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Recommendations for Air Asia With the Perspective of Different Cost Analysis

1. Introduction:

Starting from the short-haul operation strategy, Air Asia provides cost-effective flight solutions for passengers in Southeast Asia. To formulate this cost effective strategy, Air Asia first identifies various costs such as capital, fixed, variable, maintenance, labor, fuel, facilities, inventory, environment and technology costs to establish a new point of airline service. To review Air Asia’s range of costs first identify the potential market in Southeast Asia with a strong commitment to all levels of services; for example in safety, security, customer service and benefits. Air Asia also built its strategy by forming strategic alliances with other airlines. This cost strategy from Air Asia airline has also proved to be an interesting challenge because the different rate of continuous variables affect the policy making, market segmentation, inventory control, production system etc. Basically, the implementation of such a strategy was really complex in nature, for example, providing direct services between two destinations increases the LOS (level of service), but on the contrary if the company does not fill with enough passengers then the airport will definitely cause huge losses. .

2 Different Asia Cost Analysis:

2.1 Capital cost:

For Air Asia, the capital cost is related to the initial setup of the project, which usually occurs at the beginning of the project in the same way, investment or purchase of aircraft, cargo, aircraft, land, building, construction, alternative route, high-speed train ( HST) different way and so on. Recently, Air Asia will expand its air cargo market which again requires a lot of capital investment. However, the capital investment of the airport is very intensive and most of the potential project failed due to limited funds. For example, MAXjet, EOS and SilverJet airlines all failed at the initial stage of capital investment simply due to lack of funding and competitive business models (Wensveen, Leick, 2009). Therefore, Air Asia needs to understand this problem for a successful business that requires sufficient capital investment at the initial stage.

2.2 Fixed cost:

Here, Air Asia’s price should be determined based on capacity, seats and services to minimize the total cost. In addition, the fixed cost also consists of ticket operation, ground facilities, airport counter facilities, advance booking and dispatch of aircraft from the fleet which can be spread over passengers as the traffic density increases.

2.3 Variable cost:

These costs are determined based on operating, maintenance, labor, fuel, facilities, inventory, environmental and technology costs.

3 Operating cost:

Operating cost effects are non-quantifiable because the system area is different from point to point depending on the service. Here the basic operating costs are administration, ticketing, sales and promotion, passenger service, airport maintenance and landing cost. These operating costs are determined based on the level of various services at the airport, including air services, such as cargo, staff.

3.1 Flight operating cost: Generally related to aircraft, fleet, flight operation as well as costs related to equipment repair and depreciation and amortization.

3.2 Ground operating costs: these costs include airport terminal handling, landing fees, charges, cargo handling, passenger baggage, travel agency costs, ticket sales office, distribution, commission, booking, ticketing and sales, etc.

3.3 System operating cost: this cost includes the cost of passenger service (ie food, entertainment, flight attendant and in-flight service and related costs of transportation (ie local airport partners providing local air service), baggage surcharge and miscellaneous fees.

4 Cost of Maintenance:

The next step is maintenance cost which is related to engine maintenance cost and component maintenance costs. In 2009, the engine maintenance cost ratio was 43 percent with component maintenance cost accounting for 20 percent and line maintenance accounting for 17 percent. Maintenance cost is also increased due to direct operational cost such as daily flight operation. Therefore, the cost of maintenance is very important for us in Asia because this cost is not dependent even if it changes several times due to the need for service, demand or other factors. For example, any engine or component breakdown disrupts airline services for on-time flight or even any disruption increases costs as well as reduces the level of services which ultimately alienates passengers.

5 Labor cost:

For Air Asia, labor cost is a major factor because it is related to salary, benefits, pay rate for cabin crew, pilots, baggage and other employees. However, the cost of labor includes flight services, cleaning, and passenger and passenger catering. For example, the provision of services to customers such as catering, cleaning or emergency service during the flight requires services from goods. For these additional services, employers expect to receive additional incentives.

6 Fuel cost:

Constant fluctuations in fuel prices also have a major impact on airline operations in terms of competition on point-to-point service. It was clear that a total of 20 percent of operating costs are made up of fuel, and due to price sensitivity, flexibility and quick response, fuel price has a negative impact on ticket price.

7 Installation cost:

Here all types of aircraft, electricity, water, availability of spare parts, machinery, equipment, ground maintenance filtration, pipe and track costs are related to the cost of the facility.

8 Cost of living:

The airline industry in general is always under pressure to reduce the negative impact on global warming and noise pollution. Increasing awareness of environmental issues is becoming a major challenge for the introduction of new technology, aircraft and aviation. For example, Singapore Airlines tried to modernize its fleet as much as possible. The new A380 is a cleaner and greener aircraft on a per-seat basis than the Boeing 747 but introducing such a new service was really expensive.

The only solution is to become greener and eco-friendly by adapting technology that does not pollute the air and does not increase global warming. For example, ecological gas can be an alternative solution to reduce this problem and also reduce costs. In Air Asia, it is very important to anticipate future environmental threats in order to survive in the market. This cost is difficult to eliminate but because Air Asia is based in Southeast Asia; rules and regulations are very good to maintain in the market. On the other hand, it is necessary to estimate the cost of the environmental tax.

9 Technological costs:

Bad technology like the traditional system i.e. manual ticketing, check-in system, reduces the service level significantly. Although the costs are different, but for a significant cost reduction, for example, online booking, online assistance, and online information can be reduced with a 24/7 online helpline. For safety and security, RFID technology or a 2D reader, barcode, electronic service can be used.

10 Results:

In short, cost has always been a key factor for Air Asia in all areas such as marketing, operations, safety, technology, maintenance, environment. Although the cost is flexible and complex in nature but for Air Asia it can easily change its cost to differentiate its market and take advantage of the existing alliance. Here, the Air Asia airline needs to identify the cost-effectiveness of investing in the right sector in the long run. As such, the company already offers 20 percent less flights than competitors; Therefore, costs need to be controlled through proper budgeting, planning and scheduling. In this case, Air Asia can also learn from Jet Asia and Singapore airlines, how these successful companies run their business cost-effectively to sustain in the market.

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