Product Overview

This case presents the situation facing Tony Fernandes, the former Vice President of Warner Brothers, ASEAN region, in 2001, who had to decide whether to venture into the aviation business by acquiring an existing airline or drop the idea altogether. Fernandes was interested in starting a budget airline in Malaysia similar to low-cost airlines in the USA and Europe. He and his two close associates presented a proposal to Mahathir bin Mohammad, Malaysia's Prime Minister (PM), to start a low-cost airline. Mohammad rejected the proposal and suggested Fernandes to consider buying an existing airline. Malaysia had four scheduled airlines, including Malaysian Airlines (MA, the national carrier) and AirAsia Sdn Bhd (AAB) and two regional airlines, Pelangi Air and Berjaya Air. A senior officer from Diversified Resources Berhad-Heavy Industries Corporation of Malaysia (DRB-HICOM) suggested Fernandes to consider buying AAB and entering the aviation business in Malaysia. This case provides adequate information on Fernandes and his team's background, AAB's performance, the opportunities and constraints in the Malaysian air transportation industry and leading low-cost airlines' profiles to enable the participants to discuss the pros and cons of acquiring AAB and arrive at a decision. Conceptually, it helps the participants build the concept of entry through the acquisition mode instead of setting up a new company. In the larger context, it involves the participants in evaluating a strategic opportunity for a new entrant.

Learning Objectives

These are the learning objectives of the case is to provide an opportunity to assess the merits and pitfalls of acquisition as a strategy to enter into new business; to think through the execution issues involved in making entry through acquisition profitable, especially when the entrepreneurs are professionals with no entrepreneurship background; and to develop a perspective of the aviation industry's context and the strategies of low-cost airlines.