going to produce a profit?

2.0

EIGHT KEY ELEMENTS OF A BUSINESS MODELS

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A business model is a set of planned activities (business processes) designed to

result in profit in marketplace. The business model is at the centre of the business plan.
A business plan is a document that describes a firms business model. An e-commerce
business model aims to use and leverage the unique qualities of the Internet and the
World Wide Web. Above are eight key elements to develop a successful business model
in any area, not just e-commerce.
2.1

Value Proposition

The first step in the articulation of the business model is to clearly specify the
value proposition for the business. A value proposition defines how a companys product
or service fulfills the needs of customers. From the consumer point of view, successful ecommerce value propositions include:
Personalization and customization of product offerings,
Reduction of product search costs,
Reduction of price discovery costs, and
Facilitation of transactions by managing product delivery.
For instances, on 23 of March 2006, AirAsia successfully moved its operations to
the new Low Cost Carrier Terminal (LCCT). This is a major milestone as it is the first
dedicated terminal for low cost carrier operations in the world. The LCCT is designed to
cater for 10 million passengers per annum with 30 parking bays for aircraft. It is
upgradeable to cater for 15 million passengers if required. This terminal provides us with
numerous cost saving opportunities as well as a more efficient operation.
The phenomenal growth of AirAsia reflects its vision to become an ASEAN brand.
As one of the leading low fare airline in the region, AirAsia is the epitome of ASEAN with
its rich cultures and wealth of resources. The airline further aspires to bring low fare

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travel to the people of ASEAN, and to encourage and boost trade and tourism amongst
countries in ASEAN.

2.2

Revenue Model

A firms revenue model describes how the firm will earn revenue, generate
profits, and produce a superior return on invested capital. The function of business
organizations is both to generate profits and to produce returns on invested capital that
exceed alternative investments. Profits alone are not sufficient to make a company
successful. In order to be considered successful, a firm must produce returns greater
than alternative investments. Firms that fail this test go out of existence.

Retailers, for example, sell a product, such as a personal computer, to a

customer who pays for the computer using cash or a credit card. This produces revenue.
The merchant typically charges more for the computer than it pays out in operating
capital expenses, producing a profit. But in order to go into business, the computer
merchant had to invest capital - either by borrowing or by dipping into personal savings.
The profits from the business constitute the return on invested capital, and these returns
must be greater than the, merchant could obtain elsewhere, say, by investing in real
estate or just putting the money into a savings account. Although there are many
different e-commerce revenue models (refer figure below) that have been developed,
most companies rely on one, or some combination, of the following major revenue
models:
The advertising revenue model,

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 The title subscription revenue model,

The transaction fee revenue model,
The sales revenue model, and
The affiliate revenue model.

2.2.1

The Advertising Revenue Model

2.2.2

The Title Subscription Revenue Model

2.2.3

The Transaction Fee Revenue Model

2.2.4

The Sales Revenue Model

2.2.5

The Affiliate Revenue Model

2.2.6

The Advertising Revenue Model

2.2.1

The Advertising Revenue Model

In this model, a Web site that offers its users content, services, and/or products

also provides a forum for advertisements and receives fees from advertisers. Those Web
sites that are able to attract the greatest viewer-ship or that advertising revenue have a
highly specialized, differentiated viewer-ship and are able to retain user attention
(stickiness) are able to charge higher advertising rates.
For instance, these days, we are bombarded with advertisements everywhere we
go. Due to the advertising clutter in traditional media, we now need bigger budgets to
ensure the effectiveness of our campaigns. So in another effort to help us save, AirAsia
now offers a new and more effective way to advertise... AirSpace Advertising.
AirSpace Advertising assures less clutter and very captive audience. (Please refer to
Appendix 2)
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2.2.2

The Title Subscription Revenue Model

In this model, a Web site that offers its users content or services charges a

subscription fee for access to some or all of its offerings. To successfully overcome the
disinclination of users to pay for content on the Web, the content offered must be
perceived as a high-value-added, premium neither offering that is not readily available
elsewhere nor easily replicated. For instance, AirAsia offers E-Gift Vouchers to its
customers who are interested to buy ticket vouchers for their family or loved ones with
the use of e-mail based request and credit cards. (Please refer Appendix 3)

2.2.3

The Transaction Fee Revenue Model

In this model, business offer services for which they charge a fee that is based

on the number or size of transactions they process. Some of these services lend
themselves well to operating on the Web. To the extent that companies can offer Web
visitors the information they need about the transaction, companies can offer much of
the personal service formerly provided by human agents. If customers are willing to
enter transaction information into Web site forms, these sites can provide options and
execute transaction much less expensively than traditional transaction service providers.
For example, AirAsia are charging tax, surcharges, administration, processing and
service fee to maintain their business .(Please refer Appendix 4)

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2.2.4

The Sales Revenue Model

In this model, companies derive revenue by selling goods, information, or

services to customers. This revenue model has proven to be successful for a wide
variety of consumer items, including apparel, computers, electronics, house wares, and
gifts. Customers can place orders through the Web site or by telephone. This flexibility is
important because many consumers are still reluctant to buy on the Web. Most
companies that use the sales revenue model do give customers a way to complete the
payment part of the transaction by telephone or by mail. For example, with its brilliant
Ticketless or Online Flight Booking, its so convenient and cheap when traveling with
AirAsia. (Please refer Appendix 5)

2.2.5

The Affiliate Revenue Model

In this model, sites that steer business to an affiliate receive a referral fee or

percentage of the revenue from any resulting sales. For example, on 14 August 2006,
AirAsia announces Buy 1, Get 1 Free promotion in conjunction with the Groups
success in surpassing its 20 millionth passenger mark in June 2006.

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2.3 Market Opportunity

The term market opportunity refers to the companys intended market space (i.e.,
market opportunity an area of actual or potential commercial value) and the overall
potential financial opportunities available to the firm in that market space. The market
opportunity is usually divided into smaller market niches. The realistic market opportunity
is defined by the revenue potential in each of the market niches where you hope to
compete.

For instance, lets assume you are analyzing a software training company that
creates software-learning systems for sale to corporations over the Internet. The overall
size of the software training market for all market segments is approximately RM70
billion. The overall market can be broken down, however, into two major market
segments: instructor led training products, which comprise about 70% of the market
(RM49 billion in revenue), and computer-based training, which accounts for 30% (RM21
billion).

Within each of those major market segments there are further market niches,
such as the Fortune 100 computer-based training market, and the small business
computer-based training market. Because the firm is a start-up firm, it cannot compete
effectively in the large business, computer-based training market (about RM15 million).
Large brand-name training firms dominate this niche. Its real market opportunity is to sell
to the thousands of small business firms who spend about RM6 billion on computerbased software training and who desperately need a cost-effective training solution. This
then is the size of the firms realistic market opportunity.

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So in terms of AirAsia, low-cost carriers represent the biggest revolution in the

airline industry, and their potential is huge in the Asian region. It did not eat into the
market of the regular "legacy" carriers but had created new markets, a development that
was very good for the airline industry. While Malaysia Airlines is trying to turn its
business around, its competitor AirAsia has successfully flown its budget-travel concept
to the mainstream, recently taking over many of MAS' domestic routes.

AirAsia focus on really understanding consumer needs and problems. By

increasing their consumer insight, they are able to develop new products that solve
these needs and problems. For example, it was because of their guests suggestion that
they decided to have multiple languages in their websites something of which they are
eternally grateful. It might seem like a simple suggestion, but the results are
phenomenal. To date, over half of AirAsia sales are via internet booking and it is steadily
rising.

AirAsia philosophy is very clear: before a business can grow, it needs to have its
costs under control. It must be cost-efficient and profitable, and it must create value.
Costs that do not add value must be contained, reduced and even eliminated. How
much lower can AirAsia cost reduce? Its already the lowest in the world! The direct
answer is if AirAsia do not strive to be more efficient and choose to be complacent
their days are numbered. This is a continuous task they have to face head on year on
year; it is the critical ingredient to operate a successful business.

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2.4

Competitive Environment

A firms competitive environment refers to the other companies operating in the

same market space selling similar products. The competitive environment for a company
is influenced by several factors:
how many competitors are active,
how large their operations are,
what the market share of each competitor is,
how profitable these firms are, and
how they price their products.

Firms typically have both direct and indirect competitors. Direct competitors are
those companies that sell products and services that are very similar and into the same
market segment. Indirect competitors are companies that may be in different industries
but still compete indirectly. Automobile manufacturers and airline companies operate in
different industries but they still compete indirectly because they offer consumers
alternative means of transportation.

The existence of a large number of competitors in any one segment may be a

sign that the market is saturated and that it may be difficult to become profitable. On the
other hand, a lack of competitors could either signal an untapped market niche ripe for
the picking or a market that has already been tried without success because there is no
money to be made.

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In this case, Indonesias main attraction for air carriers is that it boasts Southeast
Asias largest population, marooned on thousands of islands. Carriers that do well in
Indonesia will have the profits to expand elsewhere in the region. Of Indonesias 220
million people, it is estimated that between five and seven million only travel within the
3,000 mile-wide archipelago by airliner. In 2005, they took about 29 million trips. That is
likely to grow by 20 percent this year, as it has every year since deregulation became a
reality in 2000. At this rate, the market will equal 60 million trips by 2010 if the economy
holds up.
Competitors, particularly Lion, AdamAir, Batavia, Srivijaya and the national
carrier, Garuda Indonesia, will not surrender market share or passengers easily. They
have been battling fiercely and have the know-how to win in the Indonesian market.
AirAsia has a fighting chance. It enters the arena with plenty of experience from
Malaysia and Thailand, plus that of investors and advisers from Europe, including Conor
McCarthy, the brains behind Ryanair.

2.5

Competitive Advantage

Firms achieve a competitive advantage when they can produce a superior

product and/ or bring the product to market at a lower price than most, or all, of their
competitors. Firms also compete on scope. Some firms can develop global markets
while other firms can only develop a national or regional market. Firms that can provide
superior products at lowest cost on a global basis are truly advantaged.

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Firms achieve competitive advantages because they have somehow been able
to obtain differential access to the factors of production that are denied to their
competitors at least in the short term. Perhaps the firm has been able to obtain very
favorable terms from suppliers, shippers, or sources of labor. Or perhaps the firm has
more experienced knowledgeable, loyal employees than any competitors. Perhaps the
firm has a patent on a product that others cannot imitate, or access to investment capital
through a network of former business colleagues or a brand name and popular image
that other firms cannot duplicate.

An asymmetry exists whenever one participant in a market has more resources

financial backing, knowledge, information, and/or power than other participants.
Asymmetries lead to some firms having an edge over others, permitting them to come to
market with better products, faster than competitors, and sometimes at lower cost.
For instance, on 31st January 2007, AirAsia announced the availability of its new
AirAsia Vista Gadget that will allow customers to instantly manage and access live travel
information and web-based services directly from their Windows Vista desktop
computers. This move makes AirAsia the first organisation in any industry in the region
to take advantage of the new Vista technology to strengthen its competitive advantage in
its sector and reinforce its commitment to customer service excellence.

2.6

Market Strategy

No matter how tremendous a firms qualities, its marketing strategy and

execution are often just as important. The best business concept, or idea, will fail if it is
not properly marketed to potential customers. Everything you do to promote your

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companys products and services to potential customers is known as marketing. Market

strategy is the plan you put together that details exactly how you intend to enter a new
market and attract new customers.
AirAsia for instance, announcement of a long-haul expansion strategy at a time
when its short-haul operation is undergoing rapid growth requiring significant investment
is an "inspired" strategy, says the Sydney-based Centre for Asia Pacific Aviation (CAPA).
While saying that AirAsia is probably not extending itself too far financially, it
could simply be making itself so attractive to potential investors in this phase of market
development so that it will drive up its potential value for investors.
CAPA's Executive Chairman Peter Harbison said the Asian market is a fertile
breeding ground for investor opportunities, with equal doses of liberalisation and new
travellers opening up massive traffic expansion opportunities.
"AirAsia has the attractions of a large and expanding market share, the lowest
airline costs in the world, a brand name to die for - and unquestionable recent
profitability," he said.

2.7

Organizational Development

Although many entrepreneurial ventures are started by one visionary individual, it

is rare that one person alone can grow an idea into a multi-million dollar company. In
most cases, fast-growth companies especially e-commerce businesses need employees
and a set of business procedures. In short, all firms new ones in particular need an
organization to efficiently implement their business plans and strategies. Many e-

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commerce firms and many traditional firms who attempt an e-commerce strategy have
failed because they lacked organizational structures and supportive cultural values
required to support new forms of commerce.

Companies that hope to grow and thrive need to have a plan for organizational
development that describes how the company will organize the work that needs to be
accomplished. Typically, work is divided into functional departments, such as production,
shipping, marketing, customer support, and finance. Jobs within these functional areas
are defined, and then recruitment begins for specific job titles and responsibilities.
Typically, in the beginning, generalists who can perform multiple tasks are hired. As the
company grows, recruiting becomes more specialized.
For instance, AirAsia is Asias first low-fare, no-frills airline to introduce ticketless
travel. It operates frequent flights and plies routes not covered by mainline operators,
saving costs through the use of modern technologies to manage its operations like online booking and payment facilities, a multilingual Web site offering real-time holiday
packages, mobile phone short message booking and checking of flight schedules, and a
direct "B2B engine" with agents and virtual credit cards. The interesting element is that
the creative team did not come from the airline industry but from the music industry.
They infused techniques used in the promotion of services and advertisements in the
music industry in the new airline. Therefore creativity often involves organizational
development processes rather than recruitment and career management tasks.
2.8

Management Team

Arguably, the single most important element of a business model is the

management team responsible for making the model work. A strong management team

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gives a model instant credibility to outside investors, immediate market-specific

knowledge, and experience in implementing business plans. A strong management team
may not be able to salvage a weak business model, but they should be able to change
the model and redefine the business as it becomes necessary.

Eventually, most companies get to the point of having several senior executives
or managers. How skilled managers are, however, can be a source of competitive
advantage or disadvantage. The challenge is to find people who have both the
experience and the ability to apply that experience to new situations.

To be able to identify good managers for a business start-up, first consider the
kinds of experiences that would be helpful to a manager joining your company. What
kind of technical background is desirable? What kind of supervisory experiences is
necessary? How many years in a particular function should be required? What job
functions should be fulfilled first: marketing, production, finance, or operations?
Especially in situations where financing will be needed to get a company off the ground,
do prospective senior managers have experience and contacts for raising financing from
outside investors?

M. Tony Fernandes (CEO AirAsia Berhad) explained the importance of creating a

motivated and empowered management team. He provided an example of how AirAsia
set up a flight academy and allowed its internal staff to try for admission into the flight
school. There have been AirAsia bag handlers and flight attendants who have
subsequently become pilots.

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AirAsia staff was involved in the company in various ways. Ideas and
suggestions were encouraged, and the motto, Anything is possible, generates the
motivation for staff to excel.
Mr. Fernandes believed that there has been a general neglect of internal
branding as companies tended to focus externally. However, without the staff
understanding the branding of the company, he thought that it was unlikely that the
branding exercise would work. Hence, the staff must first understand the companys
direction before any effort is made to convince others. Midnight briefings with a large
number of staff were also conducted to involve as many as possible. All these measures
created a will to win attitude in AirAsia.

3.0

EIGHT ELEMENTS DIFFERENTIATE E-COMMERCE BUSINESS FROM

TRADITIONAL COMMERCE

3.1

Core Strategic Decisions are Technology-Based

The strategic decisions, about the virtual storefront, customer service, and the
look and feel of the customer experience, and the content of site are commingled with

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the technological decisions. These decisions relate to the selection of service providers,
common business systems, approaches to Web design, and so on. In contrast to the
traditional commerce, digital business cannot extract technological choices from the
strategic decision-making process. This does not mean that technology is unimportant to
traditional commerce; rather their technological decisions are not as tightly linked to
strategy.

AirAsia is already an established brand name in the travel industry. This

partnership with Galileo International will enable us to serve an even larger and wider
network of markets that has an appetite for low fares, not previously catered for. This
strategic move allows AirAsia to be more accessible, and expand our sales potential into
markets which we are not represented. Likewise, AirAsia also recognize that there is an
integral part of the market that is served by travel agents. AirAsia partnership with
Galileo International allows them to tap into these markets to enhance awareness of its
brand globally, while positioning AirAsia as a key player in the global market.

Galileo International is a global technology leader. Its core business is providing

electronic global distribution services for the travel industry through its computerized
reservation systems, leading-edge products and innovative, Internet-based solutions.
Galileo is a value-added distributor of travel inventory dedicated to supporting its travel
supplier, agency and corporate customers and, through them, expanding traveler choice.
A subsidiary of Cendant Corporation (NYSE: CD) and part of Cendant's Travel
Distribution Services Division, Galileo is headquartered in Parsippany, NJ, and has
offices worldwide.

3.2

E-Commerce is Ubiquitous

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E-commerce is ubiquitous, meaning that it is available just about everywhere, at

all times. The Web storefront is expected to be open 7 days a week, 24 hours a day, and
365 days a year. This level of access has significant implications for both customers and
the firm. For customers, the buyer is always able to gather information, conduct product
searches, compare prices across multiple sides, and order products. It makes possible
shopping from a buyers desktop at home, at work, or even from the car, using mobile
commerce. Mobile commerce refers to the use of wireless digital devices to enable
transactions on the Web. For the firm, the level of access has forced businesses to
adjust both tactical responsiveness to competitive moves and strategic responsiveness.
It also reduces transaction costs the cost of participating in a market. To transact, it is
no longer necessary to spend time and money traveling to a market.
By end-April or May 2007, AirAsia is also set to implement online check-ins,
allowing passengers to check in and receive a boarding pass at home, leaving only the
depositing of luggage to be done at the airport. Should a passenger have no bags to
check in, he or she can walk straight to the gate.
Fernandes says that the company is also looking to set up kiosks to allow selfservice check-ins. He also reveals that AirAsia is set to unveil its first air miles
programme to reward frequent flyers, which will come online once long-haul, low-cost
arm AirAsia X checks in. The ubiquitous Fernandes' most recent dalliance with headlines
came earlier, when he proposed to Transport Minister Datuk Seri Chan Kong Choy that
MAS' newly launched Firefly airline take over the operations of all rural air services
(RAS), including the routes currently run by FAX.

3.3

Real-Time Competitive Responsiveness

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E-commerce storefronts are frequently engaged in dynamic dialogues on the

public platform on the Web. Hence, it is easier for companies to duplicate their
competitors success. In e-commerce markets, prices and costs become more
transparent. Price transparency of AirAsia refers to the ease with which consumers can
find out the variety of prices in a market. This does not mean that the e-commerce
marketplace will eventually evolve to commodity-like status, with price being the only
consideration. Quite the contrary, speed of innovation, branding, ease of use,
operational effectiveness, product assortment and affiliate agreements can be used by
companies to maintain or increase differentiation.

3.4

A Technology-Based Customer Interface

In traditional commerce, customers conduct transactions either face-to-face or

over the phone with store clerks, account managers, or other individual. In contrast, the
customer interface in the e-commerce is a screen-to-face interaction. This includes PCbased monitors, ATM machines, PDAs, or other electronics devices. These types of
interfaces place enormous responsibility on the organization to capture and represent
the customer experience because there is often no opportunity for direct human
intervention during the encounter. If the interface is designed correctly, the customer will
have no need for simultaneous or follow-up phone conversation.

For any airline, the ease of booking a flight should be peanuts in order to lessen
dropouts of unsatisfied customers. How would you recognize if AirAsia is going through
a facelift? The banner. Its different from the homepage. Not to mention the whole user
interface for booking now is very clean and clear.

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3.5

The Customer Controls the Interaction

At most websites, such AirAsia, the customer is in control during screen-to-face

interactions. The customer controls the search process, the time spent on various sites,
the degree of price or product comparison, the people with whom he or she comes in
contact, and the decision to buy. In a face-to-face interchange, the control can rest with
the buyer, seller or community member. The virtual store can attempt to shape the
customer experience with uniquely targeted promotions, reconfiguration of storefronts to
reflect past search behaviour, recommendation based on previous behaviour of other
similar users, and access to proprietary information. However the seller has much less
power in the online environment due to the control and information flows that the online
world puts into customers hands.

3.6

Knowledge of Customer Behavior

While the customer controls the interaction, the firm has unprecedented access
to observe and track individual consumer behaviour. Companies, through third-party
measurement firms can track a host of behaviours websites visited, length of stays on
a site, content of wish lists and shopping carts, purchases, dollar amounts or purchases,
repeat purchase behaviour and other metrics. This level of customer behaviour tracking
as compared with tracking consumer attitudes, knowledge, or behavioural intentions is
not possible in traditional commerce.
Market oriented organizations like AirAsia have effective and responsive
intelligence gathering systems. To be customer and competitor oriented, the organisation

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needs to gather, interpret and act upon market information in a systematic and timely
manner. Information acquisition, dissemination and utilisation are fundamental elements
of the market sensing process by which the organisation learns about its customers,
competitors, channel partners as well as other environmental forces and develops
appropriate strategies to respond. Effective strategy implementation requires all
employees to have a shared knowledge and interpretation of market information,
therefore market information has to be promptly distributed and easily accessible across
the organisation.

3.7

Permit Personalization and Customization

E-commerce technologies permit personalization: AirAsia target their marketing

messages to specific individuals by adjusting the message to a persons name, interests,
and past purchases. This technology also permits customization changing the
delivered product or service based on a users preferences or prior behavior. In sum,
each of these differences from traditional commerce makes e-commerce business
unique. The combination of screen-to-customer interfaces, real-time competitive
responses, and one-to-one customization lead to value increases for both customer
and the firm.

3.8

Global Reach

E-commerce technology permits commercial transactions to cross cultural and

national boundaries far more conveniently and cost effectively than is true in traditional
commerce. As a result, the potential market size for e-commerce merchants is roughly

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equal to the size of the worlds online population. The total number of users of customers
an e-commerce business can obtain is a measure of its reach. In contrast, most
traditional commerce is local or regional; it involves local merchants or national
merchants with local outlets. Television and radio stations, and newspapers, for
instance, are primarily local and regional institutions with limited but powerful national
networks that can attract a national audience. In contrast to e-commerce technology,
these older commerce technologies do not easily cross national boundaries to a global
audience.
AirAsia is expanding its reach and distribution network by collaborating with
Galileo International to have its low fares and inventory available on the Galileo GDS
platform. Galileo International is a leading global distribution system (GDS), and
subsidiary of Cendant Travel Distribution Services (TDS).
The launch of Galileo Flight Integrator is expected to boost revenue and enhance
productivity for travel agents, as it provides Galileo agents with access to AirAsias full
range of fares including periodic promotional fares. In addition, the seamless web based
service also empowers agents to conveniently access over 200 daily flights on AirAsia,
allowing more choice and flexibility to book low fares thus rendering the Galileo Flight
Integrator an attractive tool for travel agents. The agreement includes AirAsia subsidiary
airlines, Thailand-based Thai AirAsia and Indonesia-based Indonesia AirAsia.

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4.0

CONCLUSION

From the early days of e-commerce, people have envisioned a streamlined endto-end supply chain where consumers and merchants can interact internationally,
anytime and anywhere. Notably, from lessons learnt in the past, e-commerce (not
discounting the growth potentials) has its own set of kinks to be ironed out.

Budget airlines have taken the region by storm especially in Malaysia with their
Air Asia flagship. Ignoring earlier skepticism over the e-commerce business model, Air
Asia challenged critics with their aggressive marketing campaign. With flights across
Malaysia for promotional prices for as low as RM$20, even IT adverse ah gong and ah
mahs would ask (their IT savvy) ah boys to purchase their air tickets through Air Asias
e-commerce portal. With usage comes adoption, and soon enough, people got hooked
to this new mode of commerce, and for Air Asia, the rest is history.

REFERENCES

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