Cross-border route expansion strategies and the degree of low cost carriers’ intra-regional liability of foreignness
Master Thesis
MSc. Business Studies – International Management Supervisor: Dr Johan Lindeque Second reader: Dr Vittoria Scalera Student: Puck Voorneveld Student ID: 11129786 Submission Date: 27th January 2017
Abstract
This study applies a qualitative multiple case-study research design to explain the cross-border route expansions of low-cost carriers (LCCs) based in the ASEAN sub-region. The study analyses two cases: the cross-border route expansions of AirAsia, Lion Air and their respective subsidiaries.
In existing research, the effect of institutions on a phenomenon is often measured at national level.
Hence, this thesis seeks support for the influence of subnational institutions on cross-border expansions. Findings in the study support the moderate regional integration of the ASEAN sub- region. This limited regional integration results in higher transaction costs and consequently higher intra-regional liability of foreignness (LoF) in the event of cross-border expansions. The effect of formal institutions on national and subnational level influence route expansions by LCCs and support the need for strategic-asset seeking expansion motives. Besides the institutional perspective, the importance of the resource based view was confirmed. Firm-specific advantages (FSAs) are supported to be of significant importance in cross-border expansions by LCCs.
Keywords: cross-border route expansion, regionalization, intra-regional liability of foreignness, formal/informal institutions, low cost carrier
2 Statement of Originality
This document is written by student Puck Voorneveld who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
3 Acknowledgements
In the first place, I would like to show my sincere gratitude to my thesis supervisor Dr. Johan
Lindeque for his endless patience and guidance. His enthusiastic coaching was extremely valuable and after every conversation I felt re-energized and inspired to continue writing. Especially in the last weeks of writing my thesis, his elaborated suggestions, motivational words and experience pushed the development of my thesis to reach this result.
Secondly, I would like to thank my fellow students and friends who shared all their time with me in the library, discussing each other’s theses and different thoughts on the thesis subjects.
Last but certainly not least, I want to thank my family and relatives; they have been very supportive to me in the entire thesis process which was long and not always without challenges.
4 Table of contents 1. Introduction ...... 8 2. Literature review ...... 12 2.1. Globalization and regionalization ...... 12 2.2. Liability of Foreignness ...... 14 2.3. Institutional theory ...... 15 2.4. Regional institutional integration ...... 16 2.5. Rescaling geographic space ...... 18 2.6. Firm Specific Advantage ...... 19 2.7. Dunning’s investment motives ...... 20 2.8. The Industry Specificity of Regionalization: The Airline industry ...... 21 2.9. Problem statement ...... 23 3. Methodology ...... 27 3.1. Research Philosophy ...... 27 3.2. Qualitative Case Study Research Approach ...... 28 3.3. Case Selection for Study ...... 29 3.4. Quality criteria ...... 31 3.5. Data collection ...... 32 3.6. Data Analysis ...... 33 4. Results ...... 37 4.1. Within-case analysis ...... 37 4.2. Cross-case analysis ...... 68 5. Discussion ...... 74 6. Conclusion ...... 78 7. References ...... 81 8. Appendices ...... 89 Appendix 1: International Route Expansions per subsidiary ...... 89 Appendix 2: Airport Categorization: List of all destinations of Lion Air & AirAsia ...... 118 Appendix 3: Overview of sources used for analyzing route expansions ...... 123 Appendix 4: Overview of sources used for airport categorization ...... 123
5 Index of Tables and Figures
Table 1: Case Specification……………………………………………………………………... 30 Table 2: Data Sources………………………………………………………….………………... 33 Table 3: Airport Categorization…………………………………………………………..……... 35 Table 4: Coding Scheme…………………………………………………….…………………... 36 Table 5: AirAsia Group Summary Table………………………………………………………... 38 Table 6: Malaysia Air Asia Route Expansions……………………………...…………………... 40 Table 7: Malaysia Air Asia Cross-border Expansions………….…………..…………………... 41 Table 8: AirAsia X Route Expansions…………………………….…………..………………... 43 Table 9: AirAsia X Cross-border Expansions………………………………...…….…………... 44 Table 10: Indonesia AirAsia Route Expansions…………………………………….…………... 45 Table 11: Indonesia AirAsia Cross-border Expansions………….…………………….………... 46 Table 12: Indonesia AirAsia X Route Expansions……………….……………………………... 47 Table 13: Indonesia AirAsia X Cross-border Expansions………….…….……………………... 48 Table 14: Philippines AirAsia Route Expansions………………………………………..……... 49 Table 15: Philippines AirAsia Cross-border Expansions………….………….………….……... 50 Table 16: Thai AirAsia Route Expansions……………………………………….……………... 52 Table 17: Thai AirAsia Cross-border Expansions…………………………………………..…... 53 Table 18: Thai AirAsia X Route Expansions……………………………….…………………... 54 Table 19: Thai AirAsia X Cross-border Expansions………….………………….……………... 55 Table 20: Lion Air Group Summary Table ………………………...…………………………... 57 Table 21: Lion Air Route Expansions…………………………………………………………... 58 Table 22: Lion Air Cross-border Expansions……………………….…………………………... 59 Table 23: Thai Lion Air Route Expansions……………………………………………………... 60 Table 24: Thai Lion Air Cross-border Expansions ………….……………...…………………... 61 Table 25: Wings Air Route Expansions…………………………………….....………………... 62 Table 26: Malindo Air Route Expansions……………………………...……...………………... 63 Table 27: Malindo Air Cross-border Expansions………….……………...……...……………... 64 Table 28: Batik Air Route Expansions……………………………………...…………………... 66 Table 29: Batik Air Cross-border Expansions………….……………………..………………... 67 Table 30: Cross-Case Summary Table on Regional Orientation and Cross-border Expansion Motives………………………………………………………………………………………….. 69 Table 31: Cross-Case Summary Table on Expansion Motives and Formal Institutions………... 72 Table 32: Results of Working Propositions……………………………………………………... 74
Figure 1: Regional Orientation of Destinations for each Airline Group…………...…...………. 70
6 Index of Acronyms
AAX AirAsia X AFTA Asean Free Trade Area APEC Asia-Pacific macro-region ASAM ASEAN Single Aviation Market ASEAN Association of Southeast Asian Nations CAQDAS Data Analysis Software CAPA Centre of Aviation CASA Civil Aviation Safety Authority CM Common Markets CU Customs Union ECU Economic Union ERIA Economic Research Institute for ASEAN and East Asia EG Economic Geography EU European Union FDI Foreign Direct Investment FSA(s) Firm Specific Advantage(s) FSC(s) Full Service Carrier(s) FTA Free Trade Area IAA(X) Indonesia AirAsia (X) IB International Business ICAO International Civil Aviation Organization IPO Initial Public Offering JV Joint Venture LCC(s) Low-cost carrier(s) LoF Liability of Foreignness MAA Malaysia AirAsia MLE Multi Location Enterprise MNE(s) Multi National Enterprise(s) NAFTA North American Free Trade Area PAA Philippines AirAsia RBV Resource Based View RTAs Regional TAA(X) Thai AirAsia (X) TI Total Political Integration TLA Thai Lion Air US United States WTO World Trade Organization
7 1. Introduction
This thesis integrates international business (IB) concepts at different levels of analysis in geographic space, specifically formal and informal institutions at airport- and national levels of analysis for route expansions by low-cost carriers (LCCs). It combines IB topics as regionalization, liability of foreignness (LoF) and institutions with the concept of rescaling, using an economic geography (EG) lens. Rescaling helps to explain the behaviour of multinational enterprises (MNEs) and drivers of expansion strategies at subnational level other than location strategy forces at the national level (Beugelsdijk & Mudambi, 2013; Coenen, Benneworth, & Truffer, 2012).
The phenomenon of LLCs took over the airline industry starting in the United States (US).
First-mover Pacific-South-West Airlines offered cheap intrastate flights from 1949 onwards
(Francis, Humphreys, Ison, & Aicken, 2006). Pacific-South-West Airlines asked lower prices in comparison to traditional full service carriers (FSCs), resulting in rapid increases in market share
(Button, 2012). The low-cost movement was followed in the European Union (EU) by Ryanair and
EasyJet (Frédéric Dobruszkes, 2006), who serve destinations across the EU region. The low-cost movement is supported by deregulation and liberalization in the airline industry (Goetz & Sutton,
1997). The LCC markets in the US and EU developed in a fast pace and are recently maturing however, other regions show different development profiles.
Since 2000, the low-cost airline market grew rapidly in the ASEAN sub-region. Several
LCCs started operations. AirAsia expanded into one of the largest carriers in the region, providing opportunities for the less fortunate to fly (Damuri & Anas, 2005). Momentarily, 60% of all airline seats sold in the Association of Southeast Asian Nations (ASEAN) are on LCCs (CAPA, 2015b).
The academic literature on LCCs argues that informal and formal institutional barriers, as governmental control and rules and regulations, would not allow LCCs in the Asia-Pacific macro-
8 region to flourish (Kua & Baum, 2004; Damuri & Anas, 2005). Nevertheless, the success of LCCs in the EU and the US and their strategies inspired ASEAN’s LCCs to go after the rising incomes of the middle-class and the demand for interconnectedness in the Asia-Pacific macro-region.
This growth in the low cost airline industry is strongly associated with institutional developments (Button, 2012; Goetz & Sutton, 1997; Moore, 1986; Richards, 2001). Deregulation, for instance the relaxing of government authority to control the entry and exit of flights, has changed the airline industry over the last decades (Goetz & Sutton, 1997; Zhang, Hanaoka,
Inamura, & Ishikura, 2008). Alongside the liberalization of global economies and national rules and regulations, these forces enabled airlines to expand worldwide (Graham & Shaw, 2008; Hanaoka,
Takebayashi, Ishikura, & Saraswati, 2014; Zhang et al., 2008). The effect of multi-level governance forces (Coenen et al., 2012) highlights the importance of studying institutional forces on route expansion strategies. In particular in an aggressively developing stage as the LCCs from the
ASEAN sub-region find themselves momentarily (Damuri & Anas, 2005; Hanaoka et al., 2014;
Marks, Hooghe, & Blank, 1996). Institutions are important and influence location decisions (North,
1991). Certain forces could draw LCCs to destinations on subnational level, because the institutional rules and regulations on city-level compensate for the lack of them on national or regional level and can mitigate the effect of LoF (Goerzen, Asmussen, & Nielsen, 2014).
Institutions correspondingly influence MNE expansion patterns on regional level. The EU is well developed in terms of institutions and is economically integrated (Jetschke & Murray, 2012;
Lorenz, 1993). The Asia-Pacific macro-region however, is perceived to be less integrated driven by differences in cultural, economic and administrative forces (Jetschke & Murray, 2012;
Langhammer, 1995; Lorenz, 1993; Sharma & Chua, 2000). This leads to differences in intra- regional LoF (Eden & Miller, 2001; Zaheer, 1995) for LCCs, either more extreme in the Asia-
Pacific macro-region, or less in the EU. A lower degree of intra-regional LoF can support an
9 increase in cross-border destinations (Albers, Heuermann, & Koch, 2010). The study presents how these effects of intra-regional LoF shape ASEAN LCCs route expansions.
An application of this topic to the airline industry is specifically relevant for the following reasons: Industry specificity is a current topic in the academic literature with regards to regionalization (Rugman & Verbeke, 2004). Different industries seem to experience different degrees of spatial integration (Rugman & Collinson, 2004; Rugman & Verbeke, 2004; Kolk,
Lindeque, & Buuse, 2014; Paliwoda, Slater, Kolk, & Margineantu, 2009; Grosse, 2005). To date combining the regional (Rugman & Verbeke, 2004) and subnational (Beugelsdijk & Mudambi,
2013) lens of geographic space in the context of the airline industry remains an understudied focus.
The academic literature writes about regional development and strategies for LCCs in the
US (Boguslaski, Ito, & Lee, 2004; Goetz & Sutton, 1997; Moore, 1986; Vowles, 2001) and the EU
(F. Dobruszkes, 2009; Frédéric Dobruszkes, 2006; Dobson, 2007; Francis, Fidato, & Humphreys,
2003). However, less is studied with regards to the Asia-Pacific macro-region. Existing studies compare internationalization strategies of the EU and the Asia-Pacific macro-region based on the
OLI model by Dunning (2001) (Albers et al., 2010). Other studies draw attention to the effect of the regulatory environment in the Asia-Pacific macro-region on performance of LCCs (Zhang et al.,
2008) or the potential success of LCCs (Gillen & Taweelertkunthon, 2007), as the phenomenon is still in its early stage development in this region. Other academics focused on specific aviation elements as passenger perceptions (O’Connell & Williams, 2005) or countries (Murakami, 2011).
Following from these studies, to recent knowledge, no research has covered the impact of formal and informal institutions on LCCs, specifically researching the ASEAN sub-region.
Besides contributing to existing literature, the study can add value to practitioners in the airline industry. LCCs can identify strategies of competitors in a similar or conflicting regional profile and see what approach is most competitive. Moreover, local policy-makers at airports can
10 benefit from attaining additional knowledge on the effect of regional profiles and formal institutions. This knowledge can be used to create incentives for new LCCs to serve an airport.
The research follows a multiple-case study research approach. The two cases are the route expansions of AirAsia and Lion Air. These LCCs are the largest in revenue and passenger numbers in the ASEAN sub-region. The research focuses on the regional integration project of the ASEAN.
The study presumes that lower regional integration in the ASEAN sub-region provides interesting insights compared to the integrated EU region. The airline industry is relevant to the concept of institutionalism, as the highly-regulated nature provides a dynamic case. The qualitative data used for the study are articles from ASEAN business newspapers, annual reports and aviation industry documents. The findings from the analysis of these sources of data are presented in analytical summary tables. These tables find support by the thorough evidence to be found in the appendices.
This study aims to answer the following research question:
How do national and subnational institutions affect the internationalization strategies of low
cost airlines in the ASEAN sub-region?
This study proceeds by presenting a review of the key dimensions in this study. First it introduces the regionalization theory. Afterwards, institutional theory and the concept of rescaling in geographic locations and the relevance of the airline industry are discussed. In the conceptual framework, four working propositions are developed. This is followed by an explanation of the research methodology. Then a description of the research philosophy, the research design, the case selection process and data collection process are shown. The results are presented in a within-case and cross-case analysis of the findings. The conclusion and discussion sections present the most important findings and highlight the scientific relevance and managerial implications of this study.
Lastly, the limitations of the study and suggestions for future research are presented.
11 2. Literature review
The following section introduces the existing literature related to the regionalization/globalization debate, institutional theory and rescaling in geographic space to highlight the regional nature of
LCCs. Furthermore, it gives an overview of the industry specificity of the airline industry. Together, this literature provides a strong foundation for the focus of this study. Leading from this literature review, four working propositions are formed.
2.1. Globalization and regionalization
Globalization, which refers to “the international integration of markets in goods, services, and capital” (Garrett, 2000, p. 400), is a current topic in international business. Scholars name the following causes for globalization: Rapid technological developments, increasing economic activities across borders and the liberalization of economies and rules and regulations (Garrett,
2000). MNEs are important drivers of globalization (Garrett, 2000). They pursue economic activities across borders to expand their value-chain operations.
Some scholars see global strategies by MNEs as a myth (Asmussen, 2009; Ghemawat, 2003;
Rugman, 2001; Rugman & Verbeke, 2004) and conceptualize the lack in truly global MNEs as the phenomenon of semi-globalization or “a condition of incomplete cross-border integration”
(Ghemawat, 2003, p. 139). Rugman and Verbeke (2004) judge that most MNEs operate within their home-region or the extended triad-region, namely in the EU, North American Free Trade Area
(NAFTA) and Asia-Pacific macro-region. This region was originally introduced by Ohmae (1985) to represent the triad of the US, EU and Japan. Certain factors cause the world to refrain from total globalization and economic integration. According to Rugman & Verbeke (2004), this is due to differences in local demands, the lack of accessibility worldwide, the need for different local
12 competitive strategies and limits in creating economies of scale. Rugman & Verbeke (2004) argue for a four part typology of regional MNE strategic orientation, namely global, bi-regional, home- region or host-region oriented. Global MNEs distribute their activities equal over the triad regions,
Bi-regional MNEs have most of their business in two regions and host-region MNEs have most of their activities in another region than their home-region. Most MNEs are home-region oriented.
84% of the studied Fortune 500 firms have most of their business in their home-region and of these firms, 70% of airlines are mostly home-region oriented (Rugman & Verbeke, 2004). Scholars discussed the accuracy of Rugman & Verbeke (2004), in saying that the study neclects the home- country sales and had sample limitations (Dunning, Fujita, & Yakova, 2007; Osegowitsch &
Sammartino, 2008). The concept of a ‘home-country effect’ (Osegowitsch & Sammartino, 2008;
Rugman & Verbeke, 2008b), or the majority of revenues coming from the domestic market other than the other nations within the region, indicated the need for extended research. This research has confirmed that indeed there is a large propensity of home-country sales compared to sales from home-regions or the rest of the world (Rugman & Verbeke, 2008b). These findings help in getting evidence on how important the actual home-market in the airline industry is. Besides the high importance of national governments, regional rules and regulations form or eliminate barriers to cross-border expansions in the airline industry. “Regionalization focuses on intra-regional interdependence (macro regional clusters) of trade and other economic activities such as direct investments etc. as the natural outcome of the regional development processes” (Lorenz, 1993, p.
256). Economic, cultural and institutional differences diffuse regions, hindering these to integrate
(Jetschke & Murray, 2012). Hence, this lead to different integration paces across regions. These differences are smaller intra- compared to inter-regionally and thus increase transaction costs and
LoF for cross-border MNEs in a new host country in comparison to local MNEs that are from this host country (Rugman & Verbeke, 2005).
13 2.2. Liability of Foreignness
These sources of complexity for cross-border operations that force MNEs to predominantly pursue home-region oriented strategies come from the concept of liability of foreignness (LoF) (Zaheer,
1995). Scholars explain that domestic firms are advantaged over foreign firms because of local market knowledge, political familiarity and other factor that imply costs on new entrants (Eden &
Miller, 2001; Hymer, 1976; Sethi & Judge, 2009; Zaheer, 1995). The concept of LoF combines spatial distance costs (geographical distance) with firm-specific costs (unfamiliarity of the environment), host country environment (cultural differences) and home country environment
(home governmental restrictions) costs. LoF consists of either discriminatory or incidental costs.
The discriminatory costs entail the rules and regulations by the host-country specifically targeting the MNE subsidiary and incidental costs are the costs of learning and adapting to clear unfamiliarity in the host-country environment (Sethi & Judge, 2009). These costs together form the transactions costs of doing business abroad, which can be minimized by doing business in locations with similar institutions (Zaheer, 1995). However, these costs should also be compared to the benefits of internationalization (Sethi & Judge, 2009). Transferable firm-specific advantages can create benefits in doing business abroad (Sethi & Judge, 2009), for example by utilizing the firm’s existing network to create economies of scale and scope or by using a strong brand image or technology. At last, the influence of transaction costs on cross-border expansion is a breakdown between the costs and benefits faced when internationalizing (Sethi & Judge, 2009). Regionalization theory argues that “additional costs of doing business abroad are often much higher when venturing into other regions of the world than when expanding intra-regionally, in the home triad region” (Rugman &
Verbeke, 2007, p. 201). The institutional sources of LoF are adopted as the focus of this study considering the empirical setting of the ASEAN sub-regional economic integration project.
14 2.3. Institutional theory
These differences in the degree of inter and intra-regional LoF for airlines can be explained by institutional theory (Héritier & Karagiannis, 2011; Wittmer & Bieger, 2011). Formal and informal institutional differences create distance between nations, regions and subnational spaces and thus create LoF. Institutions are judged to be a guiding force in driving internationalization decisions
(Dunning & Lundan, 2008; Rodrik, Subramanian, & Trebbi, 2002). Kostova and Zaheer (1999) define institutional distance as “the difference or similarity between the regulatory, cognitive and normative institutional environments of the home and the host countries of an MNE” (p. 68).
DiMaggio & Powell (1983) and Scott (1995) use a sociological approach, whereas North (1991) looks at institutions through an economic lens. The economic approach provides clear evidence for selectivity in internationalization, it is for this reason that this approach is used in this study
(Rugman & Verbeke, 2005). North (1991) defines institutions as drivers of economic growth in place to facilitate business transactions and secure efficiency. This concept can be translated to the transaction cost theory (North, 1987). He explains institutions as: “Humanly devised constraints that structure political, economic and social interaction” (North, 1991, p. 97). “Institutions enforce informal constraints (customs, traditions and codes of conduct), and formal rules (constitutions, laws, property rights)” (North, 1991, p. 98). These informal constraints or customs, traditions and shared values are strongly reflected by the culture of a country and support the formation of formal institutions (North, 1991; Peng, Wang, & Jiang, 2008). Informal institutions are shaped by cultural traits from respective countries (Williamson, 2009). Institutional differences between these countries can create interpersonal and inter-organizational behavioural barriers (Kang & Jiang,
2012). Hofstede presents a five point measurement for these cultural traits that provide the ability to compare national cultures from different nations with each other (Hofstede, 1983).
15 A strong institutional arrangement supports effective market mechanisms, whereas weak institutional markets lead to higher transaction costs associated with market transactions and thus fail to ensure effective markets (North, 1991). In developed economies, strong institutional arrangements may be almost invisible. However, in malfunctioning markets, discouraging institutions can form great barriers for cross-border MNEs. The malfunctioning of institutions in emerging economies can be described as the concept of institutional voids (Khanna & Palepu, 1997;
Khanna, Palepu, & Sinha, 2005; Mair & Marti, 2009; Puffer, McCarthy, & Boisot, 2010).
Institutional voids theory explains that the absence of regulating formal institutions and presence of limiting informal institutions cause a barrier for MNEs to internationalize to emerging economies
(Stal & Cuervo-Cazurra, 2011). As Kang & Jiang (2012) mention, regulative or formal institutions shape location choice decisions. MNEs search for locations where institutions are similar to their home country so that they can quickly adapt to the host countries regulations. Institutional voids increase difficulties in internationalization. For example, emerging economies provide advantages to local organizations. These countries leave space for MNEs or other parties to fill these institutional voids and co-create efficient market mechanism (Mair & Marti, 2009, p. 421). With failing institutions on country level, institutions on city-level might offer compensation for weak institutions on national level (Goerzen et al., 2014). Besides the national- and city-level, formal and informal institutions on regional level influence the effectiveness of market mechanisms. The degree of influence depends on the extent of economic and political integration on regional level.
2.4. Regional institutional integration
As mentioned in the last paragraph, regional institutions can create supporting market mechanisms to create a strong regional market. Nevertheless, this is only applicable if a region is sufficiently integrated. Regional integration is introduced by Nye (1968) as the extent to which a region is
16 economically, socially and politically integrated, measured by comparing trade figures and amounts of intraregional air passengers. Integration can be classified ranging from free trade areas (FTA), custom unions (CU), common markets (CM), economic union (ECU) to total political integration
(TI) (Balassa, 1961). The integration of regions is supported by the formation of multilateral regional trade agreements (RTAs) over the last years. Nowadays, almost all member of the World
Trade Organization (WTO) are part of one of these RTAs (Choi & Caporaso, 2002). These RTAs enable MNEs to do more efficient business within regions than between regions. Trade and investment arrangements decrease transaction costs and intra-regional LoF accordingly. This creates a large benefit for doing business within a region (Rugman & Verbeke, 2005). The EU is confronted with a low degree of intra-regional LoF, “the EU is the broadest and deepest regional integration project between independent nation states in modern time, including economic, political and social dimensions” (Kolk et al., 2014, p. 78). In comparison, in the Asia-Pacific macro-region there are several factors supporting lower regional integration. These include the large cultural, political and socio-economic differences and national protectionism that drives heterogeneity between nations (Langhammer, 1995). The Asia-Pacific macro-region sustained transformations through trade agreements such as the ASEAN in 1977, the Bangkok Agreement in 1976 and further development of free trade agreements as AFTA (between six ASEAN member states) and APEC integration including Australia and New Zealand. The ASEAN trade factors did not increase intra-
ASEAN trade, only in a wider APEC group and outside the region (Sharma & Chua, 2000). A study by the Economic Research Institute for ASEAN and East Asia (ERIA) (2012) states that the
ASEAN sub-region was not yet successful by achieving deeper economic integration. Furthermore, the ASEAN sub-region has a long way to go to reach the EU level of integration. To be able to be successful in trading, nations within the ASEAN sub-region have numerous bilateral agreements.
These bilateral agreements can undermine the influence of multilateral agreements, because the
17 bilateral agreements can provide large incentives that multilateral agreements might not provide on the short term. Consequently, nations miss the urge for regional integration (Levy, 1997). This lack of integration in the Asia-Pacific macro-region leads to different institutional arrangements for each nation. Which leads to a higher degree of intra-regional LoF and results in a lower tendency of firms to locate across borders within the region (Eden & Miller, 2001).
2.5. Rescaling geographic space
Besides the importance of the regional level in geographic space, institutions are measured on national level in most IB literature. Often scholars underestimate the institutional influence on
MNEs from multi-level governance sources (Coenen et al., 2012). The concept of rescaling helps to identify forces to a certain phenomenon in different territorial levels. These geographical scales
“can be regarded as a territorial levels at which significant relationships exist between actors: these relationships acquire a dynamic of their own through repeated interaction and that dynamic is distinctive from interactions at different scales” (Coenen et al., 2012, p. 972). Little is researched beyond the emerging work on cities (Goerzen et al., 2014) and more extensive work on clusters
(Porter, 1998). Papers that combine IB and EG literature shift the focus from national or global to the subnational or regional scale (Chan, Makino, & Isobe, 2010; Beugelsdijk & Mudambi, 2013).
Beugelsdijk & Mudambi (2013) introduce the concept of the ‘border-crossing multi location enterprise (MLE)’. The border-crossing MLE emphasises the combination of place, space and organization, reffering to sources of complexity from within and between country heterogeneity.
Spatial economics researchers describe the study of within country heterogeneity as subnational or city-level analysis. Friedmann (1986) and Sassen (1991) introduced the city-level analysis in economic geography to study the movement of people between global city networks. Current research shows that cities and their facilities can create a strong propensity for MNEs to locate in a
18 specific location (Beaverstock, Smith, & Taylor, 2000; Iammarino & McCann, 2013; McCann &
Acs, 2011). The extent to which global cities are relevant to MNE location strategy is assessed by their endowments and characteristics. City-level analysis supports a global restructuring process in which world cities form the strongest economic network and form new types of global governance
(Beaverstock et al., 2000). Multi-level governance policies that influence MNE internationalization come from different levels in geographic space. Supranational regions correspondingly shape institutions. For example, in the ASEAN sub-region the regional government sets trade rules and regulations. On city-level, there are local actors and policy makers, influencing propensity for
MNEs to locate in such location. They form formal and informal institutional arrangements, that directly attract or draw away organizations (McCann & Acs, 2011).
In the airline industry, airports are located where they can serve cities and connect the dense population of this city towards other locations (Schaafsma, 2010). Consequently, by using an industry specific approach, we connect the city-level with the airport-level of analysis for this study.
In the airline industry, multi-level governance puts complex institutional forces in place for airlines.
Regions introduce ‘open-sky’ multilateral agreements, whereas nations negotiate bilateral agreements. On airport-level, local policy makers set incentives to promote airlines flying to specific destinations or, on the contrary, they introduce entry barriers. These formal and informal institutions will be the focus of this study because, as primarily described, the airline industry is highly regulated and dependent on specifically formal institutions.
2.6. Firm Specific Advantage
Besides the view presented so far, that the institutional environment shapes the airline industry on multiple levels, there are certain factors that can decrease the influence of LoF on internationalization. The role of the resource-based view (RBV) (Barney, 1991) and its relation with
19 firm specific advantages (FSAs) should be highlighted in case they emerge as important from this research. The RBV judges that with FSAs such as machinery, offices, management capabilities, knowledge and organizational capacity, sustained competitive advantage can be created. This can can enhance the entrance of a cross-border location, by using these benefits in the new host- environment (Barney, 1991). Especially in a service environment, where products are perishable and FSAs are intangible, they can be utilized when expanding abroad (Rugman & Verbeke, 2008a).
Some MNEs have FSAs that possess high asset specificity, such as machines and buildings. These location-bound tangible assets are more difficult to transfer and consequently do not provide benefits in international expansion. MNEs need to support the development of transferable FSAs to have a buffer to offset transaction costs when operating abroad (Hymer, 1976; Zaheer, 1995).
2.7. Dunning’s investment motives
Different foreign direct investment (FDI) motives provide reasoning for the lengthy and intensive process for MNEs to overcome institutional barriers when internationalizing. Dunning (1998) depicts four motives for location decisions in MNE internationalization: Resource-, strategic-asset-, market- or efficiency seeking. A resource seeking FDI motive is characterized by the search for raw materials and other resources that do not appear in the home-country. An efficiency seeking FDI motive is propelled by the search for lower-cost locations for operations, specifically the search for low-cost labour and achieving economies of scale and scope (Buckley et al., 2007). When an MNE follows a market seeking FDI motive, they aim for additional business in overseas markets. This motive might force them to move operations to be physically located in these markets to obtain competitive advantage. For a strategic-asset seeking FDI motive, the aim is to have access to different cultures, institutions and customer demands. Moreover, location-bound FSAs or knowledge-based tacit assets are acquired to optimize competitive advantage (Dunning, 1998).
20 Cross-border expansions cannot be classified by any single one of the abovementioned motives alone, as most firms aim for two or more motives per expansion (Dunning & Lundan, 2008).
In the aviation industry, these forces are important in deciding what location to choose. In route expansion decisions, these motives can clearly be justified (Warnock-Smith & Potter, 2005).
Either in market seeking behaviour, as aim for additional passengers or with a strategic-asset seeking motive to get acquainted with local customs, to increase institutional familiarity and the for the exchange of localized tacit knowledge (Dunning, 1998). Another motive for strategic-asset seeking behaviour could be to enter an airport that functions as a large hub, enabling higher amount of connecting routes and transit passengers as a strategy to get ahead of competition. Efficiency- and resource seeking takes place in search for reducing costs through expansion, economies of scope and scale and gathering a larger amount of human resources (Yang, 2009). However, resource seeking motives are uncommon in the airline industry, since they are a service industry.
Each of the other three motives drive MNEs internationalization in the airline industry.
2.8. The Industry Specificity of Regionalization: The Airline industry
Cross-border expansion patterns, motives and institutional effects depend on the MNEs specific industry. The concept of industry specificity explains that the extent of regionalization or globalization also differs depending on the industry (Rugman & Verbeke, 2004; Kolk et al., 2014;
Paliwoda et al., 2009; Grosse, 2005). Rugman and Verbeke (2004) mention the distinction between the consumer electronics industry, where MNEs pursues global strategies and manufacturing industries mainly regional (Rugman & Verbeke, 2008a). However, the automotive industry
(Rugman & Collinson, 2004) and services industries such as the retail and banking industry
(Grosse, 2005; Paliwoda et al., 2009) follow different regionalization patterns. This concept of industry specificity adds to the relevance of studying the airline industry. As many forces in the
21 airline industry drive globalization on the one hand and regionalization on the other. Deregulation in the airline industry referred to the release of government authority to control the entry and exit fares, subsidies and mergers of airlines in each market. Additionally, the liberalization of global economies have changed the industry, which enabled airlines to expand globally (Héritier &
Karagiannis, 2011; Wittmer & Bieger, 2011; Zhang et al., 2008).
On the other hand, the concept of regionalization is supported by existing research in the aviation industry. As recent research states that no airline would be able to pursue global operations without partners through strategic-alliances (for example: Star Alliance & One World) (Graham &
Goetz, 2008). Rugman & Verbeke (2004) find that transportation industries, including the airline industry, have 50% of their sales in their home region. Except for Air France and British Airways, all other transportation companies in the study derive over 70% of sales in their home regions
(Rugman & Verbeke, 2004).
The passenger airline industry discerns two players, that both follow fundamentally different strategies. The industry makes a distinction between LCCs and full-service carriers (FSCs). Button
(2012) explains that LCCs fly point-to-point routes, while FSCs mainly pursue hub-and-spoke flights. LCCs offer low fares from cost minimization strategies. They unbundle the service model of
FSCs, so the customer only pays what he uses and hence saves money (Button, 2012). When serving secondary airports, a decrease in production costs and operational costs can be achieved.
LCCs do not have strategic-alliance agreements and thus show interesting patterns regarding the globalization/regionalization dilemma. If LCCs do not operate in strategic alliances and only have point-to-point flights, they refrain from pursuing global strategies (Graham & Goetz, 2008). LCCs fly direct routes of which the duration is limited by the capacity of their aircrafts. Consequently, the expectation is that LCCs pursue home-region strategies, whereas FSCs with their alliances could aim for global strategies.
22 2.9. Problem statement
As described in the literature review, internationalization strategies by LCCs in the ASEAN sub- region are expected to be influenced by forces on different levels in geographic space. First, on regional level. Regional integration leads to a lower degree of intra-regional LoF, which can consequently contribute to the reduction in transaction costs faced by LCCs when internationalizing
(Rugman & Verbeke, 2005). With regards to the airline industry, the ASEAN sub-region works on the development of a unified strategy by introducing the ASEAN Single Aviation Market (ASAM).
Although fare restrictions have been mitigated, capacity control and national protectionism are still high priority within this region (Forsyth, King, & Rodolfo, 2006). Therefore, the degree of regional integration is far from optimal. Nevertheless, this integration seems to be more powerful than global integration. This is propelled by the larger extent of inter-regional LoF compared to the degree of intra-regional LoF. A high degree of home-region integration is expected to result in LCCs mainly pursuing home-region strategies (Eden & Miller, 2001). Therefore, a lower degree of regional integration would naturally lead to large home-country effects (Osegowitsch & Sammartino, 2008).
WP. 1A. A high degree of regional integration, lowers intra-regional LoF and thus increases
the likelihood of LCCs pursuing a home-region oriented strategy.
WP. 1B. Intra-regional LoF needs to be lower than inter-regional LoF for LCCs to have a
home-region oriented strategy.
Besides regional integration, differences in institutions influence the likelihood of internationalization on a national level. Formal institutions, or the written rules and regulations that shape the business environment (North, 1991), if well-developed, can decrease transaction costs for a foreign organization in doing business abroad and decrease the degree of LoF. Additionally,
23 formal institutions can form barriers for a foreign organization through import barriers or FDI restrictions.
WP. 2A. A strong formal institutional framework in the host-country decreases the intra-
regional LoF for a LCC abroad, which increases the amount of destinations across borders.
Internationalization strategies follow different motives (Dunning, 1998). Formal institutional voids could lead to a larger incentive for LCCs to locate across borders, because of the need for institutional entrepreneurship (Mair & Marti, 2009). To get familiar with host-markets’ national formal institutions, increase political leverage and overcome entrance barriers LCCs would expand under strategic-asset seeking motives.
WP. 2B. Weak formal institutions can explain strategic-asset seeking expansion motives by
LCCs.
Besides formal institutions, informal institutions also influence the amount of cross-border expansions by LCCs. Informal institutions influence foreign firms’ likelihood to embed in its host- country through conflicting cultural traits and differences in social norms and behaviours (Hofstede,
1983; Kang & Jiang, 2012). Hence, locating in a ‘culturally’ comparable nation decreases transaction costs in cross-border expansions because of familiarity with customs and local demands.
WP. 3A. A comparable informal institutional framework in the host-country decreases LoF
for LCCs and thus increases the number of cross-border destinations.
According to Dunning’s (1998) expansion motives, most airlines have market seeking motives for their route expansion strategies. When combining FDI expansion motives with informal institutions, expected is that under comparable informal institutional frameworks, with similar cultural traits,
24 customers feel less risk for friction while traveling (Crotts, 2004). Consequently, greater informal institutional comparability between nations leads to a larger potential for market seeking motives by foreign LCCs.
WP. 3B. Comparable informal institutions between the home and host country are expected
to explain market seeking expansion motives by LCCs.
Besides influences on regional and national level, subnational level institutions are expected to have effect on LCCs internationalization strategies. Subnational levels in the airline industry combine city-level with airport-level analysis, since airports function to serve cities (Schaafsma, 2010).
Strong formal institutions at the city-level are expected to decrease transaction costs and mitigate
LoF. Global cities with strong formal institutional arrangements and attractive investment climates would thus be more attractive for LCCs to expand to (Goerzen et al., 2014). Also airports can offer interesting formal institutional incentives to airlines for flying to a certain destination (Francis et al.,
2003). On the other hand, forces that form a weak subnational formal institutional environment are protectionist governance policies. A large amount of airports in the Asia-Pacific macro-region is governmentally owned and favours local carriers over international carriers (Hooper, 2002).
WP. 4A. A strong formal institutional framework at airport/city-level can play a significant
role in attracting airlines to these destinations.
WP. 4B. A strong formal institutional framework on airport/city-level can compensate a
weak national institutional framework and increase the amount of destinations across
borders.
25 Strong formal institutions and global city endowments that attract LCCs to locate at specific airports or cities, could explain efficiency seeking FDI (Buckley et al., 2007; Yang, 2009). In the airline industry, locations might offer attractive resources as a larger availability of human resources, as global city locations have larger workforces. The availability of maintenance, sales and distribution facilities could lead to lower costs when expanding to an overseas destination.
WP. 4C. Strong formal institutional frameworks on airport/city-level are expected to explain
efficiency seeking cross-border expansion motives.
By selecting specific destinations, airlines seek to stay ahead of their competition. Therefore, airlines are expected to pursue strategic-asset seeking FDI motives. They could aim to develop new hub locations across borders. These hub locations are yet developed because of strong formal institutions. Acquiring these hub locations leads to the attraction of passengers because of additional transit possibilities. Moreover, the tendency of MNEs locating in global cities with attractive formal institutional arrangements leads to the creation of knowledge networks and resource aggregation
(McCann & Acs, 2011), which could be helpful in international expansion.
WP. 4D. Strong formal institutional frameworks on the airport/city-level are expected to
explain strategic-asset seeking cross-border expansion motives.
The remainder of this thesis elaborates on the introduced working propositions and aims to seek supporting evidence. In next chapter, the research methodology used for this research is introduced.
26 3. Methodology
In the upcoming chapter, the research methodology is described. First, an elaboration on the research philosophy through an ontological and epistemological point-of-view is presented. This is followed by a justification for using a qualitative multiple case study research design. Afterwards, the case selection and the four quality criteria for the study, the data collection and analysis approach are discussed.
3.1. Research Philosophy
The research philosophy is the nature of knowledge used for this study or what the researcher perceives as truth (Saunders, Lewis, & Thornhill, 2009). With regards to ontology, or the nature of reality, there is a distinction between the subjective and objective approach. The subjective approach focuses on reality being something that is shaped by human experiences whereas in the objectivistic approach reality is seen as static and concrete (Morgan & Smircich, 1980). In this study an objectivistic stance towards facts is taken, assuming that these are external and independent from the researcher (Saunders et al., 2009). Coming from the ontological standpoint and logically evolving, the epistemology stance is a post-positivistic one. This concept is similar to positivism, for assuming a scientific approach to the development of knowledge and looking for relations between cause-and-effect (Saunders et al., 2009). However, through post-positivism, the idea that humans are bounded-rational is accepted (Wildemuth, 1993), no person can judge how the world is shaped or what is reality caused by biases in observation. That is why topics can best be viewed from multiple perspectives to get closest to the truth (Wildemuth, 1993). Post-positivism supports ‘methodological plurism’, which states that not a single method of science is defined to be the best and that this all depends on the research topic or knowledge to be gathered (Hirschheim,
1985). This enables the study to emphasize on the importance of contextual variables in a dynamic
27 and complex industry as the airline industry. The ‘methodological pluralism’ stance, in addition to the importance of contextual variables, enhance the choice of a qualitative case study research approach as explained underneath.
3.2. Qualitative Case Study Research Approach
Qualitative research adds interesting insights to complex international business theories (Saunders et al., 2009). As Gephart (2004) explains, qualitative research design uses an interactive, unstandardized data collection method, enabling to gather rich information and explore new areas of research and build new theories for the concepts in this study (Eisenhardt, 1989). This research explores the topic of route expansion strategies of LCCs and explains their differences across regions. A combination of Eisenhardt (1989) inductive view on research and aim for theory building with Yins’ (2009) deductive approach is made. This results in following Shepherd &
Sutcliffe (2011) that catch on a bottom-up deductive approach, which enables the study to discover causal relationships and possible extension of existing theory, enhancing the explanatory nature.
To explain the phenomenon of LCCs route expansions in the ASEAN sub-region a qualitative multiple-case study design (Yin, 2009) is used. Which is characterized as a complete study of a contemporary phenomenon in its real-life context (Yin, 2009) and supports in the explanation of the LCC phenomenon, their airport choices, and subsequent drivers. The airline industry is dynamic and developments in the status quo are of everyday business (Johnson, 2009).
Studying this in its natural context in a specific industry, is seen as most valuable and relevant, as it is incomparable to other industries (Yin, 2009). Yin (2009) states that case study research design is most suitable when a “how” or “why” question is asked, which is the case for this study.
Case studies can involve single or multiple cases and different levels of embedded units of analysis (Yin, 2009). For this study, a multiple case study design with each over five embedded
28 units of analysis were selected to perform a within-case and cross-case analysis, so that findings could be compared (Saunders et al., 2009). The next section presents the cases and their embedded units of analysis. The comparison of the findings comes from the concept of replication logic
(Eisenhardt, 1989; Yin, 2009). Replication logic sees multiple cases as separate experiments that can be either replicated (literal replication) or contrasted (theoretical replication). For this study, the literal replication logic increases the generalizability of findings. On the one hand, by comparing the embedded units of analysis in a within-case and on the other hand a cross-case comparison.
Case studies use a variety of data sources to explain a phenomenon from different viewpoints. This concept is called triangulation. The data sources can be qualitative, quantitative or both (Eisenhardt, 1989). The case study method is most suitable for the indicated research question as it can provide a thorough understanding of city-level attraction and formal institutional forces influencing LoF and so ASEAN LCCs destination strategies. There are many factors influencing location strategies for airlines, so the phenomenon is too complex to study using one data source.
3.3. Case Selection for Study
This research focuses on location choices for expansions of LCCs in the ASEAN sub-region. The research approaches these location choices from a firm perspective, highlighting the IB lens. The need for cross-case literal replication (Yin, 2009), judges for the selection of two case studies, the location choices of two LCCs and their subsidiaries in the ASEAN sub-region. The inclusion of the selected LCCs’ subsidiaries enhanced the results through within-case literal replication. These
LCCs in the ASEAN sub-region are selected to get complete access to data sources. The large number of expansions for the two cases, and their subcases provide a grounded foundation to study the working propositions. Lion Air and AirAsia are the selected MNEs for this study. They are the largest LCCs based on amount of seat capacity within the ASEAN sub-region (CAPA, 2014b).
29 Airline Home Passengers Initiated Subsidiary Routes Fleet Revenue Hubs Strategy Group Country Carried flights Kuala Lumpur, AirAsia is a Malaysian Kota Kinabalu, LCC, operating from 59 (two AirAsia Malaysia 80 24.3 million 2001 Penang, Johor Kuala Lumpur. It is the terminated) Bahru, Kuching & largest airline in Langkawi Malaysia by fleet size 18 (13 Kuala Lumpur and routes. Its unique AirAsia X Malaysia 20 3.6 million 2007 terminated) aspect to operate with Jakarta, Denpasar, 0,023 USD cents per Indonesia 16 (7 Indonesia 24 6.5 million 2005 Surabaya, Bandung available seat kilometre AirAsia terminated) & Medan and a turnaround time of
Indonesia 2 (2 Denpasar 25 minutes and an Indonesia 2 - 2014 AirAsia X terminated) aircraft utilization time Manila, Cebu, of 13 hours per day. Philippines 17 (2 Philippines 13 3.6 million 2012 Puerto Princesa & Operating with 7 AirAsia terminated) Kalibo affiliates in ASEAN, Bangkok, Phuket, and 1 in India, Air-Asia 49 (5 Thai AirAsia Thailand 45 14.8 million 2004 Chiang Mai, Krabi is seen to be the pioneer terminated) & Pattaya in low-cost travel in the 7 (1 Bangkok ASEAN sub-region. Thai AirAsia X Thailand 5 - 2014 terminated) 168 – $1.4 Total 189 50.6 million 75 unique billion Lion Air Jakarta, Surabaya, PT Lion Mentari Indonesia 44 110 14.7 million 2000 Batam & Makassar Airlines Group is an 14 (5 Bangkok Indonesian LCC. Lion Thai Lion Air Thailand 18 - 2013 terminated) air is growing Manado, Denpasar, aggressively. By Wings Air Indonesia 56 48 - 2003 Medan & Jakarta constantly innovating, 39 (2 Kuala Lumpur they gain market share. Malindo Air Malaysia 27 - 2013 terminated) They are second LCC in Jakarta the ASEAN sub-region, Batik Air Indonesia 29 33 - 2013 behind AirAsia. 182 – $ 1.6 Total 236 1 53.0 million 116 unique billion Table 1: Case Specification, data gathered from company website and annual report (Lion Air & AirAsia) 1 Estimation by Forbes Investment in 2013
30 The LCCs selected as cases are the largest within the studied region, and well-spoken about in prior literature and in the news, which eases the availability of data for this study. AirAsia is a publicly listed firm, aiding the availability of information. Lion Air plans an initial public offering (IPO) in
2017 therefore it has sufficient amounts of public information available. A list of all route expansions of the respective airlines is presented in the appendix 2. The subsidiaries “AirAsia
India” and “AirAsia Japan” are excluded from the case study, as India and Japan are not part of the
ASEAN sub-region and will thus not add value to our knowledge on location decisions in this region. Please find an overview and description of the respective cases in table 1.
3.4. Quality criteria
To undermine quality risks for this study, the following four clear criteria are honoured; construct validity, external validity, internal validity and reliability (Yin, 2009). This section explains the choices in line with the quality criteria regarding the research methodology.
The use of database data enabled primary data collection. The data comes from an archive of articles. For data sampling, a structured approach was used and focal articles were selected process- wise. In this way, the study measures what it intends to measure. Construct validity defines whether a study measures what it actually intended to measure (Saunders et al., 2009; Yin, 2009), or whether the correct measures are used. Multiple sources of evidence are used by taking a data triangulation approach (Gibbert & Ruigrok, 2010). The study combines company-related data sources, newspaper articles from the LexisNexis database and reports of official sources from the airline industry.
External validity, or the ability to translate the findings of the study to other research settings
(Saunders et al., 2009), is guaranteed by using a multiple case study approach. The extent to which theories identified in case studies are generalizable to another research settings is a much doubted fact (Saunders et al., 2009; Yin, 2009). Although, multiple cases generate robust and rigorous
31 theory compared to a single case research design (Eisenhardt, 1989). Which is enhanced by the concept of replication logic (Yin, 2009). The comparison of the outcomes for the two LCCs and their subsidiaries enables both within and cross-case literal replication.
The study has an explanatory nature. For this type of research, the establishment of causal relations is crucial. The theoretical working propositions in this study are based on literature, which supports the development of valid cause and effect relations (Yin, 2009). Combining academic literature with empirical findings leads to explanation building as suggested by Gibbert & Ruigrok
(2010). Also, within- and cross-case pattern matching enhances internal validity (Yin, 2009).
Reliability aims for structured data collection and a clear analysis approach (Yin, 2009). The structured case study approach that shapes this research proved reliable before. A structured approach enables others to re-perform the study and find similar results. All data is gathered in a case study database. An explanation of the data collection and analysis strategy in the latter of this chapter enables further support for reliability.
3.5. Data collection
The data gathered for this study constitutes of documentary data gathered from multiple sources, increasing construct validity. The data collection for the cases starts from inception of the two
LCCs, whereas Lion Air started in 2000 and AirAsia in 2002. Thus, starting from 1 January 2000 until today, to show a longitudinal pattern in internationalization other than just highlighting static events. Qualitative data was collected through annual reports to find respective route expansions for each of the selected cases. Also, official timetables are considered to identify the location choices.
Furthermore, newspaper articles from primary financial newspapers in the Asia-Pacific macro- region are scrutinized. Articles from the Straits Times, New Straits Times, the Bangkok post and
Jakarta Post are drawn from the LexisNexis Database. The following company names are used as
32 search terms to draw sufficient results: ‘AirAsia’ or ‘AirAsia Group’ (Including subsidiaries
‘AirAsia X’, ‘Indonesia AirAsia’, ‘Philippines AirAsia’ or ‘AirAsia Zest’, ‘Thai AirAsia’
‘Indonesia AirAsia X’ and Thai AirAsia X’) and ‘Lion Air’ (Including subsidiaries ‘Batik Air’,
‘Thai Lion Air’, ‘Malindo Air’ and ‘Wings Air’).
CAPA Airline LexisNexis Subsidiaries Used Articles Annual Reports analysis Group Articles reports Malaysia AirAsia 1,654 75 downloads Annual Report 2001 - 2015 15 reports Indonesia AirAsia 1,457 36 downloads Annual Report 2005 - 2015 5 reports Thai AirAsia 1,882 54 downloads Annual Report 2005 - 2015 10 reports Philippines AirAsia / PHL 202 23 downloads Annual Report 2012 - 2015 2 reports Thai AirAsia X Annual Report 2014 & 248 26 downloads 2 reports 2015 Indonesia AirAsia X Annual Report 2014 & 88 9 downloads 2 reports 2015 AirAsia X 3,000+ 101 downloads Annual Report 2007 - 2015 16 reports Lion Air 2,063 59 downloads - 4 reports Batik Air 122 9 downloads - 3 reports Wings Air 2 1 download - 1 report
Thai Lion Air 164 20 downloads - 1 report Malindo Air 551 55 downloads - 5 reports Total 11,433 468 54 75 Table 2: Data Sources
The analytical reports from the Centre of Aviation (CAPA) provide additional data on route expansion motives and governmental implications per subsidiary. By using multiple data sources, the study can increase its quality by improving the validity and reliability of the case study
(Eisenhardt, 1989; Saunders et al., 2009). Table 2 provides an overview of the respective data sources. Specific data sources for the extensive analytical tables in the appendices and the airport categorization are available in Appendix 3.
3.6. Data Analysis
Data analysis software (CAQDAS) can be a helpful tool in preparing your data for qualitative analysis in coding and categorizing large amounts of data (Saunders et al., 2009; Gephart, 2004;
33 Yin, 2009; Welsh, 2002). This will save time compared to using manual coding, for the large numbers of articles analysed for this research (Welsh, 2002). First, the location choices of the two
LCCs are gathered by studying the annual reports and timetables. Afterwards, the overall strategies of both carriers were studied and described.
The large amount of airports necessary to study provide a clear reasoning for classifying these into groups. By classifying these airports in homogeneous groups, a clear foundation for the study was created (Adikariwattage, de Barros, Wirasinghe, & Ruwanpura, 2012; Graham, 1998;
Malighetti, Paleari, & Redondi, 2009). Adikariwattage et al. (2012) state that the following concepts could be used to classify airports: size, role of an airport and geographic location. By having limited access to data on passenger traffic statistics to measure size, two other factors are included, namely the role of an airport (International transits, hubs, tourist destination) and the geographic location
(Malighetti et al., 2009). the airports were divided into categories based on the seven airport categories as introduced by Graham (1998), however minimized those to five by grouping two categories to form the airport categorization as presented in table 3. First, the two categories that covered primary cities are merged into the international hub category. Secondly, peripheral core cities and domestic hub cities are merged. The airports studied had strong similarities and overlapped with both categories. Grahams study (1998) used 1995 statistics. At that moment air traffic in the Asia-Pacific macro-region was still in its infancy. This creates the urge to compare the existing numbers with a multiplier. In 1995, there was a yearly amount of passenger traffic of 1,455 billion; in 2015, this was 3,441 billion. This translates to a growth number of 137%. This number is used in the study to calculate the increase of amount of passengers per year to compensate for the growth of the aviation industry over time. Appendix 2 provides an overview of the categorization per airport destination and Appendix 3 shows the sources utilized in the categorization process.
34 Amount of Airport Category1 Geographic location Size2 Description airports3 Located near world city International and 21 1. International hub and seen as core of global 16.5 -19.5 mil. intercontinental hubs.
airport networks Connecting world cities Located near large city, Regional airport connecting 2. Regional hub 7- 15.5 mil. 45 connecting the region hub-cities within one region Secondary airport in large Airports serving peripheral 35 3. Domestic hub city, central domestic 2.5 - 25 mil. core cities.
location Airports serving leisure Focused on in-bound tourism, 4. Single leisure 11 destinations 2 – 30 mil. few other functions, no onward destination connections 5. Single local Local airport close to Serving one destination Under 2 mil. 87 destination smaller cities without onward connections Table 3: Airport Categorization. 1 The airport categories are based on the study by Graham (1998) 2 Size in passenger traffic statistics per year 3 The number of airports that the case study firms expanded to and their respective categorization
Besides Airport Categorizations, the study uses an industry specific measure of regionalization
(Kolk et al., 2014; Rugman & Collinson, 2004). The LCCs share limited information about global sales dispersion. Thus regionalization is identified by comparing the amount of domestic with international and/or regional destinations (Rugman & Verbeke, 2004). For example, if the majority of destinations is domestic, this indicates a large home-country effect.
In the LexisNexis database, articles are identified that included the airline name, as specialized in the table above. Article titles were scanned for relevance, and then selected and downloaded from the database. All of these documents were imported into NVivo, which is yet familiarized by the researcher and advised by Myers (2013), to be prepared for analysis and thus be able to test the before formed working propositions (Saunders et al., 2009). Categorization of the data was necessary in the search for patterns to test the propositions. Categorising data is the process of “developing meaningful categories and attaching those categories that are relevant to specific units of data” (Saunders et al., 2009, p. 194). Thematic coding helps the development of themes and subthemes from the working propositions (Braun & Clarke, 2006; Ryan & Bernard,
2003). These (sub-) themes are extracted from the theoretical bases of this study and develop during
35 the data collection (Yin, 2009). Repetition and theoretical oriented analysis guided further formation of the themes (Ryan & Bernard, 2003), highlighting the combination of a deductive and inductive strategy in this research. Table 4 identifies the (sub-) themes and their link to the working propositions. The within and cross-case analysis chapters present the synthesis analysis of the elaborated analytical tables that are available in appendix 1. In the analysis, individual sources are only provided in direct quotations. Original source details of data are available on request.
Theme Sub-theme Definition WP Region- Home-region orientation MNEs that have most of their activities in their home-region 1A alization Host-region orientation MNEs that have most of their activities in another region than their 1A home-region Global orientation MNEs that distribute their activities equal over the triad regions. 1A Bi-Regional orientation MNEs that have most of their business in two regions 1A Home-country effect The majority of revenues comes actually from the domestic market 1A other than the other nations within the region Intra-regional LoF The combination of spatial distance costs, firm-specific costs, host 1A/1B country environment and home country environment costs. Bringing foreign countries within the same regions at disadvantage when doing business across borders. Inter-regional LoF Distance between the home and host country that lies within another 1A/1B region, imposing difficulties when doing business across regions. Formal National (Entry barriers, Humanly devised constraints shaping the business environment and 2A Institutions ownership regulations) enhancing effective markets on national level. Subnational (Route Humanly devised constraints shaping the business environment and 4A entry, landing charges) enhancing effective markets on airport/subnational level. Informal National (Culture, Unwritten norms, habits and customs flowing from cultural traits, 3A Institutions language) shaping the national business environment Firm - Firm-specific capabilities as Management capabilities and - specific organizational capacity, with which sustained competitive advantage advantages can be created Expansion Market seeking Firms engaging in international expansion with the goal to attract 3C motives additional customers and increase international sales. Strategic-Asset seeking Firms engaging in international expansion to gain strategic advantage 4D over competitors. Efficiency seeking Firms engaging in international expansion to reduce costs through 4C creating economies of scope and scale and gathering a larger amount of human resources. Strategic Domestic focus Organization is focused on domestic expansion 1A direction International focus Organization is focused on international expansion 1A Table 4: Coding Scheme
After describing the research philosophy, approach, quality criteria, case selection, data collection and analysis, the study continues with the analytical results. The following chapter presents the within-case analysis of the route expansions of the above-mentioned LCCs.
36 4. Results
The following chapter presents the results from data analysis. It shows detailed motives for cross-border route expansions and formal institutional barriers on these expansions first within-cases and afterwards across cases. The results start with an introduction to the LCCs and are followed by the analysis of the route expansions. The analytical tables highlight FDI motives and the importance of subnational and national formal institutions per expansion. The influence of informal institutions and FSAs are described in the text and are not visualized in the analytical table, since these justifications are embedded in the quotes for expansion motives. However, the effects of FSAs are mentioned in the analytical tables in appendix 1.
4.1. Within-case analysis
4.1.1. Case 1: AirAsia Group
AirAsia was the first LCC entering the ASEAN sub-regional market in 2001. They focused on the potential for growing middle classes by offering affordable fares within the ASEAN sub- region. The airline has a home-region orientation, with a strong home country effect. They served inter-regional destinations such as London and Paris in Europe. However, these services are suspended. AirAsia is 60% international. In line with Rugman & Verbeke (2004), all destinations lie within the Asia-Pacific macro-region. This supports that MNEs are more likely to internationalize inside their home region because of lower intra-regional LoF.
The ASEAN Aviation market is still protected by national policies, forming formal institutional barriers, hence AirAsia was confronted with high transaction costs when expanding abroad, and faced higher extends of intra-regional LoF (Zaheer, 1995). Each national market had its own characteristics, differences in infrastructure, individual bilateral agreements, governments supporting local firms and protectionist measures for local economies. This forced AirAsia to expand in the region by forming equity joint ventures
(JVs) with local parties to overcome protectionist ownership rules or settling bilateral
37 agreements to obtain route expansion rights. These equity JVs led to increasing administration costs and time was necessary to overcome foreign rules and regulations, this is a force of host country costs of discriminatory LoF (Zaheer, 1995). From inception, each of the local carriers of AirAsia operated under different licences, dealing with varying national regulatory authorities and safety rules and regulations. Since 2010, the ASEAN Single Aviation Market aims for integration. Nevertheless, not all member states have agreed upon the terms by 2016.
In addition, the agreement is limited to fourth and fifth freedom rights. Enabling service to cross-border destinations but not for transporting passengers from the host country to other destinations.
Following the ASEAN community headquarters, AirAsia Group has also located its
ASEAN secretariat headquarters in Jakarta. Supporting its strategic objective to develop as
ASEAN-based airline. Table 5 gives a within-case overview of the motives of all cross-border expansions pursued by the AirAsia Group. A breakdown of this table is presented in the subchapters, together with supporting quotes on the numbers presented in the table below.
FDI Motive for cross-border Importance of Formal Insitutions by no. of expansions1 Airport Category expansion National Subnational Market Seeking 39 Significantly important 33 15 Strategic-Asset 1. International hub 6 Seeking Not important 15 32 Efficiency Seeking - Market Seeking 55 Significantly important 37 16 Strategic-Asset 2. Regional hub 9 Seeking Not important 12 27 Efficiency Seeking - Market Seeking 27 Significantly important 21 6 Strategic-Asset 3. Domestic hub 4 Seeking Not important 2 8 Efficiency Seeking - Market Seeking 9 Significantly important 2 1 4. Single leisure Strategic-Asset - destination Seeking Not important 1 1 Efficiency Seeking - Market Seeking 7 Significantly important 5. Single local Strategic-Asset 3 - - destination Seeking Not important - - Efficiency Seeking - Total expansions 156 Table 5. AirAsia Group Summary Table 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level.
38 4.1.1.1. Subsidiary 1: Malaysia AirAsia
Malaysia AirAsia (MAA) was the first subsidiary of the AirAsia Group. The LCC phenomenon was new to the ASEAN sub-region, hence MAA’s first-mover position. MAA dealt with unavailable air services agreements within the Asia-Pacific macro-region. This made it difficult to start and obtain landing rights and overcoming formal institutional barriers in a strongly protected and unintegrated region required much effort. It was a challenge taking over traffic rights to move away from the monopoly of Malaysian Airlines (MAS), Malaysia’s government has strong protecting policies and kept certain routes closed for MAA.
As displayed in table 6, for the first three years MAAs expansions were domestic. In
2005, it started its aggressive international expansion strategy, to regional and domestic hubs in neighbouring countries as Indonesia, Thailand, Cambodia and later China. The second column of table 7 shows that most of the expansions are moved by market seeking motives, to attract additional travellers to and from these countries. These are supported by the theory that informal institutional barriers are smaller in countries with comparable cultural traits
(Hofstede, 1983). Three cross-border destinations for the international hub category and four for the regional hub category have strategic-asset seeking purposes. This was forced by the aim of creating new transit hubs or crucial connections to new cross-border markets and can be explained by the attractiveness of large cities and established airports (Goerzen et al.,
2014). Regarding the formal institutional arrangements, from 2012 onwards MAA expanded to regional and domestic hubs and single leisure destinations (category 2, 3, 4 and 5) across borders driven by additional bilateral air agreements with India and Indonesia, because of decreasing transaction costs. As described by column 4 to 7 in table 7, MAA refrained from flying to many international hubs, due to high airport taxes and landing fees, or subnational formal institutional arrangements, which would lead to too high costs for a LCC to get appropriate margins. These subnational formal institutional barriers were of most influence
39 for category 1 and 2 airports (8 cross-border expansions), as visualized in column 7 in table 7, indicating that primary congested airports might not be sustainable for a LCC but are sometimes crucial to serve (Francis et al., 2003).
FSAs are important to support cross-border expansions for MAA. Its ‘leading international LCC brand’, is familiar for many people across the region. Further, it utilizes
AirAsia’s dynamic network for launching flights to the same destinations as other group carries. Lastly, the distribution network and website are easily transferable to new destinations, which create benefits (Sethi & Judge, 2009) in cross-border expansions.
Total Terminated Expansion by airport classification2 Year Orientation1 Routes Routes 1 2 3 4 5
Home-Region Oriented International 2001 6 - (Home-country Effect) Domestic 1 1 2 1 1 Home-Region Oriented International 2002 6 - (Home-country Effect) Domestic Home-Region Oriented International 1 2003 8 - (Home-country Effect) Domestic 1 Home-Region Oriented International 1 1 2004 12 - (Home-country Effect) Domestic 1 1 International 8 3 1 2005 Home-Region Oriented 30 - Domestic 6 International 2 1 2006 Home-Region Oriented 33 - Domestic International 1 1 2007 Home-Region Oriented 35 - Domestic 2008 International 1 Home-Region Oriented 36 - Domestic International 1 2009 Home-Region Oriented 37 - Domestic International 1 2010 Home-Region Oriented 38 - Domestic International 2011 Home-Region Oriented 38 - Domestic International 1 2 2 2 1 2012 Home-Region Oriented 46 - Domestic International 2 2013 Home-Region Oriented 47 - Domestic International 2 1 1 2014 Home-Region Oriented 51 - Domestic International 2 3 2 1 2015 Home-Region Oriented 59 - Domestic International 1 (-1) 2016 Home-Region Oriented 59 (-1) 3 Domestic Table 6: Malaysia AirAsia Route Expansions 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is Asia-Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function 3 Numbers between brackets indicate terminated routes
40
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport 1 cross-border no. of expansions Category expansion National Subnational Market “Aviation remains a highly-regulated industry in Vietnam, with the government having a 7 Significantly Seeking 4 2 domestic air fare cap and stipulating the inclusion of a Value-Added Tax on domestic important 1. Strategic- services.” 3 International Asset Seeking “While we have not been approached by the Malaysian authorities, we look forward to hub Not discussions with Malaysia in the near future and working towards bilateral open skies.” Efficiency 6 8 - important “Singapore right now only offers us Changi Airport, which is an expensive airport for an Seeking airline such as ours. We would love to be in Singapore, but it has to be cost efficient.” Market “Malaysia has also signed an expanded bilateral air services agreement with India, which 20 Significantly Seeking 11 6 provides for unlimited carrier designation – meaning more competition from LCCs on the important Strategic- route is imminent.” 2. Regional 4 Asset Seeking “The domestic units of Malaysia's AirAsia Bhd., one of the region's biggest budget carriers, hub Not are seeking flights to Burma (Myanmar), filings with the Civil Aeronautics Board showed.” Efficiency - - - important “Vientiane at times has been relatively restrictive, with several foreign airlines unable to Seeking secure the slots or traffic rights needed to mount new or additional flights.” Market “The LCC has obtained a security clearance from the Bureau of Civil Aviation Security, but 11 Significantly Seeking 9 1 awaits clearance from the Directorate General of Civil Aviation to commence operations.” important Strategic- “Malaysia has signed an expanded bilateral air services agreement with India, which - 3. Domestic Asset Seeking provides for unlimited carrier designation, meaning more competition from LCCs on the hub route is imminent.” Not Efficiency - - “But ultimately Cebu’s growth is enabled by the constraints at Manila and by its own - important Seeking expansion. Cebu is also currently operating above its designed capacity of 4.5 million annual passengers, but unlike Manila it has space, and a commitment to expand.” Market “Additional slots at Phuket Airport are currently only available during late night or 5 Significantly Seeking 2 1 overnight hours – which can be conducive for long-haul operations but difficult for short- 4. Single important Strategic- haul flights within Asia.” leisure - Asset Seeking “He added that while AirAsia had secured rights to fly to Thailand, Indonesia and the destination Not Efficiency - - Philippines” - important Seeking Market “Malaysia and Indonesia governments signed an expanded bilateral air services 7 Significantly Seeking memorandum of understanding, including third, fourth and fifth freedom rights for 5. Single important 3 - Strategic- passengers and cargo services. Under the agreement, Malaysian carriers can now operate an local - Asset Seeking additional four daily frequencies to Indonesia.” destination Not Efficiency - - - important Seeking Table 7: Malaysia AirAsia Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
41
4.1.1.2. Subsidiary 2: AirAsia X
AirAsia X (AAX) is the long-haul LCC of Malaysia, focusing on flights with a duration of four to nine hours. AirAsia Berhad Ltd. (16%) created the organization in a shared investment and the Virgin Group took 20% stake at par value in AAX.
As table 8 displays, AAX started serving international and regional hub destinations
(category 1 & 2) in Europe, China and India in their first years of operations. AAX expands to international hub airports across borders for market seeking and strategic-asset seeking motives. The majority of cross-border expansions were market seeking because many destinations locate close to global cities, that are densely populated and form a large potential market (Iammarino & McCann, 2013). A minority aimed for strategic-asset seeking motives.
The aim to create additional hub locations to offer transit locations for existing customers to fly onwards on other AirAsia Group carriers explains this motive. From 2012 onwards, AAX shifted its strategy. They suspended routes to Europe, forced by high fuel prices, extreme government taxes and weak demands. The expansions to category 1 international destinations, early in AAX’s operating years, had less barriers. Because of established route expansions and yet negotiated bilateral agreements by the mother company, Malaysia AirAsia in the years before.
As described in table 9, formal institutional barriers on national but also subnational level were important for cross-border expansions by AAX. Especially for the destinations outside the Asia-Pacific macro-region. Forced by high transaction costs in inter-regional expansion (Rugman & Verbeke, 2005), AAX decided to stick to its destinations within the
Asia-Pacific macro-region with large growth potential, however having to deal with their
‘biggest challenge’: Getting local government support for route approval. For AAX, the largest barrier in route expansion were national entry-restrictions. Besides these formal institutional arrangements on national level, AAX faces subnational formal institutional
42 barriers. First in the struggle in obtaining traffic rights and slots but this only seems to be relevant for category 1, 2 and 3 destinations. This can be explained by the logic that these airports are yet congested and have the power and ability to ask for certain incentives by airlines to fly to a certain destination (Francis et al., 2003). Additionally, airports that are governmentally owned can pose airport entry-barriers to protect local carriers (Hooper, 2002).
Which is the case for AAX that serves many international hub destinations, mostly owned by supporters of the main national carrier.
The possession of transferable FSAs as low operational costs and management and marketing strengths created a buffer for high cross-border transaction costs (Sethi & Judge,
2009). AXX utilizes AirAsia and Virgin Group’s transferable FSAs as brand recognition and networks in Australia and the EU and profit from economies of scale by sharing resources and improving efficiency. These FSAs provide benefits and consequently decrease transaction costs for AAX in cross-border expansions (Barney, 1991; Hymer, 1976).
1 2 Year Orientation Total Terminated Expansion by airport classification Routes Routes 1 2 3 4 5
International 1 2007 Home-Region Oriented 1 - Domestic International 1 2 2008 Home-Region Oriented 4 - Domestic International 3 2 2009 Home-Region Oriented 9 - Domestic International 4 (-1) 1 1 2010 Home-Region Oriented 14 (-1)3 Domestic International 3 (-1) 2011 Home-Region Oriented 16 (-1) Domestic International 1 (-4) 1 (-2) 2012 Home-Region Oriented 12 (-6) Domestic International 1 3 1 2013 Home-Region Oriented 17 - Domestic 2014 International 2 1 1 (-1) Home-Region Oriented 20 (-1) Domestic International (-2) 1 (-2) 2015 Home-Region Oriented 17 (-4) Domestic International 1 2016 Home-Region Oriented 18 - Domestic Table 8: AirAsia X Route Expansions 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is specified as Asia- Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function 3 Numbers between brackets indicate terminated routes
43
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport cross-border no. of expansions1 Category expansion National Subnational Market “The reasons given were high jet fuel prices, weak demand for air travel from Europe led by 12 Significantly Seeking 12 8 the global financial meltdown and exorbitant government taxes.” important Strategic- “The airports are supportive…. The only issue we may have is the bilateral (flying rights) 1. 3 Asset Seeking constraints in adding frequencies… We want our government to talk with the Indian International Government to open more bilaterals.” “India bars tourist visa holders from returning to the hub Not Efficiency 1 5 country within two months of leaving.” - important Seeking “But securing slots at Shanghai can be even more difficult than Beijing, where at least off- peak slots seem to be available.” Market “The airline has submitted its proposal to Chinese authorities to fly five times a week to 11 Significantly Seeking 9 4 China and expects to get a response next month.” important Strategic- “AirAsia X benefits from liberal bilateral agreements, including open skies to China, Japan, 2 Asset Seeking South Korea and Taiwan.” 2. Regional “The approval of these routes depends on the traffic rights availability and the receiving hub Not country’s rules and regulations, which include among others, restriction on low-cost carrier, Efficiency 3 8 - important slots constraints and airspace control.” Seeking “At the same time, AirAsia X has not fully utilized all the traffic rights granted to them to four destinations, namely Tianjin, Melbourne, Taipei and Teheran.” Market “One of the main barriers to new airlines is the cabotage rule preventing overseas flights 5 Significantly Seeking 5 3 from picking up domestic passengers. It means that a flight from overseas to Cairns and then important Strategic- on to the Gold Coast can’t pick up any local passengers en route, which would offer another 3 3. Domestic Asset Seeking revenue stream for the flight.” hub “Malaysian carriers technically have unlimited access to Adelaide as the Australia-Malaysia Not Efficiency - 2 bilateral only caps capacity to Australia’s four biggest airports – Brisbane, Melbourne - important Seeking Tullamarine, Perth and Sydney” “AirAsia X faces penalty if it withdraws from Kuala Lumpur-Christchurch service early.” Market 1 Significantly Seeking - - 4. Single important Strategic- leisure - - Asset Seeking destination Not Efficiency - - - important Seeking Table 9: AirAsia X Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
44
4.1.1.3. Subsidiary 3: Indonesia AirAsia
Indonesia AirAsia (IAA) is a JV between MAA and PT Fersindo Nusaperkasa (51%), formed to overcome protectionist rules on cabotage rights and ownerships restrictions. The
Indonesian local airports have high airport charges to newcomers. Indonesia and the
Philippines, decided not join the ASEAN Single Aviation Market (CAPA, 2013). As is explained in table 11, besides market seeking FDI motives, strong formal institutional barriers supported strategic-asset seeking motives in expanding to Indonesia to increase familiarity with the host-countries institutions to overcome the high transaction costs (Zaheer, 1995).
Table 10 indicates that the international market leaves opportunities for IAAs development. IAA is international market leader (41,19% market share) in Indonesia (AirAsia
Berhad, 2011). Its international route expansions designated existing AirAsia group routes, where it has yet negotiated traffic rights, minimizing barriers through formal institutions.
In 2014, an airplane crash of IAA led to the termination of important flight routes, because the government suspended safety certifications. In addition, Indonesia is influenced by currency fluctuations and political volatilities, causing difficult circumstances. Apart from overcoming formal institutional voids within developing countries within the ASEAN sub- region, IAA profits internationally from AirAsia’s FSAs, brand awareness and route network.
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
International 2 2005 Home-Region Oriented 11 - Domestic 1 2 4 2 International 1 2006 Home-Region Oriented 13 - Domestic 1 International 1 2007 Home-Region Oriented 17 - Domestic 2 1 International 2 1 1 2008 Home-Region Oriented 21 - Domestic International 1 2009 Home-Region Oriented 22 - Domestic 2010/ International (-2) 1 (-1) Home-Region Oriented 16 (-7)3 2015 Domestic (-2) (-2) Table 10: Indonesia AirAsia Expansions 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is specified as Asia- Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function 3 Numbers between brackets indicate terminated routes 45
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport cross-border no. of expansions1 Category expansion National Subnational Market “We finally secured rights to fly into Singapore. Connectivity between both countries 4 Significantly Seeking 1 - equates to a big market," said Fernandes.” 1. important Strategic- “Indonesia AirAsia confirmed plans to launch daily services from Jakarta and Denpasar to International - Asset Seeking Singapore next month, having received regulatory approval from the Civil Aviation hub Not Efficiency 4 5 Authority of Singapore (CAAS)” - important Seeking Market “To date, it has already obtained approval to fly to some of these destinations and expects to 2 Significantly Seeking 1 - commence some of the flights as early as March 30.” important 2. Regional Strategic- 1 hub Asset Seeking Not Efficiency 1 1 - important Seeking Market “To date, it has already obtained approval to fly to some of these destinations and expects to 2 Significantly Seeking 1 - commence some of the flights as early as March 30.” important 3. Domestic Strategic- 1 hub Asset Seeking Not Efficiency - - - important Seeking Market 1 Significantly Seeking - - important 4. Single Strategic- - leisure Asset Seeking - destination Not Efficiency 1 1 - important Seeking Table 11: Indonesia AirAsia Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
46
4.1.1.4. Subsidiary 4: Indonesia AirAsia X
Indonesia AirAsia X (IAAX) is a JV between AirAsia X and Indonesia AirAsia initiated in
2014. The brand aims to be the medium and long haul operation of the brand IAA. It uses the transferable FSAs such as brand recognition, leases aircrafts and utilizes reservation and other internal systems of other brands of AirAsia Group to obtain competitive advantage and internationalize (Barney, 1991; Sethi & Judge, 2009). As table 12 and 13 display, IAAX serves destinations from Jakarta and Denpasar, for market seeking purposes in reaching additional passengers to and from tourism destinations. Indonesia AirAsia’s international expansion are significantly influenced by national protectionist rules and regulations.
According to the Indonesian government, an airline must operate ten aircrafts. However, the scope of Indonesia AirAsia X is too small for this, covering three international and one domestic destination.
The internationalization was more complex because of increasing transaction costs coming from formal institutional barriers between Australia and Indonesia. In 2016, driven by national regulatory barriers and loss in brand appreciation in Australia, Indonesia AirAsia X decided to suspend the Australian destinations. They state that "the suspension of these services is part of a network restructuring aimed at improving operational efficiencies at
Indonesia AirAsia X" (Freed, 2016, p. 9). Leaving two other international destinations, which were not influenced by increased sources of LoF due to strong formal institutional arrangements (Kang & Jiang, 2012), for which negotiations were already done by AirAsia X.
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
- International 3 1 2015 Home-Region Oriented 4 Domestic International (-2) 2016 Home-Region Oriented 2 (-2)3 Domestic Table 12: Indonesia AirAsia X Route Expansions 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is specified as Asia- Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function 3 Numbers between brackets indicate terminated routes
47
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport cross-border no. of expansions1 Category expansion National Subnational Market “IAAX ended up shifting gears and commenced operations in Jan-2015 with services to 3 Significantly Seeking 4 1 Taiwan, which has a more favourable regulatory environment”. important Strategic- “An unexpected last second setback from the Australian regulator forced IAAX to postpone - 1. Asset Seeking the Melbourne launch by three months. International “The AirAsia affiliate began non-stop flights from Melbourne to Bali in March 2015, four hub Not months later than it had expected, after delays in receiving Australian regulatory approvals Efficiency - 2 - important that led many upset customers to seek refunds” Seeking “This time, the airline has secured regulatory approval to avoid a repeat of the Melbourne- Bali debacle.” Market “Jeddah in Saudi Arabia was added to the IAAX business plan as is the case with Taiwan it 1 Significantly Seeking 1 - presents an opportunity without significant regulatory challenges”. important Strategic- 2. Regional - hub Asset Seeking Not Efficiency - 1 - important Seeking Table 13: Indonesia AirAsia X Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
48
4.1.1.5. Subsidiary 5: Philippines AirAsia
Three investors from the Philippines and AirAsia Berhad founded Philippines AirAsia (PAA), and received permission to fly in 2012. In this JV, a share-swap agreement with Zest Airways was made. PAA enabled the AirAsia Group to serve all destinations in the Philippines.
Philippines’ authorities got into the ASEAN open sky agreement, however only for secondary destinations and not supporting cabotage rights hence forcing AirAsia to form a local subsidiary. The JV was driven by the strategic-asset seeking motive to have access to different institutions, systems and overseas hubs to overcome intra-regional LoF (Dunning, 1998).
PAAs selects its route expansions for market seeking purposes, with the goal to attract additional customers. The carrier dealt with complex infrastructural barriers for its cross- border expansions and had to move hubs across the Philippines. They faced strong competition from Philippine Airlines and Cebu Pacific. They have stronger FSAs, because their brands are yet developed within the nation, making it a complex market to excel in. On subnational level, barriers were formed towards PAA by the policy makers of governmentally owned airports (Hooper, 2002), protecting the before mentioned local carriers. To minimize intra-regional LoF, PAA served international and regional hub destinations in the first three years. These airports are close to world cities that have characteristics that can help MNEs to overcome LoF (Sassen, 1991). The expansion behaviour is explained in table 14 and 15.
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
International 3 2012 Home-Region Oriented 8 (-1)3 Domestic 1 2 1 2 (-1) International 1 2 1 2013 Home-Region Oriented 16 (-1) Domestic 2 3 (-1) International 1 2014 Home-Region Oriented 17 - Domestic Table 14: Philippines AirAsia route expansions 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is specified as Asia- Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function 3 Numbers between brackets indicate terminated routes
49
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport cross-border no. of expansions1 Category expansion National Subnational Market “South Korea and Japan are expected to soon remove these restrictions now that the 5 Significantly Seeking 5 1 Philippines have passed an ICAO audit”. important Strategic- “Nomura said yesterday that other cross-bilateral agreements between ASEAN and other - Asset Seeking countries - such as China, India and the European Union - are also being discussed.” 1. “ASEAN has set a road map for air liberalisation, and the Philippines' consent to comply International with Protocol 5 and 6 implies that unlimited fifth freedom rights on ASEAN capital cities hub Not could be foreseeable in the future across all ASEAN member”. Efficiency - 4 - important “Aside from Malaysia, Hong Kong, Macau and Singapore, the Civil Aeronautics Board Seeking (CAB) also granted the carrier rights to fly to Cambodia and Japan.” “Hong Kong, which is made possible by the recent extension of the Philippines-Hong Kong air services agreement”. Market 1 Significantly Seeking - - important 2. Regional Strategic- - - hub Asset Seeking Not Efficiency - - - important Seeking Market 1 Significantly Seeking - - important 3. Domestic Strategic- - - hub Asset Seeking Not Efficiency - - - important Seeking Table 15: Philippines AirAsia Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
50
4.1.1.6. Subsidiary 6: Thai AirAsia
Thai AirAsia Co. Ltd (TAA) is a Joint Venture between Malaysia AirAsia (49%) and Thai investors. This strategic-asset seeking expansion was supported by the requirement to be licensed by the Thai government to operate in Thailand and using its hubs for transit traffic on other AirAsia carriers. In addition, Thailand already had existing bilateral agreements with overseas nations, decreasing the barriers and transaction costs engaged in cross-border expansions. TAA also aims for market seeking purposes, they want to serve additional Thai passengers from international hub Bangkok: A densely populated global city (Sassen, 1991).
With regards to the national formal institutional environment, Thailand has agreed on the terms of the ASEAN Open Sky Agreement and on a bilateral agreement with China to open up destinations, limiting LoF for expansions towards Chinese destinations (Zaheer,
1995). While South Korea, Laos and Cambodia are keeping their skies closed, Thailand needs to reconsider its openness to keep its local carriers protected. Forces on subnational level also influence the route expansions of TAA. They mention the influence of Chinese airports offering ‘attractive packages’ to support new international routes, thus having a positive effect on cross-border expansions. These supporting incentives mainly come from secondary airports with spare capacity. On the other side, the high costs to enter Singapore Changi
Airport are a barrier in expansions on airport level.
TAA possesses transferable FSAs from AirAsia Group and operating experience in countries as India and China, which helps them overcome intra-regional LoF (Barney, 1991).
TAA possesses a stronger international brand than its local LCC competitors do. Its experience in primary entering international and regional hub airports (category 1 and 2), helped in getting familiar with home countries. These primary expansions were driven by the lower degree of LoF on global city level (McCann & Acs, 2011). This experience later eased expansion towards tertiary destinations. Another factor supporting TAAs expansion towards
51 tertiary destinations is the formal institutional environment that is in favour of TAA through bilateral agreements with China. Other than China, India has opened up its skies however left subnational institutions on airports to decide upon airport taxes themselves, leading to higher transaction costs when entering these destinations. TAAs expansion pattern and the influence of institutions are explained in table 16 and 17 respectively.
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
International 2 5 2005 Home-Region Oriented 14 - Domestic 1 1 1 1 3 International 1 2006 Home-Region Oriented 16 - Domestic 1 International 1 1 2007 Home-Region Oriented 20 - Domestic 2 International 1 2008 Home-Region Oriented 21 - Domestic International 1 1 2009 Home-Region Oriented 23 - Domestic International 1 1 2010 Home-Region Oriented 27 - Domestic 1 1 International 1 2011 Home-Region Oriented 30 - Domestic 2 International (-1) 3 (-1) 2 (-1) 2012 Home-Region Oriented 32 (-3)3 Domestic International 2 1 (-1) 2013 Home-Region Oriented 34 (-1) Domestic International 1 (-1) 2014 Home-Region Oriented 35 (-1) Domestic 1 International 3 3 2015 Home-Region Oriented 45 - Domestic 4 International 2 1 2016 Home-Region Oriented 49 - Domestic 1 Table 16: Thai AirAsia route expansion 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is specified as Asia- Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function 3 Numbers between brackets indicate terminated routes
52
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport 1 cross-border no. of expansions Category expansion National Subnational Market “Airlines from Singapore, Malaysia, Thailand, Myanmar and Vietnam now have unlimited 4 Significantly Seeking 3 3 3/4 freedom capacity into points in China with the exception of HK, Macao and Taiwan.” important Strategic- “TAA was given a green light to fly the socialist state's restricted skies after pursuing the - Asset Seeking matter for eight years. In part, Laotian authorities have appeared to soften to the idea that 1. LCCs can spur much needed tourism in a country hungry for foreign exchange.” International “Those guys are asleep; they are only interested in Cathay Pacific. One day Hong Kong will hub Not Efficiency 4 4 realise that it needs to be in this market.” - important Seeking “TAA's two initial Indian routes Bangkok-Delhi and Bangkok-Kolkata were introduced in December 2010 and terminated in March 2012 and March 2014, respectively, due to high costs, especially fuel and ground handling charges imposed by Indian airports.” Market “TAA secured permission from Cambodian authorities to launch a daily service starting on 19 Significantly Seeking 14 5 Oct 1 as Phnom Penh ended Bangkok Airways' monopoly of over 16 years.” important Strategic- “An official from the airline industry said that AirAsia is one of a few airlines approved by 1 Asset Seeking the Burmese government to fly into the country. In return, Burma's Air Bagan has obtained 2. Regional rights to operate flights from Rangoon to Bangkok, which are expected to begin in October.” hub “But India is not yet open skies. For ASEAN carriers India does allow unlimited access to Not Efficiency 7 16 18 non-metro Indian cities – but currently has no plans to allow open skies on the major - important Seeking cities, which will remain subject to existing bilateral controls.” “Airport charges are also typically lower at secondary airports, incentivising AirAsia to try a route that otherwise may be margin.” Market “The landmark ASEAN-China Air Transport Agreement adopted in 2010 is one example. It 7 Significantly Seeking 5 2 is today already in force among China, Singapore, Malaysia, Thailand, Myanmar and important Strategic- Vietnam.” - Asset Seeking “The new visa waiver programme will help boost inbound tourism figures from Thailand as 3. Domestic Mandalay is one of Myanmar’s largest tourist destinations and is famous for Buddhist hub Not temples.” Efficiency 2 5 - important “Chinese airports often offer attractive packages to support new international routes and that Seeking he expects the number of Chinese airports offering such packages will surge, given the boom in airport construction in China.” 4. Single Market 2 Significantly leisure Seeking - - important destination Strategic- - - /5. Single Asset Seeking Not local Efficiency - - - important destination Seeking Table 17: Thai AirAsia Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1. 53
4.1.1.7. Subsidiary 7: Thai AirAsia X
Thai AirAsia X (TAAX) is the Long-haul LCC of Thailand and sister organization of AirAsia
X. The airline only serves international destinations that have longer distances and that TAA’s airplane capacity cannot cover. Table 18 shows the dispersion of destinations served. These destinations lie within the Asia-Pacific macro-region, confirming a home-region orientation.
As displayed in table 19, TAAX only expanded to international hub destinations in its first two years. This comes from their market seeking motive towards world cities, that have dense populations providing potential for additional passengers (Sassen, 1991). In addition, global cities’ infrastructural and governmental arrangements decrease transaction costs in internationalization and hence decrease intra-regional LoF. A year after its launch, the ICAO presented its doubts about international safety standards at TAAX, which has led to a decrease in international expansion. Because Japan and South Korea posed restrictions according to this decision, further internationalization was halted, supporting the effect of national formal institutional barriers on internationalization (Kang & Jiang, 2012). This resulted in expansion towards other countries: China, who refrained from restrictions and has open sky agreements with Thailand. In addition, the Middle East, Teheran and Muscat were added to the flight schedule, supported by subnational formal institutions at Muscat Airport. As potential destinations, TAAX mentions Europe. Specifically, East Europe for now, where they are waiting for air service approval by local governments.
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
International 2 2014 Home-Region Oriented 2 - Domestic International 2 1 (-1) 2015 Home-Region Oriented 4 (-1)3 Domestic International 2 1 2016 Home-Region Oriented 7 - Domestic Table 18: Thai AirAsia X Route Expansion 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is specified as Asia- Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function 3 Numbers between brackets indicate terminated routes
54
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport cross-border no. of expansions1 Category expansion National Subnational Market “Thai AirAsia X Co Ltd (TAAX) will commence application for operating permits and slots 4 Significantly Seeking 4 - for its intended international routes. This follows the approval from Thailand's Department important Strategic- of Civil Aviation for the air operator's certificate on February 3.” 1. - Asset Seeking “The Japan Civil Aviation Bureau (JCAB), which also banned chartered flights to Japan International from Thai airlines, recently agreed to allow six Thai-registered airlines to operate flights to hub Not Efficiency - 4 Japan from April 11 to May 31.” - important Seeking “That is in sharp contrast with TAAX's services to Japan -- two daily flights to Narita and one to Osaka … and the country's visa-waiver programme.” Market “The lifting of economic sanctions against Iran in January has turned Tehran into a new 2 Significantly Seeking 1 1 economic frontier and an emerging tourism market, said Mr Nadda.” important 2. Regional Strategic- “At Muscat International Airport, we strive to facilitate procedures for airline carriers 1 hub Asset Seeking wishing to launch new routes through the airport.” Not Efficiency 1 1 - important Seeking Market “TAAX, like most Thailand-registered airlines, is largely in a mode of retreat or maintaining 1 Significantly Seeking 1 - the status quo because of restrictions imposed by some countries in accordance with the important 3. Domestic Strategic- punitive guidelines established by the UN aviation auditor. - hub Asset Seeking The essence of the ICAO's red-flagging means that Thailand-registered airlines are not Not Efficiency - 1 allowed to open new routes, nor raise the frequency of existing flights to foreign countries, - important Seeking nor change aircraft types already deployed for current services.” Table 19: Thai AirAsia X Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
55
4.1.2. Case 2: Lion Air Group
The second case presents the analysis of the international expansion by the Lion Air Group.
Lion Air is established in Indonesia and initiated as a solely domestic airline, with 93% of domestic seat capacity (CAPA, 2014a). Since 2013, Lion expands aggressively in the ASEAN sub-regional market. They pursue a ASEAN home-region orientation and have strong home- country effects (Osegowitsch & Sammartino, 2008). International expansion through JVs in neighbouring countries enabled Lion Air to secure positions in cross-border markets.
Strategic-asset seeking motives, to increase institutional equity and competitive advantage, were pursued. FDI barriers in the respective countries forced Lion Air to expand in this manner, leading to different brands for Thailand (Thai Lion Air) and Malaysia (Malindo Air) and its local Indonesian brands (Lion Air, Wings Abadi Airlines and Batik Air). Besides national and subnational rules and regulations, Lion Air is influenced by regional and global institutions. This supports the concept of multi-level governance policies (Coenen et al.,
2012). The international certifications obtained by Lion air and their exemption from the EU blacklist increased the likelihood of securing approval from civil aviation authorities in several countries. The FSAs of Lion Air that are transferable, as its network integration, shared systems and cost-efficient policies, create benefits in cross-border expansions (Sethi &
Judge, 2009). Lion Air also possesses a large amount of non-transferable FSAs. Their brand is not established outside Indonesia, their hubs are static and their local influence on policymaking do not help across borders. In the following chapter, the expansion behaviour of the subsidiaries regarding their motives are presented next to the influence of formal and informal institutions and FSAs on cross-border expansions. Table 20 gives a within-case overview of the motives of all cross-border expansions pursued by the Lion Air Group. A breakdown of this table is presented in the subchapters per subsidiary, together with supporting quotes on the numbers presented in the summary table.
56
Importance of Formal Institutions by no. of FDI Motive for cross-border Airport Category expansions1 expansion National Subnational Market Seeking 14 Significantly important 11 12 Strategic-Asset 1. International hub 5 Seeking Not important 5 4 Efficiency Seeking - Market Seeking 12 Significantly important 8 3 Strategic-Asset 2. Regional hub 2 Seeking Not important 6 11 Efficiency Seeking - Market Seeking 5 Significantly important 4 1 Strategic-Asset 3. Domestic hub 6 Seeking Not important 3 6 Efficiency Seeking 1 Market Seeking 2 Significantly important 2 5. Single local Strategic-Asset - - destination Seeking Not important - - Efficiency Seeking - Total expansions 47 Table 20: Lion Air Group Summary Table 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level.
4.1.2.1. Subsidiary 1: Indonesia Lion Air
Lion Air started operations in 2000 and is the LCC in Indonesia with the highest market share.
Lion Air focuses on its home-market, with 44 destinations, of which five are international. Its’ strong home-country effects are supported by a high influence of intra-regional LoF, because of limited regional integration in the ASEAN sub-region (Eden & Miller, 2001). As indicated in table 21, Lion Air internationalized to five destinations for market seeking purposes, to serve destinations with large customer bases (category 1 and 2 expansions), as larger airports serve global cities who have a larger population (Sassen, 1991). The pilgrimage flights to
Jeddah serve additional demand that flows from informal institutional similarities at both nations. Strategic-asset seeking motives support international and regional hub expansions.
For example, in Singapore, a global city. The expansion to this destination increased connectivity on other carriers and routes and the accessibility of financial capital (Sassen,
1991).
57
Since 2013, Lion Air has slowed its expansion with its main carrier overseas. The formal institutional protectionist measures within the ASEAN sub-region refrained Lion Air from serving overseas regions. In later years, airports from large capitals in the ASEAN sub-region opened up in an ‘Open skies agreement’, limiting protectionist formal institutional barriers for international expansion. However, protectionist measures on subnational level pose large barriers in getting approval for appropriate traffic slots, only on international hub level
(airport category 1). Primary destinations have put capacity limitations on their traffic slots.
This can be clarified by the fact that these international hubs are largely congested and hence have protected measures and increased entrance costs for new carriers aiming for serving these destinations (Francis et al., 2003). The importance of formal institutions can be further explained from table 22.
Besides formal national institutions across borders, Lion Air faces challenging conditions in its home market. The Indonesian government posed bans on Lion Air because of repeating delays and has implemented price bottoms, leading to a loss in Lion Airs’ competitive advantage to hybrid or FSCs since the price difference ended up being minimal.
The FSAs of Lion Air are strong within Indonesia; however, the brand is limited in recognition across the ASEAN sub-region. Therefore, the non-transferable FSAs as the brand and its hub locations do not provide benefits in cross-border expansions. However, their cost- effective business model and distribution systems do provide these benefits (Sethi & Judge,
2009).
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
International 3 2 2003 Home-Region Oriented 41 - Domestic 1 1 8 1 25 2004/ International Home-Region Oriented 44 - 2010 Domestic 3 Table 21: Lion Air Route Expansions 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is specified as Asia- Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function
58
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport cross-border no. of expansions1 Category expansion National Subnational Market “We would establish several new flights to the region after we get the traffic rights”. 3 Significantly Seeking 2 2 “Indonesian airlines like Garuda and Lion Air have been given permission to fly from important Strategic- Singapore to other parts of Asia, The Straits Times has learned. However, they will first 1 Asset Seeking have to apply to their government for the go-ahead.” “This in fact happened recently when Indonesian carriers wanted to expand operations to 1. Singapore, but came up against their government, which had to renegotiate bilateral International capacity.” hub Not Efficiency 1 1 “He said upon closer scrutiny, many of the advertised benefits were just a mirage. For - important Seeking example, open skies exist for capital cities, but there is a cap on slots so it amounts to no net benefit.” “Lion Air will receive, among other perks, a 15 per cent discount in landing charges for the first two years.” Market “The SA Government has ambitious plans to modernise and liberalise the national aviation 1 Significantly Seeking 1 - system, to improve options for passengers and enhance the sectors efficiency.” important 2. Regional Strategic- 1 hub Asset Seeking Not Efficiency 1 2 - important Seeking Table 22: Lion Air Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
59
4.1.2.2. Subsidiary 2: Thai Lion Air
Thai Lion Air (TLA) is the Thai subsidiary of the Lion Air Group, which commenced operating in 2013. TLA was formed in a JV with a Thai party, due to Thai FDI barriers that require a 51% national stake. TLA needs to compete with Thai AirAsia and Nok Air. The aim for increasing institutional familiarity in Thailand and search for competitive advantage support a justification for strategic-asset seeking motive expansions (Berry, 1990).
TLA's introduced international hub routes as Bangkok-Jakarta and Bangkok-Kuala
Lumpur. These expansions had strategic-asset seeking purposes. They aimed to take over market share from competition in serving key routes. As well as market seeking purposes, whereas large cities have large populations leading to extra demand (Sassen, 1991). However, all primary routes are terminated by low passenger demands due to political turmoil in 2014.
These category 1-airport expansions confront subnational institutional barriers, through traffic slot restrictions. TLA aims for an aggressive internationalization strategy however; foreign national governments impeded this. They have high entry barriers through complex formal processes, emerging economies cope with institutional voids which increases the effect of
LoF (Khanna & Palepu, 1997). Besides these national and subnational institutions, global regulators influence the Thai airline market: The International Civil Aviation Organization
(ICAO) impeded TLA’s cross-border expansions in 2016 because of failures in aviation safety. These findings support the influence of multi-level governance on route expansions
(Coenen et al., 2012). Table 23 and 24 show TLAs cross-border expansions in further detail.
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
Home-Region Oriented International 2 2013 4 - (Home-Country Effect) Domestic 2 International (-1) 2014 Home-Region Oriented 9 (-4)3 Domestic 3 (-2) 4 (-1) 2 International 1 2015 Home-Region Oriented 11 (-1) Domestic (-1) 2 2016 International 2 1 Home-Region Oriented 14 - Domestic Table 23: Thai Lion Air Route Expansion 1 The orientation depends on the amount of destinations within or outside the home region. The Home-Region is specified as Asia-Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function 60
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport cross-border no. of expansions1 Category expansion National Subnational Market ‟ TLA is expected tomorrow to reactivate ticket sales for the route that was abruptly halted 4 Significantly Seeking 4 3 earlier this month after Vietnamese authorities required "additional documents" to support important Strategic- the application for a permit.” 1 1. Asset Seeking “Chinese authorities typically approve new routes for foreign airlines that are new to the International Chinese market on a gradual piecemeal basis, and are unlikely to allow a rapid expansion.” hub Not “They will likely have to settle on operating in and out of Singapore Changi during middle Efficiency 1 2 - important of the day hours as Changi does not have available peak hour slots”. Seeking “The carrier is in the process of applying for international traffic rights and hopes to launch services early next month from Don Mueang to Kuala Lumpur and Jakarta”. Market “The green light granted to TLA comes in the wake of reports that Myanmar's civil aviation 1 Significantly Seeking 1 - department is crafting new regulations to restrict airline expansion in the country. Myanmar important 2. Regional Strategic- has 11 airlines in operation, and officials have suggested that rules governing applications - hub Asset Seeking for permits will be tightened.” Not Efficiency - 1 - important Seeking Market - 1 Significantly Seeking - - important 3. Domestic Strategic- 1 hub Asset Seeking Not Efficiency - - 1 important Seeking Table 24: Thai Lion Air Cross-Border Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
61
4.1.2.3. Subsidiary 4: Wings Air
Wings Abadi Air is the domestically operating subsidiary of Lion Air, with a strong home- country effect (Osegowitsch & Sammartino, 2008). The carrier functions as a feeder airline for Lion Air on its international and domestic routes. Wings Air utilizes smaller aircrafts to be able to serve local airports with short runways and thus flies primarily to rural destinations in
Indonesia with flight durations of under three hours. The data availability of data for Wings
Air was low; consequently, the exact expansion pattern could not be identified. The dispersion of routes served by Wings air per airport category is expressed in table 25.
Wings Air has one international route, Davao in the Philippines. This expansion was driven by a market seeking motive, with limited confrontation of informal institutional barriers as Philippines and Indonesia have similar cultural traits. Because of increasing regulatory constraints within its home country Wings Air stopped expansion in 2016.
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
2003/ Home-Region Oriented International 1 56 - 2016 (Home-Country Effect) Domestic 1 10 1 43 Table 25: Wings Air Route Expansions 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is specified as Asia- Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function
4.1.2.4. Subsidiary 5: Malindo Air
Malindo Air started as the ‘international arm’ of the Lion Group in 2013. Malindo is created in a Joint Venture, of which 49% is owned by PT Lion Group and 51% by Malaysia's NADI
Sdn Bhd. Malindo is a ‘Hybrid’ LCC, meaning that they offer full service included in the price, however offering affordable fares. Malindo launched to compete with AirAsia on regional long-haul flights. In its first years, the airline focused on developing in the domestic
Malaysian market. After 2015, Malindo Air started its ‘Breakneck expansion’, using the transferable FSAs of the Lion Group which helped creating competitive advantage across borders (Barney, 1991). For example in leasing aircrafts and leveraging the Lion Group
62 network to decrease start-up costs (K. Azhar, 2013). As table 26 displays, Malindo started its cross-border expansions towards international, regional and domestic hub destinations. With the aim for strategic-asset seeking in positioning Kuala Lumpur as transit hub and connecting
Malindo to its sister carriers. Supporting Dunning (1998), another reason for a strategic-asset seeking motive was the search for localized tacit knowledge on how to overcome institutional barriers across-borders. Market seeking motives supported all cross-border route expansions.
On all airport levels, additional customer bases are targeted.
Table 27 illustrates that formal institutional barriers on national level varied depending on bilateral agreements negotiated by the Malaysian government. The absent formal institutional agreements with China, India, Nepal and Myanmar led to increasing levels of intra-regional LoF (Zaheer, 1995). However, entries in respective nations as Delhi in 2012, led to agreements on multiple destinations within the same nation (Ahmedabad and Amritsar).
On subnational level, the formal institutional barriers include slot-restrictions for international and regional hub airports (category 1 & 2). These restrictions give airports the chance to favour local carriers, which is normal practise in developing economies (Hooper, 2002).
From 2016, Malindo only expanded to international and regional hubs, characterized by a search for additional demand both on Malindo flights but also as feeders for Lion its other carriers. Currently, Malindo Air covers destinations in the four main sub-regions of the
Asia-Pacific macro-region: Southeast Asia, South Asia, North Asia and Australasia.
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
Home-Region Oriented International 2 1 1 2013 14 - (Home-Country Effect) Domestic 1 1 4 1 3 International 2 2 4 2 2014 Home-Region Oriented 26 - Domestic 1 International 4 2 (-2) 2015 Home-Region Oriented 33 (-2)3 Domestic 3 International 3 4 2016 Home-Region Oriented 39 - Domestic Table 26: Malindo Air Route Expansions 1 The orientation depends on the amount of destinations within or outside the home region. The Home-Region is specified as Asia-Pacific 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function
63
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport cross-border no. of expansions1 Category expansion National Subnational Market “Malindo had to postpone several times the launch of India services as it waited to secure 6 Significantly Seeking 4 6 the required approvals from Indian authorities.” important Strategic- “Malindo prior to its Mar-2013 launch was able to secure from Malaysian authorities most 2 of the traffic rights to India.” 1. Asset Seeking “Malindo should be able to secure rights to pick up passengers from Taiwan to South Korea International and Japan.” hub Not Efficiency 3 1 “Malindo has secured an early afternoon slot pair at Hong Kong International Airport after a - important Seeking lengthy negotiating process.” “The fact that Malindo managed to secure a spot in the heavily congested Soekarno-Hatta International Airport in Jakarta reveals its financial and political muscle.” Market “The two countries have a liberal air services agreement and Bangladeshi authorities were 10 Significantly Seeking 6 3 very welcoming to Malindo, quickly approving its initial application to serve Dhaka while important Strategic- Malindo’s applications to Indian authorities dragged on for several months.” 1 Asset Seeking “Malindo Air has received temporary operating permit (TOP) from Civil Aviation Authority 2. Regional of Nepal (CAAN).” hub Not “Chinese authorities typically authorise foreign carriers more routes in phases once its initial Efficiency 5 8 - important two routes are operating.” Seeking “For now, Malindo only has rights for two weekly flights to Sanya and two weekly flights to Wuhan.” Market “Malindo is free to add capacity to Kochi and Tiruchirappalli as these are two of 18 4 Significantly Seeking 4 1 secondary destinations which are not capped under India’s bilateral with Malaysia and other important Strategic- Southeast Asian Countries.” 3. Domestic 5 Asset Seeking “Malindo has not yet finalised a schedule for the planned Kuala Lumpur-Bali-Brisbane route hub Not but the Malaysia-Indonesia bilateral limits Malaysian carriers to a maximum of four weekly Efficiency 3 6 - important frequencies to points beyond Indonesia.” Seeking “Bangladesh has also been very receptive in having Malindo serve Chittagong.” Market “Malindo is also keen to test out new Malaysia-India routes that are not restricted by the 2 Significantly Seeking 2 - bilateral, starting with Kuala Lumpur-Ahmedabad.” 5. Single important Strategic- “While Malindo’s applications to Indian authorities dragged on for several months.” local - Asset Seeking destination Not Efficiency - 2 - important Seeking Table 27: Malindo Air Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
64
4.1.2.5 Subsidiary 5: Batik Air
Batik Air is the FSC of the Lion Air Group, initiated in Indonesia with the goal to offer alternatives to the LCCs in the Indonesian Market, serving the rising number of the
Indonesian middle-class with disposable income. Consequently, market seeking motives characterized this expansion, in the search for an enabled customer base. Batik Air was initiated as a home-region oriented subsidiary of the Lion Air Group (Rugman & Verbeke,
2004), planning to serve 66 domestic routes and tap the long-haul segment by introducing 20 regional destinations.
Despite the intentions of introducing 20 international destinations, as table 28 confirms, Batik air has thus far only commenced flights to Singapore. This home-country effect is supported by the high imposes of regional, national and subnational governments
(Osegowitsch & Sammartino, 2008), increasing the effect of LoF (Zaheer, 1995). As the quotes in table 29 enhance, the largest challenge in setting Singapore as new destination is their formal subnational institutional arrangements. Singapore International Airport is a congested international hub airport, that divides traffic slots and has thus created barriers for
Batik Air to expand to Singapore (Sassen, 1991). Singapore was selected as new destination for market seeking expansion.
Regarding the informal institutions, culturally Singaporeans only differ slightly from
Indonesians, however not to such extent that this would increase the extent of LoF for cross- border destination selection. As expected, their cultural familiarity also supports travel behaviour between the nations (Crotts, 2004).
Except for the cost-efficient processes and assets as aircrafts and maintenance facilities, the FSAs of Lion Air are difficult to transfer (Barney, 1991). Whereas normally, brands are intangible assets and transferable, Singaporeans are not yet familiar with the Batik
Air brand which can pose difficulties in the search for additional passengers in Singapore.
65
Batik Air has elaborated plans on heading off to new international destinations, however thus far these expansions were limited due to high transaction costs and high intra-regional LoF
(Zaheer, 1995). Destinations on the list are Kuala Lumpur and destinations in Hong Kong,
China, Korea and Australia. However, Australia seems to become a difficult target due to strong formal institutional barriers set by Australias’ Civil Aviation Safety Authority (CASA).
The lack of transferable FSAs to increase benefits from expanding also limits international expansion, as the Batik brand is not developed abroad. “New international routes come with much higher start-up costs and risks than new domestic routes. As Batik’s brand is unknown in the international market it would be sensible to expand cautiously in the initial phase”
(CAPA, 2015a). For 2017, Batik plans to expand its international destinations, to stay competitive.
Year Orientation1 Total Terminated Expansion by airport classification2 Routes Routes 1 2 3 4 5
Home-Region Oriented International 2013 10 - (Home-Country Effect) Domestic 1 1 4 4 International 2014 Home-Region Oriented 13 - Domestic 4 3 International 1 2015 Home-Region Oriented 27 - Domestic 1 8 2016 International Home-Region Oriented 29 - Domestic 2 Table 28: Batik Air Route Expansions 1 The orientation depends on the amount of destinations within or outside the home country or region. The Home-Region is specified as Asia- Pacific. 2 This table gives an overview of the route expansions by the respective airline. These are grouped by international/domestic expansion and their classification based on airport size and function
66
FDI Motive for Importance of Formal Institutions by Supporting Quotes2 Airport cross-border no. of expansions1 Category expansion National Subnational Market “But while traffic rights to Singapore are available for Indonesian carriers.” 1 Significantly Seeking 1 1 “This decision to take a break from expansion in Indonesia is partially driven by relatively important Strategic- weak economic conditions and regulatory constraints.” 1 1. Asset Seeking “So far, though, Indonesia has opened up Jakarta only.” International “In Singapore, Batik’s biggest challenge will be securing slots that are needed to make the hub Not route viable.” Efficiency - - - important “New international routes come with much higher start-up costs and risks than new Seeking domestic routes. As Batik’s brand is unknown in the international market it would be sensible to expand cautiously in the initial phase.” Table 29: Batik Air Cross-Border Route Expansions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level. 2An extension of the quotes supporting abovementioned findings can be found in the analytical tables in appendix 1.
67
4.2. Cross-case analysis
This chapter presents the results of the cross-case analysis. Herewith the study aims to express patterns of consistency and identify differences for the analysed LCCs and their subsidiaries.
Regional Orientation
Neither the LCCs share information about their global sales dispersion therefore, the regional orientation is identified using an industry specific measure (Kolk et al., 2014; Rugman &
Collinson, 2004). By comparing the amount of domestic with international/regional destinations, An indication is given about regional orientation (Rugman & Verbeke, 2004).
As table 30 displays, AirAsia has a 60% home-regional presence, whereas the Lion Air group has a majority of domestic destinations. Both carriers do not have destinations outside the macro-region of Asia-Pacific. Specifically, Wings Air, Lion Air and Batik air have a limited amount of international destinations. They cope with strong home-country effects, as most destinations lie within the home country (Osegowitsch & Sammartino, 2008). This large home-country effect supports Eden & Miller (2001), who state that with lower regional integration, as in the ASEAN sub-region, an organization has a lower tendency to locate across borders. The difference in regional orientation between the two organizations could be explained by a first-mover advantage (Lieberman & Montgomery, 1988) of AirAsia, or by the ability of AirAsia to utilize its transferable FSAs (Rugman & Verbeke, 1992). A cross-case overview for both carriers is presented in Figure 1. A clear distinction is visible of both airlines home-region orientation. AirAsia serves most destinations within the Asia-Pacific macro-region and a select amount of destinations in the Middle East. Lion Air serves mainly domestic destinations and destinations within the ASEAN sub-region. The terminated destinations lie within further distance, formal institutional constraints caused the termination of these routes. This could support the argument this study makes that expansions inter- regional face higher LoF compared to intra-region destinations (Rugman & Verbeke, 2005) 68
Regional Orientation Cross-border expansion motive Airline Subsidiaries Dom- Inter- (In Asia Group Routes Orientation Year Entry Mode Expansion motive estic national Pacific) Malaysia 59 15 44 44 Home-Region - - - - AirAsia AirAsia X 18 - 18 18 Home-Region - - - - Aim for Hub’s in Thailand and SA1, Minority Equity Thai AirAsia 49 20 29 29 Home-Region 2004 increasing traffic rights to India and MS JV (45%) China. Increasing economies of scale &ES Aim for Hub’s in Indonesia and direct SA, Indonesia Home-Region Minority Equity 16 9 7 7 2005 competition to Lion Air Group. MS AirAsia (Home Country Effect) JV (48.9%) Increase economies of scale &ES Philippines Home-Region Minority Equity Accessing additional air service rights SA 17 9 8 8 2010 AirAsia (Home Country Effect) JV (49%) in the Philippines. Overcoming distance constraints and SA & gathering new equity for different MS Thai AirAsia Minority Equity 7 - 7 7 Home-Region 2014 aircraft type. Setting up transit hub for X JV (49%) connections from short to long-haul flights. Indonesia Minority Equity Targeting tourist on long-haul leisure SA & 2 - 2 2 Home-Region 2015 AirAsia X JV (49%) route and developing hub in Indonesia. MS Home-Region (Home Lion Air 44 39 5 5 - - - - Country Effect) Wings Air 56 56 ------Serving extra market on transit flights. SA, Minority Equity Competition for Malaysia AirAsia. MS Malindo Air 39 14 24 24 Home-Region 2013 JV Overcoming Indonesia’s HR & ES constraints Aim for Hub’s in Thailand and to SA & Thai Lion Home-Region (Home Minority Equity 14 9 5 5 2014 overcome Indonesia’s infrastructural MS Air Country Effect) JV and regulatory constraints. Home-Region Batik Air 29 28 1 1 - - - - (Home Country Effect) Table 30: Cross Case Summary Table on Regional Orientation and Cross-border Expansion Motives 1 SA: Strategic-Asset Seeking FDI motive, MS: Market Seeking FDI motive, ES: Efficiency Seeking FDI motive
69
Figure 1. Regional Orientation of Destinations for each Airline Group
70
Formal and Informal Institutional Barriers
AirAsia started with subsidiaries abroad in its early years of establishment towards nations with similar informal institutional environments (Kang & Jiang, 2012). They expanded their horizon from the ASEAN sub-region to the Asia-Pacific macro-region. Apart from specific cultural factors, as the long-term orientated Chinese society and higher extent of uncertainty avoidance in Indonesia, the similarities in informal institutions in these nations lead to minimization of transaction costs in cross-border expansions (McCann & Acs, 2011). Which helps decreasing intra-regional LoF through a lower degree of amendments necessary to access a new target market and thus having internationalization benefits. Lion Air, commencing operations in 2003, for a long time only focused on domestic operations. As latecomer in the market, it started in 2013 and 2014 with international JVs to nations with similar cultural traits as Indonesia (Hofstede, 1983). These JVs were formed across borders however, located in large international hubs near capitals as Jakarta and Bangkok, supporting
Goerzen et al. (2014) where higher connectivity of global cities decrease LoF for MNEs.
As visible in the last column of table 30 and in agreement with Kang & Jiang (2012) almost all locations selected for JV expansions coped with formal institutional barriers on national level, forcing the carriers to follow negotiated bilateral air-service agreements and air traffic rights across borders. These government restrictions shaped the formal institutional environment and poses institutional voids, failing to support effective market mechanisms
(Khanna & Palepu, 1997). This leads to increasing effects of LoF on international expansions
(Zaheer, 1995). The JV expansions aimed for getting institutional equity in overseas markets, to overcome weak institutional environments and decreasing LoF (Zaheer, 1995). Until the
ASEAN sub-region fully agrees upon ‘Open Sky Policies’, their LCCs will be forced to expand under JV agreements or by negotiation bilateral agreements, and hence has to deal strongly with formal institutional barriers.
71
FDI Motive for cross-border Importance of Formal Institutions by no. of expansions1 Airport Category expansion National Subnational Market Seeking 53 Significantly important 44 27 Strategic-Asset 1. International hub 11 Seeking Not important 20 36 Efficiency Seeking - Market Seeking 67 Significantly important 45 19 Strategic-Asset 2. Regional hub 11 Seeking Not important 18 38 Efficiency Seeking - Market Seeking 32 Significantly important 25 7 Strategic-Asset 3. Domestic hub 10 Seeking Not important 5 14 Efficiency Seeking 1 Market Seeking 9 Significantly important 2 1 4. Single leisure Strategic-Asset - destination Seeking Not important 1 1 Efficiency Seeking - Market Seeking 9 Significantly important 5 - 5. Single local Strategic-Asset - destination Seeking Not important - 2 Efficiency Seeking - Total expansions 203 Table 31: Cross-Case Summary Table on Expansion Motives and Formal Institutions 1The numbers indicate the amount of expansions for the respective subsidiary following a specific motive, followed by the importance of formal institutions on national and subnational level.
Besides the JV cross-border expansions, formal institutional forces also influenced the single cross-border route expansions. Table 31 presents the total amount of cross-border route expansions. For 109 destinations formal institutional barriers, as air traffic restrictions, monetary barriers and limited cabotage rights, were significantly important.
Formal institutions on subnational level also influenced route expansions however, to a lower extent. In international and regional hub airports (category 1 & 2), this is the case for negotiating time-slots arrangements which have limited capacity or if airports are governmentally owned and protect national carriers on airport level. Whereas for small scale airports formal institutions mainly form incentives. They support airlines to serve these airports to increase their connectivity and increase income (Francis et al., 2003). The subnational institutions do not substitute the national institutional environment for AirAsia and Lion Air, except for a limited amount of small-scale airports. Instead of attracting airlines
72 towards airports by having strong formal institutions, subnational formal institutions increase transaction costs and hence LoF in cross-border expansion.
Role of FSAs
AirAsia Group possesses strong non-location bound FSAs that they exploit to ease internationalization (Barney, 1991). The most important resources are easily transferable across borders. The well-established brand and strong marketing strategies are recognized throughout the region. These provide benefits when entering new cross-border locations
(Sethi & Judge, 2009). Also, its cost-advantages, integrated route networks, and internal systems increased cross-border benefits, leave a larger buffer for transaction costs. Lion Air possesses these non-location-bound FSAs to a lesser extent, due to FSAs mainly being bound to the Indonesian environment. It launched Malindo and Thai Lion Air. These brands were not known in Thailand and Malaysia. Besides the brand, Lion Air group does have advantages by integrating route networks and increasing economies of scale to achieve cost advantages.
These transferable FSAs form benefits in doing business abroad however, do not enable the
LCCs to overcome formal institutional constraints and decrease transaction costs (Sethi &
Judge, 2009). The LCCs need to compare the benefits and costs for each expansion. Both carriers possess some FSAs providing benefits when doing business abroad (Sethi & Judge,
2009), easing these expansions in case these benefits outweigh the costs (Zaheer, 1995).
Besides the informal and formal institutions and the influence of FSAs, industry specific forces motivate the regional expansions. Technical characteristics limit flight times for the types of aircrafts utilized by the carriers. Both airlines thus pursue regional expansion strategies, by only serving destinations in the Asia-Pacific macro-region. However, they do fly between the different sub-regions of the Asia-Pacific macro-region. The carriers fly from the ASEAN sub-region towards North and South Asia, Australia and the Middle East, which are destinations that are within capacity of the aircrafts.
73
5. Discussion
This chapter gives an overview of the working propositions and their relations to the findings from the research. Table 32 gives an overview of the working propositions and their results.
Working Propositions Results A high degree of regional integration, lowers intra-regional LoF and thus 1a increases the likelihood of LCCs pursuing a home-region oriented strategy. Not Supported Intra-regional LoF needs to be lower than inter-regional LoF for LCC to have 1b Supported a home-region oriented strategy. A strong formal institutional framework in the host-country decreases the 2a intra-regional LoF for a LCC abroad, which increases the amount of Supported destinations across borders. Weak formal institutions can explain strategic-asset seeking expansion 2b Supported motives by LCCs. A comparable informal institutional framework in the host-country decreases 3a Supported LoF for LCCs and thus increases the number of cross-border destinations. Comparable informal institutions between home and host country are 3b Supported expected to explain market seeking expansion motives by LCCs. A strong formal institutional framework at airport/city-level can play a 4a Partially Supported significant role in attracting airlines to these destinations. A strong formal institutional framework on airport/city-level can compensate 4b a weak national institutional framework and increase the amount of Not Supported destinations across borders. Strong formal institutional frameworks on the airport/city-level are expected 4c Not Supported to explain efficiency seeking cross-border expansion motives. Strong formal institutional frameworks on the airport/city-level are expected 4d Supported to explain strategic-asset seeking cross-border expansion motives. Table 32: Results of working propositions
The first working proposition comes from the best practices of LCCs in the EU (Dobson,
2007). These carriers were easily able to expand intra-regionally because of the EU’s regional integration (Rugman & Verbeke, 2005). As expected, the ASEAN sub-region refrains from full economic and political integration as the separate nations still form protectionist entry barriers for foreign carriers (Kua & Baum, 2004). Regional strategies are aimed for by the
LCCs, however because of its semi-integration, a large home-country effect remains
(Osegowitsch & Sammartino, 2008). To serve cross-border destinations, the LCCs form bilateral air-service agreements with single nations within the region. This supports the fact that these individual agreements offer greater short-term competitive advantages, and hence undermine multilateral agreements within the ASEAN sub-region (Levy, 1997). However,
74 expansions within this region are as complex as expansions across regions. Consequently, working proposition 1b is not entirely supported. There is a certain extent of regional integration visible in the ASEAN sub-region, supported by the partial economic and cultural integration of the region. This decreases intra-regional LoF however, does not provide enough evidence to support Rugman & Verbeke (2005) in their statement that this is lower than inter- regional LoF.
Findings on national formal institutional barriers supported the idea that they are of high influence on LCCs cross-border route expansions. Working proposition 2a, stating that high formal institutional barriers in a host-country increase LoF for LCCs cross-border expansions and consequently decreases those, is supported. The majority of internationalizations was influenced by formal institutions either in protectionist entry barriers, ownership regulations or in monetary barriers. These forces increased transaction costs for the LCCs and hence LoF, decreasing the likelihood of cross-border expansions.
The study supports the institutional voids literature (Mair & Marti, 2009; Stal &
Cuervo-Cazurra, 2011). As expected, weak formal institutions explain strategic-asset seeking expansion motives by LCCs. Both carriers pursue cross-border JV expansions to increase the likelihood of gaining formal institutional advantages from locating in the host country, through negotiation with local governments. Where institutional voids judge for MNEs to pursue institutional entrepreneurship if formal institutions in emerging markets do not support effective market mechanisms, the LCCs from the ASEAN sub-region follow this perspective in pursuing strategic-asset seeking expansions.
Working proposition 3a is supported. A comparable informal institutional framework in the host-country decreases the intra-regional LoF for a LCC abroad and thus increases the amount of destinations across borders. The extent of cultural regional integration in the
ASEAN sub-region is relatively large, resulting in passengers’ travel within the region. By the
75 limited influence of cultural barriers as inter-firm cultural clashes in JVs or having to amend to other social norms and behaviour, cross-border expansions do not face LoF through the informal institutional framework (Hofstede, 1983; Kang & Jiang, 2012).
As working proposition 3b expects, there is evidence that comparable informal institutions between home and host country are expected to explain market seeking expansion motives by LCCs. Both carriers start cross-border expansions in nations with similar cultural traits, where the target market has similar social norms and interests. This also includes their travel behaviour. Consequently, travel demand intra-regionally is high, supporting Crotts
(2004) in his judgement that cultural distance discourages travel behaviour between nations.
The study provides partial support for the idea that a strong formal institutional framework at airport -level can play a significant role in attracting airlines to the destination.
For some congested routes or primary airports, airport policymakers implement traffic-slot barriers or charge high monetary access costs, actually discouraging LCCs to fly to a certain destination. Whereas other airports, as Francis et al. (2003) describe, mostly secondary or with spare capacity provide monetary or regulatory incentives for LCCs to add these to their route network. On city-level, a strong formal institutional environment on city level enhances development of global businesses (Goerzen et al., 2014; McCann & Acs, 2011), offers decreasing forces of LoF.
Nevertheless, no support is found for the ‘compensation’ argument where was stated that strong subnational formal institutions can compensate for a weak national institutional framework and consequently increase the amount of destinations across borders. As findings show that subnational, formal institutions are more likely to form additional barriers compared to motivations for location decisions within this study. This could be explained by the fact that hardly no secondary airports are available within the Asia-Pacific macro-region, compared to Europe and the United States, drawing LCCs towards larger congested airports
76 that have a lower tendency to offer incentives to increase competitiveness (Francis et al.,
2003; Zhang et al., 2008).
There is no support for the idea that strong formal institutional frameworks on the airport/city-level are expected to explain efficiency seeking FDI. Only one JV expansion was driven by an efficiency seeking purpose. Whereas the national formal institutional framework propelled this expansion, as Indonesia has a limitation on foreign pilots to fly their aircrafts.
One route expansion was selected because of efficiency seeking purposes, where an existing maintenance facility would lead to cost reduction (Yang, 2009). However, due to the small amount of evidence, this working proposition is not supported.
The last working proposition, stating that strong formal institutional frameworks on the airport/city-level are expected to explain strategic-asset seeking FDI, is supported. Cross- border JV expansions and many of the route expansions were driven by strategic-asset seeking FDI motives. In agreement with the literature, they were searching for familiarization with institutions, tacit knowledge, hub locations and transit connections towards other destinations on existing routes (Dunning, 1998).
Other than expected, both LCCs possess transferable FSAs that play crucial roles in supporting their internationalization decisions. These transferable FSAs create benefits in cross-border expansions (Sethi & Judge, 2009). For the AirAsia Group, its brand is well developed in the ASEAN sub-region, easing market seeking route expansions. However, for
Lion Air its brand recognition is limited to Indonesia. This leads to a negative influence on the search for additional target markets across borders. Other FSAs that the carriers leverage in overseas markets are their existing route networks, websites, distribution systems and existing fleet. These cost-savings in cross-border expansions leaving a higher buffer for transaction costs that are bound to institutional barriers (Rugman & Verbeke, 2008a).
77
6. Conclusion
This research aims to explain the cross-border route expansions of LCCs based in the ASEAN sub-region. The study intends to enhance knowledge about regional/global orientations in internationalization and the influence of institutional theory on national and subnational level.
As expected, the development of LCCs in the ASEAN sub-region are impeded by the governmental regulatory environment (Kua & Baum, 2004). The low degree of economic and political regional integration slows down the growth of LCCs. National formal institutions form barriers in the airline industry for cross-border expansions through protectionist policies and ownership regulations, forcing carriers to engage in bilateral air-service agreements.
Further regional integration could enhance these expansions by LCCs in the ASEAN sub- region. Nevertheless, only when this includes multilateral air-service agreements that outweigh individual bilateral agreement advantages (Levy, 1997).
Besides economic integration, cultural integration within the ASEAN sub-region seems to be further developed. Informal institutional similarities on national level drive cross- border expansion, as similar social norms and lower interpersonal barriers increase potential for new target markets and hence decrease LoF (Hofstede, 1983; Kang & Jiang, 2012).
On subnational level, formal institutions play a minor role in influencing cross-border route expansions. Some airports impede access for LCCs by monetary or traffic slot barriers.
On the other hand, some airports actively attract airlines by offering incentives. To a certain extent this supports the multi-level governance literature (Coenen et al., 2012), however the study fails to provide evidence for generalization of the theory.
This study follows an institutional perspective however; the findings stipulate that the concept of the RBV should not be excluded. The LCCs transferable FSAs ended up being crucial in complementing cross-border expansions by outweighing the benefits reached through the possession of FSAs and the costs created through sources of LoF.
78
6.1 Scientific relevance and managerial implications
The integration of the concept of rescaling as introduced by economic geography (EG) and international expansion by international business (IB) is a response to the call from the scientific field for combining concepts from these disciplines. It enhances the topic of industry specificity (Rugman & Verbeke, 2004) and supports that the national unit of analysis should be combined when studying IB concepts, both with a regional (Ghemawat, 2003;
Rugman & Verbeke, 2004) and subnational level of analysis (Beugelsdijk & Mudambi, 2013).
Local policy makers from airports could benefit from the knowledge that route expansion decisions are influenced by subnational formal institutional arrangement. Carriers that are confronted with convenient arrangements on airport level are more likely to expand towards this location. Concerning policy makers on regional and national level, within the
ASEAN sub-region, there is work left to do with regards to regional integration. The extent to which EU institutions have agreed upon open skies and free cabotage rights, could prove extremely valuable as well for the ASEAN sub-region. Both to protect carriers intra-regional, however also to overcome uneven distributions through inter-regional bilateral agreements.
6.2 Limitations
Besides offering valuable additions to expansion strategies and industry specific nature of the airline industry, this research also has its limitations. First of all, qualitative research provide rich data and valuable insights to current topics and case study research gives a thorough view of an organization and its motives (Saunders et al., 2009; Yin, 2009). However, there is no significant or statistical evidence of causal effects between findings. Focusing on one sub- sector, namely LCCs, has narrowed the scope of the study. The generalizability can be increased when including FSCs in the sample. Additionally, this study is specified towards the ASEAN sub-region. Even though much research has covered the EU and the US, the study would be stronger when cases from respective regions would have been included,
79 enabling theoretical replication logic (Yin, 2009). Another limitation comes with the longitudinal aspect of this study. The LCC airline industry in the ASEAN sub-region is still in its infancy. Thus, taking a longer time-period for studying the respective cases could yield more valuable data and proof for effects of regional integration and formal institutional agreements on cross-border expansion. Lastly, the availability of some of the data on the subject matter was limited and protected from public. One of the cases was not publicly listed, which resulted in the newspaper articles being the only ‘valid’ source for findings. Choosing a publicly listed case would yield information that is more valuable.
6.3 Suggestions for future research
Future research could focus on identifying formal institutions on subnational levels and their effects on internationalization across other industries to provide additional evidence for the concept of industry specificity (Rugman & Verbeke, 2004). Evidence from subnational level formal institutions could be extended when the study would be approached from the airport perspective. This study assesses subnational formal institutions from a company perspective however; these could be further identified if the study would look to route applications by airlines and their outcomes through an airport lens. Hence, summarizing all possible incentives and barriers airports could enforce on LCCs. Furthermore, this study focused on the institutional perspective; however, the study underestimated the influence of transferable
FSAs and their substituting or complementing capabilities for airlines. An elaborated study on the transferable FSAs possessed by service firms, and their moderating capacity on institutions, will increase generalizability of these findings.
80
7. References
Adikariwattage, V., de Barros, A. G., Wirasinghe, S. C., & Ruwanpura, J. (2012). Airport classification criteria based on passenger characteristics and terminal size. Journal of Air Transport Management, 24, 36–41. AirAsia Berhad. (2011). AirAsia Annual Report 2010. Retrieved from http://www.airasia.com/iwov-resources/my/common/pdf/AirAsia/IR/annual-report- 2010.pdf Albers, S., Heuermann, C., & Koch, B. (2010). Internationalization strategies of EU and Asia–Pacific low fare airlines. Journal of Air Transport Management, 16(5), 244–250. Asmussen, C. G. (2009). Local, regional, or global? Quantifying MNE geographic scope. Journal of International Business Studies, 40(7), 1192–1205. Balassa, B. (1961). Towards a theory of economic integration. Kyklos, 14(1), 1–17. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. Beaverstock, J. V., Smith, R. G., & Taylor, P. J. (2000). World-City Network: A New Metageography? Annals of the Association of American Geographers, 90(1), 123–134. Berry, S. T. (1990). Airport presence as product differentiation. The American Economic Review, 80(2), 394–399. Beugelsdijk, S., & Mudambi, R. (2013). MNEs as border-crossing multi-location enterprises: The role of discontinuities in geographic space. Journal of International Business Studies, 44(5), 413–426. Boguslaski, C., Ito, H., & Lee, D. (2004). Entry patterns in the southwest airlines route system. Review of Industrial Organization, 25(3), 317–350. Braun, V., & Clarke, V. (2006). Using thematic analysis in psychology. Qualitative Research in Psychology, 3(2), 77–101. Buckley, P. ., Clegg, L. J., Cross, A. R., Xin, L., Voss, H., & Zheng, P. (2007). The Determinants of Chinese Outward Foreign Direct Investment. Journal of International Business Studies, 38(4), 499–518. Button, K. (2012). Low-Cost Airlines. Transportation Journal, 51(2), 197–219. CAPA. (2013). ASEAN’s Single Aviation Market: Many Miles To Go. Retrieved from http://centreforaviation.com/analysis/aseans-single-aviation-market-many-miles-to-go- 100831
81
CAPA. (2014a). Lion Air’s Batik Air plans major domestic push followed by ambitious international expansion. Aviation Analysis. Retrieved from http://centreforaviation.com/analysis/lion-airs-batik-air-plans-major-domestic-push- followed-by-ambitious-international-expansion-155064 CAPA. (2014b). World Aviation Yearbook 2014. Retrieved from centreforaviation.com/reports/files/39/yearbook_2014_final.pdf CAPA. (2015a). Lion Group’s Batik Air continues rapid expansion with 19 A320 deliveries by end of 2016. Aviation Analysis. Retrieved from http://centreforaviation.com/analysis/lion-groups-batik-air-continues-rapid-expansion- with-19-a320-deliveries-by-end-of-2016-244041 CAPA. (2015b). Low cost airports and terminals (LCATs) 2015. Can Asia learn from models elsewhere? CAPA, centre for aviation. Retrieved from http://centreforaviation.com/analysis/capa-report-low-cost-airports-and-terminals- lcats-2015---can-asia-learn-from-models-elsewhere-244225 Chan, C. M., Makino, S., & Isobe, T. (2010). Does subnational region matter? Foreign affiliate performance in the United States and China. Strategic Management Journal, 31(11), 1226–1243. Choi, Y. J., & Caporaso, J. A. (2002). Comparative regional integration. Handbook of International Relations, 480–499. Coenen, L., Benneworth, P., & Truffer, B. (2012). Toward a spatial perspective on sustainability transitions. Research Policy, 41(6), 968–979. Crotts, J. C. (2004). The effect of cultural distance on overseas travel behaviors. Journal of Travel Research, 43(1), 83–88. Damuri, Y. R., & Anas, T. (2005). Strategic directions for ASEAN airlines in a globalizing world: the emergence of low cost carriers in South East Asia. REPSF Project, (04/008). DiMaggio, P., & Powell, W. W. (1983). The iron cage revisited: Collective rationality and institutional isomorphism in organizational fields. American Sociological Review, 48(2), 147–160. Dobruszkes, F. (2006). An analysis of European low-cost airlines and their networks. Journal of Transport Geography, 14(4), 249–264. Dobruszkes, F. (2009). New Europe, new low-cost air services. Journal of Transport Geography, 17(6), 423–432.
82
Dobson, A. (2007). Globalization and Regional Integration: The origins, development and impact of the single European aviation market. Routledge. Dunning, J. H. (1998). Location and the Multinational Enterprise: A Neglected Factor? Journal of International Business Studies, 29(1), 45–66. Dunning, J. H. (2001). The eclectic (OLI) paradigm of international production: past, present and future. International Journal of the Economics of Business, 8(2), 173–190. Dunning, J. H., Fujita, M., & Yakova, N. (2007). Some macro-data on the regionalisation/globalisation debate: a comment on the Rugman/Verbeke analysis. Journal of International Business Studies, 38(1), 177–199. Dunning, J. H., & Lundan, S. M. (2008). Institutions and the OLI paradigm of the multinational enterprise. Asia Pacific Journal of Management, 25(4), 573–593. Economic Research Institute for ASEAN and East Asia (ERIA). (2012). Mid-Term Review of the Implementation of AEC Blueprint. ERIA. Eden, L., & Miller, S. R. (2001). Distance matters: Liability of foreignness, Institutional distance and ownership strategy. In Theories of the Multinational Enterprise: Diversity, Complexity and Relevance (pp. 187–221). Eisenhardt, K. M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532–550. Forsyth, P., King, J., & Rodolfo, C. L. (2006). Open skies in ASEAN. Journal of Air Transport Management, 12(3), 143–152. Francis, G., Fidato, A., & Humphreys, I. (2003). Airport–airline interaction: the impact of low-cost carriers on two European airports. Journal of Air Transport Management, 9(4), 267–273. Francis, G., Humphreys, I., Ison, S., & Aicken, M. (2006). Where next for low cost airlines? A spatial and temporal comparative study. Journal of Transport Geography, 14(2), 83–94. Freed, J. (2016, June 4). Rival Carriers swoop in to take customers as Air Asia X cancels Bali flights; Aviation. Australian Financial Review, p. 9. Australia. Friedmann, J. (1986). The World City Hypothesis. Development and Change, 17(1), 69–83. Garrett, G. (2000). The causes of globalization. Comparative Political Studies, 33(6-7), 941– 991. Gephart, R. P. (2004). Qualitative research and the Academy of Management Journal. Academy of Management Journal, 47(4), 454–462.
83
Ghemawat, P. (2003). Semiglobalization and International Business Strategy. Journal of International Business Studies, 34(2), 138–152. Gibbert, M., & Ruigrok, W. (2010). The“ what” and“ how” of case study rigor: Three strategies based on published research. Organizational Research Methods. Gillen, D., & Taweelertkunthon, N. (2007). Assessing the Potential Success of the Low-cost Business Models in Asian Aviation Markets. Advances in Airline Economics, 2, 287– 318. Goerzen, A., Asmussen, C. G., & Nielsen, B. B. (2014). Global cities and multinational enterprise location strategy. In Location of International Business Activities (pp. 137– 180). Springer. Goetz, A. R., & Sutton, C. J. (1997). The geography of deregulation in the US airline industry. Annals of the Association of American Geographers, 87(2), 238–263. Graham, B. (1998). Liberalization, regional economic development and the geography of demand for air transport in the European Union. Journal of Transport Geography, 6(2), 87–104. Graham, B., & Goetz, A. R. (2008). Global air transport. Graham, B., & Shaw, J. (2008). Low-cost airlines in Europe: Reconciling liberalization and sustainability. Geoforum, 39(3), 1439–1451. Grosse, R. (2005). Are the largest financial institutions really’global’? MIR: Management International Review, 129–144. Hanaoka, S., Takebayashi, M., Ishikura, T., & Saraswati, B. (2014). Low-cost carriers versus full service carriers in ASEAN: The impact of liberalization policy on competition. Journal of Air Transport Management, 40, 96–105. Héritier, A., & Karagiannis, Y. (2011). The new institutions of transatlantic aviation. Global Policy, 2(2), 152–162. Hirschheim, R. (1985). Information systems epistemology: An historical perspective. Research Methods in Information Systems, 13–35. Hofstede, G. (1983). National cultures in four dimensions: A research-based theory of cultural differences among nations. International Studies of Management & Organization, 13(1-2), 46–74. Hooper, P. (2002). Privatization of airports in Asia. Journal of Air Transport Management, 8(5), 289–300. Hymer, S. (1976). The international operations of national firms: A study of direct foreign investment (Vol. 14). MIT press Cambridge, MA.
84
Iammarino, S., & McCann, P. (2013). Multinationals and economic geography: location, technology and innovation. Edward Elgar Publishing. Jetschke, A., & Murray, P. (2012). Diffusing Regional Integration: The EU and Southeast Asia. West European Politics, 35(1), 174–191. Johnson. (2009). Case Study Methodology in the Aviation Industry. Journal of Aviation/Aerospace Education & Research, 18(3). Kang, Y., & Jiang, F. (2012). FDI location choice of Chinese multinationals in East and Southeast Asia: Traditional economic factors and institutional perspective. Focus on China Special Section, 47(1), 45–53. K. Azhar. (2013, September 16). Corporate: Malindo aims for 85% load factor by year-end. The Edge. Malaysia. Khanna, T., & Palepu, K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4), 41–48. Khanna, T., Palepu, K. G., & Sinha, J. (2005). Strategies that fit emerging markets. Harvard Business Review, 83(6), 4–19. Kolk, A., Lindeque, J., & Buuse, D. (2014). Regionalization strategies of European Union electric utilities. British Journal of Management, 25(S1), S77–S99. Kostava, T., & Zaheer, S. (1999). Organizational legitimacy under complexity. Academy of Management Review, 24(1), 64–81. Kua, J., & Baum, T. (2004). Perspectives on the Development of Low-cost Airlines in South- east Asia. Current Issues in Tourism, 7(3), 262–276. Langhammer, R. J. (1995). Regional Integration in East Asia. From Market-Driven Regionalisation to Institutionalised Regionalism? Weltwirtschaftliches Archiv, 131(1), 167–201. Levy, P. I. (1997). A political-economic analysis of free-trade agreements. The American Economic Review, 506–519. Lieberman, M. B., & Montgomery, D. B. (1988). First-mover advantages. Strategic Management Journal, 9(S1), 41–58. Lorenz, D. (1993). Europe and East Asia in the context of regionalization: Theory and economic policy. Journal of Asian Economics, 4(2), 255–270. Mair, J., & Marti, I. (2009). Entrepreneurship in and around institutional voids: A case study from Bangladesh. Journal of Business Venturing, 24(5), 419–435. Malighetti, P., Paleari, S., & Redondi, R. (2009). Airport class. and functionality within the European network. Problems and Perspectives in Management, 7(1), 183–196. 85
Marks, G., Hooghe, L., & Blank, K. (1996). European integration from the 1980s: State- centric v. multi-level governance. JCMS: Journal of Common Market Studies, 34(3), 341–378. McCann, P., & Acs, Z. J. (2011). Globalization: Countries, Cities and Multinationals. Regional Studies, 45(1), 17–32. Moore, T. G. (1986). US airline deregulation: Its effects on passengers, capital, and labor. The Journal of Law & Economics, 29(1), 1–28. Morgan, G., & Smircich, L. (1980). The Case for Qualitative Research. The Academy of Management Review, 5(4), 491–500. Murakami, H. (2011). Empirical Analysis Of Inter-Firm Rivalry Between Japanese Full- Service And Low-Cost Carriers. Pacific Economic Review, 16(1), 103–119. Myers, M. D. (2013). Qualitative research in business and management. Sage. North, D. C. (1987). Institutions, transaction costs and economic growth. Economic Inquiry, 25(3), 419–428. North, D. C. (1991). Institutions. Journal of Economic Perspectives, 5(1), 97–112. Nye, J. S. (1968). Comparative Regional Integration: Concept and Measurement. International Organization, 22(4), 855–880. O’Connell, J. F., & Williams, G. (2005). Passengers’ perceptions of low cost airlines and full service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia Airlines. Journal of Air Transport Management, 11(4), 259–272. Ohmae, K. (1985). Triad power; the coming shape of global competition. Osegowitsch, T., & Sammartino, A. (2008). Reassessing (Home-)Regionalisation. Journal of International Business Studies, 39(2), 184–196. Paliwoda, S. J., Slater, S., Kolk, A., & Margineantu, A. (2009). Globalisation/regionalisation of accounting firms and their sustainability services. International Marketing Review, 26(4/5), 396–410. Peng, M., Wang, D., & Jiang, Y. (2008). An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39(5), 920–936. Porter, M. E. (1998). Location, Clusters, and the“ New” Microeconomics of Competition. Business Economics, 7–13.
86
Puffer, S. M., McCarthy, D. J., & Boisot, M. (2010). Entrepreneurship in Russia and China: The impact of formal institutional voids. Entrepreneurship Theory and Practice, 34(3), 441–467. Richards, J. E. (2001). Institutions for flying: How states built a market in international aviation services. International Organization, 55(4), 993–1017. Rodrik, D., Subramanian, A., & Trebbi, F. (2002). Institutions rule: the primacy of institutions over integration and geography in economic development. Rugman, A. M. (2001). Viewpoint: The myth of global strategy. International Marketing Review, 18(6), 583–588. Rugman, A. M., & Collinson, S. (2004). The regional nature of the world’s automotive sector. European Management Journal, 22(5), 471–482. Rugman, A. M., & Verbeke, A. (1992). A note on the transnational solution and the transaction cost theory of multinational strategic management. Journal of International Business Studies, 23(4), 761–771. Rugman, A. M., & Verbeke, A. (2004). A Perspective on Regional and Global Strategies of Multinational Enterprises. Journal of International Business Studies, 35(1), 3–18. Rugman, A. M., & Verbeke, A. (2005). Towards a Theory of Regional Multinationals: A Transaction Cost Economics Approach. MIR: Management International Review, 45(1), 5–17. Rugman, A. M., & Verbeke, A. (2007). Liabilities of Regional Foreignness and the Use of Firm-Level versus Country-Level Data: A Response to Dunning et al. (2007). Journal of International Business Studies, 38(1), 200–205. Rugman, A. M., & Verbeke, A. (2008a). A New Perspective on the Regional and Global Strategies of Multinational Services Firms. MIR: Management International Review, 48(4), 397–411. Rugman, A. M., & Verbeke, A. (2008b). The theory and practice of regional strategy: a response to Osegowitsch and Sammartino. Journal of International Business Studies, 39(2), 326–332. Ryan, G. W., & Bernard, H. R. (2003). Techniques to identify themes. Field Methods, 15(1), 85–109. Sassen, S. (1991). The Global City: New York, Tokyo and London. NJ: Princeton University Pres. Saunders, M., Lewis, P., & Thornhill, A. (2009). Research methods for business students. Harlow: Prentice Hall.
87
Schaafsma, M. (2010). 3 Airport and city. In Airports in Cities and Regions: Research and Practise: 1st International Colloquium on Airports and Spatial Development, Karlsruhe, 9th-10th July 2009. KIT Scientific Publishing. Scott, W. R. (1995). Institutions and organizations. Sage Thousand Oaks, CA. Sethi, D., & Judge, W. (2009). Reappraising liabilities of foreignness within an integrated perspective of the costs and benefits of doing business abroad. International Business Review, 18(4), 404–416. Sharma, S. C., & Chua, S. Y. (2000). ASEAN: economic integration and intra-regional trade. Applied Economics Letters, 7(3), 165–169. Shepherd, D. A., & Sutcliffe, K. M. (2011). Inductive top-down theorizing: A source of new theories of organization. Academy of Management Review, 36(2), 361–380. Stal, E., & Cuervo-Cazurra, A. (2011). The investment development path and FDI from developing countries: The role of pro-market reforms and institutional voids. Latin American Business Review, 12(3), 209–231. Vowles, T. M. (2001). The “Southwest Effect” in multi-airport regions. Journal of Air Transport Management, 7(4), 251–258. Warnock-Smith, D., & Potter, A. (2005). An exploratory study into airport choice factors for European low-cost airlines. Journal of Air Transport Management, 11(6), 388–392. Welsh, E. (2002). Dealing with data: Using NVivo in the qualitative data analysis process. In Forum Qualitative Sozialforschung/Forum: Qualitative Social Research (Vol. 3). Wildemuth. (1993). Post-Positivist Research: Two Examples of Methodological Pluralism. The Library Quarterly: Information, Community, Policy, 63(4), 450–468. Williamson, C. R. (2009). Informal institutions rule: institutional arrangements and economic performance. Public Choice, 139(3-4), 371–387. Wittmer, A., & Bieger, T. (2011). Fundamentals and structure of aviation systems. In Aviation Systems (pp. 5–38). Springer. Yang, T.-H. (2009). Stochastic air freight hub location and flight routes planning. Applied Mathematical Modelling, 33(12), 4424–4430. Yin, R. K. (2009). Case study research: Design and methods, 4th. Sage Inc CA. Zaheer, S. (1995). Overcoming the Liability of Foreignness. The Academy of Management Journal, 38(2), 341–363. Zhang, A., Hanaoka, S., Inamura, H., & Ishikura, T. (2008). Low-cost carriers in Asia: Deregulation, regional liberalization and secondary airports. Research in Transportation Economics, 24(1), 36–50.
88
8. Appendices Appendix 1: International Route Expansions per subsidiary 1. 1. Malaysia AirAsia Int. Route Host Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Country Category Motive National Airport Level “He added that while AirAsia had “Additional slots at Phuket secured rights to fly to Thailand, Airport are currently only Indonesia and the Philippines.” available during late night or overnight hours – which Phuket Thailand 2003 4 - - - can be conducive for long- haul operations but difficult for short-haul flights within Asia.” “Indonesia is a high-potential aviation market, “He added that while AirAsia had Market with a strong natural requirement for air services secured rights to fly to Thailand, Jakarta Indonesia 2004 1 - - Seeking and a large population with rising incomes to Indonesia and the Philippines.” support the industry.” Bangkok Thailand 2004 2 - - - - - “Overall, Cambodia has tremendous potential for growth. It has a population of 15 million but its airline market is tiny and is the third smallest in ASEAN (of the 10 ASEAN countries, only Brunei and Laos have smaller aviation markets). Cambodians propensity to travel, which is now Phnom Market Cambodia 2005 2 extremely low, is expected to increase as the - - - Penh Seeking economy grows. But most of Cambodia’s growth in the aviation sector will likely be driven by tourism as Siem Reap attracts an increasing number of visitors and as tourist infrastructure starts to be developed in areas other than Siem Reap and Phnom Penh.” “Overall, Cambodia has tremendous potential for growth. It has a population of 15 million but its airline market is tiny and is the third smallest in ASEAN (of the 10 ASEAN countries, only Brunei and Laos have smaller aviation markets). Cambodians propensity to travel, which is now Market Siem Reap Cambodia 2005 2 extremely low, is expected to increase as the - - - Seeking economy grows. But most of Cambodia’s growth in the aviation sector will likely be driven by tourism as Siem Reap attracts an increasing number of visitors and as tourist infrastructure starts to be developed in areas other than Siem Reap and Phnom Penh.” Xiamen China 2005 2 - - - - - Denpasar Indonesia 2005 2 Market “Indonesia is a high-potential aviation market, “He added that while AirAsia had - -
89
Seeking with a strong natural requirement for air services secured rights to fly to Thailand, and a large population with rising incomes to Indonesia and the Philippines.” support the industry.” “Indonesia is a high-potential aviation market, “He added that while AirAsia had Market with a strong natural requirement for air services secured rights to fly to Thailand, Surabaya Indonesia 2005 2 - - Seeking and a large population with rising incomes to Indonesia and the Philippines.” support the industry.” “But as Asia's population and economy continues Market to grow, the Pearl River Delta's airports will be Macau Macau 2005 2 - - - Seeking Asia's equivalent to the London, New York City or Sao Paulo airport networks.” “He added that while AirAsia had “Expanding at Cebu while secured rights to fly to Thailand, up-gauging Manila was a Indonesia and the Philippines.” logical option for PAL as Manila Philippines 2005 2 - - expanding the base at - Manila was not a feasible option, due to slot constraints.” “He added that while AirAsia had Chiang Thailand 2005 2 - - secured rights to fly to Thailand, - - Mai Indonesia and the Philippines.” “AirAsia is committed towards connecting communities in the region especially from our southern hub - Johor Bahru. The cooling city of Market Bandung is a shopping paradise and home to Bandung Indonesia 2005 3 - - - Seeking recreational activities filled with scenic landscapes, and we are proud to continue to operate this route as part of our extensive list of exciting destinations.” “The Malaysia-Indonesia market, particularly “He added that while AirAsia had “AirAsia can leverage routes to Sumatra, is typically price sensitive as it secured rights to fly to Thailand, its leading international Market consists primarily of migrant workers and Indonesia and the Philippines.” position at Medan and Medan Indonesia 2005 3 - Seeking visiting friends and relatives.” strong brand overseas to launch more new routes.” “He added that while AirAsia had Hat Yai Thailand 2005 3 - - secured rights to fly to Thailand, - - Indonesia and the Philippines.” “The Malaysia-Indonesia market, particularly “He added that while AirAsia had Market routes to Sumatra, is typically price sensitive as it secured rights to fly to Thailand, Padang Indonesia 2005 5 - - Seeking consists primarily of migrant workers and Indonesia and the Philippines.” visiting friends and relatives.” Bandar Brunei 2006 2 - - - - - Seri Strategic- “Since first unveiling its ambition in Mar-2006 to “Aviation remains a highly-regulated “The carrier eventually Asset establish cross-border JVs in Vietnam (and the industry in Vietnam, with the gained rights to launch Hanoi Vietnam 2006 2 - Seeking & Philippines), AirAsia has had its share of government having a domestic air fare services to second choice Market frustration in getting established in the Mekong cap and stipulating the inclusion of a Hanoi in Oct-2006 and
90
Seeking country.” “AirAsia’s vision is to dominate the Value-Added Tax (VAT) on domestic added a second daily ASEAN aviation scene. It is a worthy strategy, services.” service to the capital in given the grouping’s progressive liberalisation of Jun-2007.” aviation access, which is creating powerful growth opportunities. But the road has not been smooth.” “The Malaysia-Indonesia market, particularly “He added that while AirAsia had Market routes to Sumatra, is typically price sensitive as it secured rights to fly to Thailand, Palembang Indonesia 2006 3 - - Seeking consists primarily of migrant workers and Indonesia and the Philippines.” visiting friends and relatives.” “The Malaysia-Indonesia market, particularly “He added that while AirAsia had Market routes to Sumatra, is typically price sensitive as it secured rights to fly to Thailand, Pekanbaru Indonesia 2006 3 - - Seeking consists primarily of migrant workers and Indonesia and the Philippines.” visiting friends and relatives.” “Indonesia is a high-potential aviation market, Market with a strong natural requirement for air services Solo Indonesia 2006 5 - - - Seeking and a large population with rising incomes to support the industry.” “As Malaysia and Bangladesh have existing and “A condition set by the inter- strong bilateral ties, especially in trade and ministerial committee states that any investment, we at AirAsia are proud to bolster LCC seeking to operate services to this relationship by providing a bridge between Dhaka must first launch a three times both nations through our daily flights with weekly Chittagong service. A Market World’s Best services.” Bangladesh Government Official Dhaka Bangladesh 2006 2 - - Seeking stated this condition may be waived. Biman Bangladesh Airlines has, however, stated that the "arbitrary introduction" of LCCs into the market will eat into the market share of Biman and other local carriers.” “We are very confident that this route will open more opportunities to enhance both of our hubs Market Shenzhen China 2007 2 with greater international links in the region, - - - Seeking especially with Shenzhen being the gateway to Southern China and Hong Kong.” “Laos is also starting to attract increasing interest “AirAsia Group’s Malaysian “Vientiane at times has from foreign carriers as the relatively subsidiary has served Vientiane since been relatively restrictive, unpopulated and rural Southeast Asian country 2007, when Malaysia AirAsia (MAA) with several foreign Market Vientiane Laos 2007 2 gradually emerges as a popular tourist became the first LCC to serve Laos. airlines unable to secure - Seeking destination.” Vientiane has historically been more the slots or traffic rights open than Luang Prabang.” needed to mount new or additional flights.” “As Myanmar’s economy grows and as the “The domestic units of Malaysia's “For Penang-Yangon country emerges as a popular tourist destination AirAsia Bhd., one of the region's AirAsia is also receiving a Market there is huge potential in the international market biggest budget carriers, are seeking subsidy from the Penang Yangon Myanmar 2007 2 - Seeking for low-cost carriers.” flights to Burma (Myanmar), filings government, which has with the Civil Aeronautics Board been keen to secure a showed.” service from Yangon, in
91
part to boost Penang’s medical tourism sector.” “Indonesia is a high-potential aviation market, Banda Market with a strong natural requirement for air services Indonesia 2007 5 - - - Aceh Seeking and a large population with rising incomes to support the industry.” “Enhancing the connection from East Malaysia to Guangzhou and vice versa has been at the heart of our expansion into China, completing the big picture of the 7 other routes that we launched Strategic- this year from our various hubs into China. The Asset best part for us being based in the ASEAN region Guangzhou China 2008 1 Seeking & - - - is the huge outbound travel demand from China Market into ASEAN, and we believe that we are placing Seeking ourselves in the right place and in the right time, to drive a revolution of young, free & independent travellers and backpackers through AirAsia’s aggressive route network.” “In addition to the direct benefits of new route “While we have not been approached “The key to AirAsia's development, AirAsia could benefit from by the Malaysian authorities, we look success is price,' he said. increased traffic flow to its key Kuala Lumpur forward to discussions with Malaysia 'For us to be able to cut hub as a point for interconnection to other in the near future and working (ticket) price, we need low Strategic- regional destinations.” towards bilateral open skies.” “The costs. Singapore right now Asset Singapore government believes that a only offers us Changi Singapore Singapore 2008 1 Seeking & - more liberal air services agreement Airport, which is an Market between Singapore and Malaysia expensive airport for an Seeking would be mutually beneficial as it airline such as ours. We would enhance trade, investment and would love to be in tourism flows between the two Singapore, but it has to be countries.” cost efficient.” “The Indian middle class is growing fast. With “The LCC has obtained a security our low fares, we can offer them a lot…We have clearance from the Bureau of Civil Market 20 potential airports that we can go to in India. Aviation Security, but is still awaiting Trichy India 2008 3 - - Seeking We are not just looking at tourists, but the small clearance from the Directorate and medium enterprises such as the textile General of Civil Aviation to businesses that will benefit from these flights.” commence operations.” “But as Asia's population and economy continues Hong Market to grow, the Pearl River Delta's airports will be Hong Kong 2009 1 - - - Kong Seeking Asia's equivalent to the London, New York City or Sao Paulo airport networks.” “Since first unveiling its ambition in Mar-2006 to “Aviation remains a highly-regulated “The airline’s application Strategic- establish cross-border JVs in Vietnam.” industry in Vietnam, with the (as AirAsia) to launch Asset “AirAsia’s vision is to dominate the ASEAN government having a domestic air fare services from Kuala Ho Chi Vietnam 2009 1 Seeking & aviation scene. It is a worthy strategy, given the cap and stipulating the inclusion of a Lumpur to Ho Chi Minh - Minh Market grouping’s progressive liberalisation of aviation Value-Added Tax (VAT) on domestic City was rejected, with Seeking access, which is creating powerful growth services.” authorities citing airport opportunities. But the road has not been smooth.” congestion issues.”
92
Strategic- “China is seen as a crucial market in AirAsia's Asset expansion plan to become a major player Guilin China 2009 2 Seeking & connecting Malaysia and the greater ASEAN - - - Market region to East Asia.” Seeking “The Indian middle class is growing fast. With our low fares, we can offer them a lot…We have Market 20 potential airports that we can go to in India. Kochi India 2009 2 - - - Seeking We are not just looking at tourists, but the small and medium enterprises such as the textile businesses that will benefit from these flights.” The whole Indian sub-continent is going to be “Malaysia has also signed an very exciting for AirAsia and the Malaysian expanded bilateral air services tourism industry.” “The increase of flight agreement with India, which provides frequency also provides our guests with more for unlimited carrier designation – convenience as they can travel to Kolkata from meaning more competition from Market Kolkata India 2009 2 Kuala Lumpur and return as they please. This is LCCs on the route is imminent.” - - Seeking certainly good news for both business and leisure travellers as they can now fly from Kuala Lumpur to Kolkata on any day of the week. Presenting ease of travel is our forte, and we are more than happy to pamper our guests.” “New routes in relatively thin markets are often not successful there is relatively Colombo limited risk, as MAA is (Term. Sri Lanka 2009 2 - - - - not investing in new 2013) destinations but is simply connecting the dots between destinations already served.” “Fernandes noted India was a huge market with “Earlier, there was restriction on one- 1.1 billion people, US$3.1 trillion economy and way traffic to any country from India. Market 20 potential airports. There is a still room for Now, a foreign airline can operate Bangalore India 2010 1 - - Seeking AirAsia to tap the market, he added.” flights into India sans a bilateral. AirAsia was constrained because of this policy.” “There is a very large VFR (visitors, friends, “According to a source, the Southeast relatives) market to be tapped, owing to the fast- Asian airline has already applied for expanding network of Indian small to medium Indian landing rights and would be Market companies as well as Indian professionals able to resume operations soon.” Chennai India 2010 2 - - Seeking operating and working in the region.” “Chennai is larger as it is in the region of India where a big portion of Malaysia’s Indian population have their roots.” Hyderabad India 2010 2 “There is a very large VFR (visitors, friends, “Since the bilateral landing rights, - -
93
relatives) market to be tapped, owing to the fast- which call for exchange of landing expanding network of Indian small to medium rights for airlines of respective companies as well as Indian professionals countries, have since been operating and working in the region.” dismantled.” “Thailand’s Krabi Airport has recorded rapid Market growth over the last two years as the beach Krabi Thailand 2010 4 - - - Seeking destination has emerged as a popular alternative to nearby Phuket.” “It will be extremely convenient to connect to Da Nang from countries which our affiliate low-cost long-haul airline,… We are confident that re- Market Da Nang, Vietnam 2011 2 instating Da Nang into our network will result in - - - Seeking enhanced tourist arrivals into Da Nang, especially with the convenience of Fly-Thru which will be available for Da Nang soon.” “The traveling trend to places such as Taipei is Market Taipei Taiwan 2012 1 increasing and with growing potential household - - - Seeking income in East Malaysia.” “The addition of the Kuala Lumpur – Kunming “While growth in the route enables us to further strengthen our route Chinese market is slowing, network into China as we now have a total of 24 it is still positive and Strategic- routes from Kuala Lumpur, Penang, Kota Chinese carriers are taking Asset Kinabalu, Bangkok, Phuket, Chiang Mai and a long-term view towards Kungming China 2012 2 Seeking & - - Clark operating flights into 13 cities in China, capacity, putting in flights Market including Kunming. According to CAPA, now when they can to Seeking AirAsia is the largest foreign airline by capacity secure a foothold rather into China at the moment, and we will continue than wait for what may be to work hard to maintain this.” more profit optimal time.” “China is a great market for us to explore and “While growth in the expand our route network and connectivity. We Chinese market is slowing, are seeing a greater demand between both ends it is still positive and especially for business travel, and we hope to Chinese carriers are taking Market showcase what Nanning has to offer to the a long-term view towards Nanning China 2012 2 - - Seeking average of 30million guests that fly through our capacity, putting in flights network every year; as well as for the Chinese to now when they can to use our Kuala Lumpur hub to connect to more secure a foothold rather than 75 destinations that AirAsia flies to.” than wait for what may be more profit optimal time.” “Indonesia is a high-potential aviation market, “Malaysia and Indonesia governments with a strong natural requirement for air services signed an expanded bilateral air and a large population with rising incomes to services MoU, including third, fourth support the industry.” and fifth freedom rights for Market passengers and cargo services. Under Makassar Indonesia 2012 3 - - Seeking the agreement, Malaysian carriers can now operate an additional four daily frequencies to Indonesia.”
94
“Indonesia is a high-potential aviation market, “Malaysia and Indonesia governments with a strong natural requirement for air services signed an expanded bilateral air and a large population with rising incomes to services MoU, including third, fourth Yogyakart Market support the industry.” and fifth freedom rights for Indonesia 2012 3 - - a Seeking passengers and cargo services. Under the agreement, Malaysian carriers can now operate an additional four daily frequencies to Indonesia.” “Besides contributing towards reinforcing “Malaysia and Indonesia governments Malaysian – Indonesian bilateral ties through signed an expanded bilateral air direct air connection to various destinations of services MoU, including third, fourth both nations—promoting economic gains and and fifth freedom rights for Market Lombok Indonesia 2012 4 enhance business and tourism activities—this passengers and cargo services. Under - - Seeking latest effort by AirAsia is set to bring in more the agreement, Malaysian carriers can business and leisure travellers into Lombok and now operate an additional four daily presents unparalleled access to Kuala Lumpur for frequencies to Indonesia.” Lombok’s population.” Surat Thailand 2012 4 - - - - - Thani “Indonesia is a high-potential aviation market, “Malaysia and Indonesia governments with a strong natural requirement for air services signed an expanded bilateral air and a large population with rising incomes to services MoU, including third, fourth Market support the industry.” and fifth freedom rights for Semarang Indonesia 2012 5 - - Seeking passengers and cargo services. Under the agreement, Malaysian carriers can now operate an additional four daily frequencies to Indonesia.” Strategic- “China is seen as a crucial market in AirAsia's Asset expansion plan to become a major player Hangzhou China 2013 2 Seeking & connecting Malaysia and the greater ASEAN - - - Market region to East Asia.” Seeking “With the additional flight frequencies, AirAsia “Malaysia and Indonesia governments guests can look forward to added convenience as signed an expanded bilateral air there are now more flight time options available services MoU, including third, fourth to this destination. Balikpapan is a seaport city and fifth freedom rights for Market Balikpapan Indonesia 2014 3 that is not only famous for its timber, mining and passengers and cargo services. Under - - Seeking petroleum exports but also the gateway to the agreement, Malaysian carriers can beautiful Borneo tropical rainforest, breath- now operate an additional four daily taking islands, tranquil beaches, sumptuous frequencies to Indonesia.” cuisine and many other attractions.” “We picked Cebu because it’s bustling with “But ultimately Cebu’s activities and the traffic from Southern growth is enabled by the Philippines is growing rapidly. We’re thrilled to constraints at Manila and Market Cebu, Philippines 2014 3 re-open Cebu-Kota Kinabalu route to provide the - by its own expansion. - Seeking much-needed connectivity at affordable fares for Cebu is also currently Cebuanos and overseas Filipino workers.” operating above its designed capacity of 4.5
95
million annual passengers, but unlike Manila it has space, and a commitment to expand.” “AirAsia is planning further expansion at Kalibo, Market a gateway for the popular tourist island of Kalibo Philippines 2014 4 - - - Seeking Boracay where demand has been growing rapidly.” “We will also be the first airline to fly direct to “Malaysia and Indonesia governments Pontianak from Kuala Lumpur, tapping into the signed an expanded bilateral air tremendous opportunity in this charming city at services MoU, including third, fourth Market West Kalimantan, Indonesia that is currently and fifth freedom rights for Pontianak Indonesia 2014 5 - - Seeking underserved.” passengers and cargo services. Under the agreement, Malaysian carriers can now operate an additional four daily frequencies to Indonesia.” “We want to put Malaysia on the forefront of “AirAsia has built up connecting ASEAN to other parts of Asia.” the leading international LCC brand in China and is therefore well Market Wuhan China 2015 2 - - positioned to benefit Seeking from the anticipated rapid growth in the Chinese outbound market.” “Tourists from Southeast Asia remains the third biggest source of visitors into Taiwan while the Market number of Taiwanese tourists to Malaysia Kaohsiung Taiwan 2015 2 - - - Seeking averaged at about 200,000 yearly. This shows the tremendous potential in tourism industry between Taiwan and Malaysia.” “Aireen Omar shared that the airline is focused “AirAsia has built up on expanding its connectivity into China, the leading international especially second-tier cities as well as to further LCC brand in China promote its Fly-Thru product to the Chinese and is therefore well Market Changsha China 2015 3 guests.” - - positioned to benefit Seeking from the anticipated rapid growth in the Chinese outbound market.” Chongqing China 2015 3 - - - - - “Malaysia Airlines also dropped Male, making Market the Maldives market particularly attractive as Malé Maldives 2015 4 - - - Seeking AirAsia is now the only airline linking Kuala Lumpur with Male” “The addition of this route is consistent with our Market Pattaya Thailand 2015 4 continuous efforts to provide the widest route - - - Seeking network in ASEAN and beyond, connecting
96
communities and creating new market segments throughout this region.” “Vizag is an up and rising destination for trade and tourism in India, and we are confident that the time is right for us to enter into this market, Market Vizag India 2015 5 building the tourism demand further for Vizag.” - - - Seeking “Goa and Visakhapatnam were launched because India is a strategically important market for MAA, along with China.” “With an eye on capturing the tourist potential in “Malaysia has also signed an Goa and in Malaysia, AirAsia Berhad launched a expanded bilateral air services Goa Market direct flight between Goa and Kuala Lumpur, agreement with India, which provides (Term. India 2015 3 - - Seeking Malaysia, through three weekly direct flights.” for unlimited carrier designation – 2016) meaning more competition from LCCs on the route is imminent.” “Chaoshan is famous for the hometown of Market overseas Chinese. The bond between Jieyang Shantou China 2016 5 - - - Seeking city, Malaysia and Thailand has always been close.”
1. 2. AirAsia X Int. Route Host Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Country Category Motive National Subnational “We are keen to position Gold Coast as the “One of the main barriers to new “While AirAsia X secured gateway to Australia as the airport also offers airlines is the cabotage rule preventing landing rights to fly to Gold Strategic- strong domestic connections for low cost travel to overseas flights from picking up Coast and Avalon in Asset Sydney and Melbourne.” domestic passengers. It means that a Australia some three weeks Gold Coast Australia 2007 3 Seeking & flight from overseas to Cairns and then ago.” - Market on to the Gold Coast can't pick up any Seeking local passengers en route, which would offer another revenue stream for the flight.” “Hangzhou, sometimes referred to as an “The airline has submitted its proposal Market alternative to Shanghai but has its own traffic to the Chinese authorities to fly five Hangzhou China 2008 2 - - Seeking owing to its status as a tourism hub.” times a week to China and expects to get a response next month.” “We think there’s tremendous more growth out of “Malaysian carriers technically have “The biggest challenge in Australia because today the LCC share of unlimited access to Adelaide as the offering these new flights is international travel to Australia is barely 14%. We Australia-Malaysia bilateral only caps getting the landing rights. Market see generally that ration should be able to get to capacity to Australia’s four biggest We are still talking to the Melbourne Australia 2008 1 - Seeking that 40% to 50% level. There is a lot more airports – Brisbane, Melbourne respective authorities. headroom for growth.” Tullamarine, Perth and Sydney.” Hopefully, we will be able to secure the rights within one to two months.”
97
“We think there’s tremendous more growth out of “The bilateral flight “AirAsia will continue Australia because today the LCC share of restrictions had threatened to expand in Australia, Market international travel to Australia is barely 14%. We to limit growth in visitor building on the strong Perth Australia 2008 2 - Seeking see generally that ration should be able to get to arrivals from Australia's brand it has built in the that 40% to 50% level. There is a lot more seventh-largest inbound market over the last six headroom for growth.” tourism market.” years.” “We will resume once we are able to have a more economical aircraft to service this route. We remain optimistic about the potential of Abu Strategic- Dhabi, and we believe with the right aircraft, the Abu Dhabi Asset United Arab economic upside can be very promising, (Term. 2009 1 Seeking & - - - Emirates especially if we can pair up Abu Dhabi with 2010) Market another on-route destination.” “As a hub, Abu Seeking Dhabi would be a place for AirAsia X planes to refuel and take on new passengers before flying onward.” “The destination will allow for expansion into the “AirAsia X benefits from liberal Strategic- western territories of China.” bilateral agreements, including open Chengdu, China 2009 2 Asset - - skies to China, Japan, South Korea and Seeking Taiwan.” “Our renowned low-fare offerings will stimulate “The reasons given were high jet fuel “The good things, however, more demand from the European community to prices, weak demand for air travel about the auctioning of slots London United Market discover ASEAN (Association of Southeast Asian from Europe led by the global at the London Heathrow and (Term. 2009 1 - Kingdom Seeking Nations) and vice versa," AirAsia X Chief financial meltdown and exorbitant Hong Kong airports is that 2012) Executive Officer Azran Osman- Rani said.” government taxes.” they give opportunity to new airlines.” “Taipei is the final piece of the jigsaw puzzle to “AirAsia X benefits from liberal “At the same time, AirAsia our oriental network strategy. Our ultra-low fares bilateral agreements, including open X has not fully utilised all will entice the Taiwanese public and Malaysians skies to China, Japan, South Korea and the traffic rights granted to Market who reside, work and study in Taiwan to fly home Taiwan.” them to four destinations, Taipei Taiwan 2009 1 Seeking to connect with their families.” “Malaysian namely Tianjin, Melbourne, tourists will also feel at home in Taipei and, for Taipei and Teheran," the Muslim visitors, finding halal restaurants will not ministry said.” be a very big problem," Abdullah said.” “The launch of AirAsia X will bring “Meanwhile, Azran said AirAsia X is “At the same time, AirAsia independence to the long-haul, low-cost traveller, in the process of determining the X has not fully utilised all Tianjin by providing a choice of service for their long- second destination for both its the traffic rights granted to Market (Term. China 2009 2 haul travel requirements.” Australian and Chinese services and is them to four destinations, - Seeking 2012) currently talking to authorities from namely Tianjin, Melbourne, the countries for this move.” Taipei and Teheran," the ministry said.” “We are also seeing more passengers taking “Has also expressed interest in “AirAsia X faces penalty if Christchurch New Market advantage of our convenient Fly-Thru connecting operating trans-Tasman services, it withdraws from Kuala (Term. 2010 3 - Zealand Seeking transfer service to seamlessly purchase two flight subject to regulatory approval.” Lumpur-Christchurch 2011) sectors and connect in Kuala Lumpur.” service early.”
98
“The new flight not only would offer better “Terming the current aviation rules, “The carrier, which had “New Delhi: AirAsia connectivity to Kuala Lumpur, but also to other which specify a minimum of five years opted out of Delhi and Group is planning an countries like Japan, Australia, Brunei, Cambodia, of operations and a fleet of at least 20 Mumbai routes in early entry into the Indian China, Indonesia, Thailand, Singapore and aircraft for airlines to be eligible to fly 2012 citing high airport insurance market Vietnam through our extensive network.” abroad, as devoid of any sense, costs, also said it may look through Tune Money. AirAsia Group chief executive officer at launching flights to the The venture will be Tony Fernandes said on Wednesday Malaysian capital from separate from the Delhi Strategic- that these regulations have obvious other airports like company's airline (Term. India 2010 1 Asset protectionist underpinnings.” Ahmedabad and Amritsar as business.” “We work 2012) Seeking well.” together as a brand. There is a huge sales team as well as a commercial team in India, and they know the right people and help us.” “The Indian middle class if growing fast. With our “The airports are supportive.... The “The carrier, which had "We have flying rights low fares we can offer them new travel only issue we may have is the bilateral opted out of Delhi and for Delhi and Mumbai, opportunities.” (flying rights) constraints in adding Mumbai routes in early but we decided to frequencies... We want our 2012 citing high airport resume Delhi first Mumbai Market government to talk with the Indian costs, also said it may look because we have a brand (Term. India 2010 1 Seeking Government to open more bilaterals.” at launching flights to the (AirAsia India) here." 2012) “India bars tourist visa holders from Malaysian capital from returning to the country within two other airports like months of leaving.” Ahmedabad and Amritsar as well.” “"Our renowned low-fare offerings will stimulate “The reasons given were high jet fuel more demand from the European community to prices, weak demand for air travel discover ASEAN (Association of Southeast Asian from Europe led by the global Nations) and vice versa," AirAsia X Chief financial meltdown and exorbitant Executive Officer Azran Osman- Rani said.” government taxes.” “He also said Malaysia is currently in talks with the Paris (Term. Market France 2010 1 French Government on plans to double - - 2012) Seeking its present landing rights into France from seven to 14 times per week. "The French Government appeared to be supportive of this proposal and because of that, we are hoping to be able to realise the talks soon.” “The CEO added he sees “tremendous “Azran said this week that AirAsia X opportunity” in the Korean market, supported by a has been denied permission by the Market Seoul Korea 2010 1 strong two-way demand, a solid e-commerce Malaysian government to fly into - - Seeking preference, minimal travel restrictions and a Sydney and Seoul, due to a row over limited LCC presence.” its sister carrier AirAsia.”
99
“Iranian passengers can commute in our flight “AirAsia X previously started its Abu “At the same time, AirAsia Strategic- network to other destinations with the same cheap Dhabi route back in 2009 but X has not fully utilised all Tehran Asset rates.” “This is key to the overall growth strategy terminated the route, while the carrier the traffic rights granted to (Term. Iran 2010 2 Seeking & for the AirAsia as new passengers from new enjoyed a successful route to Tehran, them to four destinations, - 2012) Market markets often travel beyond Kuala Lumpur.” but the sanctions in Iran made it namely Tianjin, Melbourne, Seeking uneconomical for the carrier to Taipei and Teheran," the continue operating the route.” ministry said.” “This will further boost tourism traffic into “AirAsia X benefits from liberal Tokyo - Market Malaysia from Japan, which has already shown an bilateral agreements, including open Japan 2010 1 - - Haneda Seeking increase in visitor arrivals to date in 2010 skies to China, Japan, South Korea and compared to last year.” Taiwan.” “The country is poised to becoming a huge market “AirAsia X benefits from liberal Market for the airline. Given its population of 127 million bilateral agreements, including open Osaka Japan 2011 1 - - Seeking people, the majority of whom are flush with skies to China, Japan, South Korea and disposable income and proximity to ASEAN.” Taiwan.” “We think there’s tremendous more growth out of “AirAsia X has been denied “Sydney airport has Australia because today the LCC share of permission by the Malaysian supported the carrier’s plan international travel to Australia is barely 14%. We government to fly into Sydney and to launch a route to the see generally that ration should be able to get to Seoul, due to a row over its sister airport” Market Sydney Australia 2011 1 that 40% to 50% level. There is a lot more carrier AirAsia.” “The arrival of - Seeking headroom for growth.” AirAsia in Sydney follows a four-year battle by the airline to secure traffic rights from the Malaysian government.” “China has proven to be a tremendous and strong "The approval of these routes depends “But securing slots at “Not only is the brand market and there is still potential for growth.” on the traffic rights availability and the Shanghai can be even more more established in a “Covering popular cities for Thai travellers, like receiving country's rules and difficult than Beijing, where country such as China, Market Beijng China 2012 1 Beijing and Shanghai.” regulations, which include among at least off-peak slots seem but they are also used to Seeking others, restriction on low-cost carrier, to be available.” airasia.com and buying slots constraints and airspace control." tickets using the Internet.” “We anticipated a strong demand for the route Market during the travel period as the weather is highly Kathmandu Nepal 2012 2 - - - Seeking pleasant with clear views of breath taking mountains.” “We are thrilled to announce that AirAsia X is “Malaysian carriers technically have Strategic- finally jetting into Adelaide, which means now unlimited access to Adelaide as the Adelaide Asset every Adelaidean can fly to Southeast Asia and Australia-Malaysia bilateral only caps (Term. Australia 2013 3 Seeking & beyond and vice versa. He added that the new capacity to Australia’s four biggest - - 2015) Market route ensures Adelaideans access to over 80 airports – Brisbane, Melbourne Seeking destinations across 20 countries including KL, Tullamarine, Perth and Sydney.” Bali, Osaka and Singapore at affordable prices.” “Our strategy is to grow the North Asian market, “According to MAS, destinations “The AirAsia brand is in particular Japan and Korea, where we see high AirAsia X has rights to operate to already present in Busan Market Busan Korea 2013 2 growth potential and the opportunity for AAX to include Amirtsar, Bahrein, Berlin, - with AirAsia Japan Seeking become market leader.” Busan.” operating between Tokyo and Busan.”
100
“AirAsia X is confident the new routes would “the airline has applied for permission Colombo Market stimulate new travel demand and boost tourism to resume service to Colombo in (Term. Sri Lanka 2013 2 - - Seeking and business potential for the carrier in both the February 2013.” 2015) new countries.” “There was a lot of demand from Malaysians, "The approval of these routes depends “"We have asked for the who are looking for affordable flights into Saudi on the traffic rights availability and the rights to fly to Jeddah too, Saudi Market Arabia and equally from around the region, such receiving country's rules and due to demands by our Jeddah 2013 2 - Arabia Seeking as Indonesia.” regulations, which include among customers, but that has also others, restriction on low-cost carrier, been held back.” slots constraints and airspace control." “Pudong International Airport is a key aviation "The approval of these routes depends “But securing slots at Strategic- hub for the Asia region which would further open on the traffic rights availability and the Shanghai can be even more Asset up new affordable travel to guests tapping into receiving country's rules and difficult than Beijing, where Shanghai China 2013 1 Seeking & - Shanghai.” regulations, which include among at least off-peak slots seem Market others, restriction on low-cost carrier, to be available.” Seeking slots constraints and airspace control." “The addition of this latest route will enable us to “AirAsia X benefits from liberal “The airline is keen to further strengthen our network into China and bilateral agreements, including open continue growing in China Chongqing Market boost passenger traffic growth as we link skies to China, Japan, South Korea and but the rate of growth hinges (Term. China 2014 3 - Seeking AirAsia’s robust network across ASEAN to Taiwan.” on the regulatory approvals 2015) China.” and slots it is able to secure.” “Together with our short-haul affiliate AirAsia “It took time for the Group, our guests can now fly into Mauritius from airline to build its brand any of the destinations within our extensive flight in Mauritius and educate network across Asia, Australia and the Middle locals about LCCs.” Male (Term. Market East via Kuala Lumpur, Asia's low cost hub.” “Mr Mauritius 2014 4 - - 2014) Seeking De refers to Mauritius as “Africa Light” as it is not located in continental Africa. However, it is well located for potential connections to east and southern Africa, giving AirAsia a springboard into the vast African Market.” “If anything, AirAsia group’s pull-out of the “AirAsia X benefits from liberal “This represents a smart Japanese short-haul market could increase the bilateral agreements, including open low risk strategy as Nagoya likelihood of new international flights to Japan skies to China, Japan, South Korea and AirAsia can leverage the Market (Term. Japan 2014 2 from Southeast Asia as AirAsia is keen to Taiwan.” - brand it has built up in Seeking 2015) continue expanding its presence in Japan and will the key markets of now serve secondary cities directly instead of via Australia, China, South connections with AirAsia Japan.” Korea and Japan.” “With the addition of the 8th wonder of the world; “AirAsia X benefits from liberal “Not only is the brand Xian to the AirAsia X family, guest may now bilateral agreements, including open more established in a discover more exotic and exciting destinations in skies to China, Japan, South Korea and country such as China, Market Xian China 2014 2 China.” Taiwan.” - but they are also used to Seeking airasia.com and buying tickets using the Internet.”
101
“AirAsia X has carried over 1.5 million “AirAsia X benefits from liberal “This represents a smart passengers between Japan and Malaysia. We are bilateral agreements, including open low risk strategy as confident this route will also draw more inbound skies to China, Japan, South Korea and AirAsia can leverage the Market Japanese tourist traffic arriving from Sapporo who Taiwan.” brand it has built up in Sapporo Japan 2015 3 - Seeking are often interested to explore surrounding cities the key markets of in the region. This direct route will entice them to Australia, China, South visit Malaysia and subsequently connect to Korea and Japan.” various destinations in ASEAN and beyond.” “the airline was excited to be back in New “AirAsia X has Zealand, allowing an easy connection for our established a strong guests from all over Asia to Auckland city. brand in the Gold Coast New Market Similarly, New Zealanders will now have more market that is now Auckland 2016 2 - - Zealand Seeking flight options to Gold Coast as well as access to leveraging with the new all the exciting destinations across our extensive service to Auckland.” flight network in Asia through the Kuala Lumpur hub.”
1. 3. Indonesia AirAsia Int. Route Host Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Country Category Motive National Airport Level "Besides, I think operating routes not provided by Market Bangkok Thailand 2006 1 others would enable us to widen our network and - - - Seeking offer our passengers more destinations to go to." “The launch of Indonesia AirAsia’s service aims to “AirAsia and its capitalize on the strong growth between Indonesia affiliates will continue and Malaysia.” to build themselves as Kuala Market Malaysia 2006 1 - - an ASEAN brand and Lumpur Seeking expand their route network in those countries.” “Sendjaja said Penang had become the favourite “To date, it has already obtained destination among Medan residents attracted by its approval to fly to some of these Market Penang Malaysia 2006 2 affordable medical facilities and local delicacies.” destinations and expects to commence - - Seeking some of the flights as early as March 30.” "We have become more appealing to travellers “It has already obtained approval to Kota Market because we have a strong network. We promote fly to some of these destinations and Malaysia 2008 3 - - Kinabalu Seeking ASEAN as one destination - within three hours, expects to commence some of the you can be in the jungles of Kota Kinabalu.” flights as early as March 30.” Hong Kong (Term. Hong Kong 2008 1 - - - - - 2013) “We finally secured rights to fly into Singapore. “Indonesia AirAsia confirmed plans Connectivity between both countries equates to a to launch daily services from Jakarta Market Singapore Singapore 2008 1 big market," said Fernandes.” and Denpasar to Singapore next - - Seeking month, having received regulatory approval from the CAAS.” 102
Ho Chi “Indonesia AirAsia hopes to help stimulate tourism Minh Market demand and the economies of Indonesia and Vietnam 2009 1 - - - (Term. Seeking Vietnam through the new low-fare route.” 2013) “The opening of the new route will strengthen Strategic- Bali’s position as Indonesia AirAsia’s second hub Asset after Jakarta in Indonesia.” “Bali has been Perth Australia 2009 2 Seeking & - - - phenomenal hit among Australians as it is seen as Market an affordable paradise destination for the middle Seeking class.” “To get to Thailand, Territorians have to spend a Strategic- night in Singapore or Bali to reach their Asset destination. This new service means that not only Darwin Australia 2010 3 Seeking & will customers save money on overnight - - - Market accommodation, but will also be able to connect on Seeking the same day to all of the Indonesia AirAsia Network.” “We have become more appealing to travellers Phuket Market because we have a strong network. We promote (Term. Thailand - 4 - - - Seeking ASEAN as one destination - within three hours, 2016) you can be … the beaches of Phuket or Bali.”
1. 4. Indonesia AirAsia X Int. Route Host Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Country Category Motive National Airport Level “There is also significant demand between Saudi “Jeddah in Saudi Arabia was added to Arabia and Indonesian, particularly during periods the IAAX business plan as is the case Market Jeddah Saudi Arabia 2015 2 of high demand for religious pilgrimage.” with Taiwan it presents an - - Seeking opportunity without significant regulatory challenges.” “Indonesia AirAsia X CEO Dendy Kurniawan said “An unexpected last second setback Melbourne Market the Melbourne route had been well received and from the Australian regulator forced (Term. Australia 2015 1 - - Seeking was seeing strong load factors.” IAAX to postpone the Melbourne 2016) launch by three months.” “The AirAsia affiliate began non-stop “This time, the airline has “During a visit to Sydney flights from Melbourne to Bali in secured regulatory last month Indonesia Sydney March 2015, four months later than it approval to avoid a repeat AirAsia X chief executive Market (Term. Australia 2015 1 - had expected, after delays in receiving of the Melbourne-Bali Dendy Kurniawan Seeking 2016) Australian regulatory approvals that debacle.” admitted the licensing led many upset customers to seek delays had led to brand refunds.” damage in Australia.” “The demand for the route will grow stronger while “IAAX ended up shifting gears and AirAsia’s network will also allow guests from commenced operations in Jan-2015 Market Taipei Taiwan 2015 1 Taiwan to also travel onwards to various exciting with services to Taiwan, which has a - - Seeking destinations.” more favourable regulatory environment.”
103
1. 5. Philippines AirAsia Host Formal Institutional barriers Int. Route Airport Expansion Country Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Category Motive National Airport Level “'Our philosophy in doing business is bringing in “South Korea and Japan are expected Market foreign tourists from our network to the to soon remove these restrictions now Seoul Korea 2013 1 - - Seeking destinations here in the Philippines.” that the Philippines have passed an ICAO audit.” “Shanghai is one of the biggest cities by “Nomura said yesterday that other population and we are confident that this new cross-bilateral agreements between Market Shanghai China 2014 1 route will stimulate new travel demand, boost ASEAN and other countries - such as - - Seeking tourism and business of both countries.” China, India and the European Union - are also being discussed.” Macau China 2013 2 - - - - - “We have tens of thousands of Filipino workers in “ASEAN has set a road map for air “If you notice, we've been Taiwan, Singapore and Hong Kong, and a number liberalization, and the Philippines' moving out of Manila of them are from ... Bulacan, Pampanga and the consent to comply with Protocol 5 and because we're having a Ilocos region. [They] will benefit from our super 6 implies that unlimited fifth freedom hard time getting slots, Market Singapore Singapore 2012 1 low fares and newest routes.” rights on ASEAN capital cities could plus the traffic and our - Seeking be foreseeable in the future across all philosophy in doing ASEAN member.” business is to bring in tourists from other countries.” “Among its international destinations, the airline Market will look to develop the Korea market, which Busan Korea 2013 2 - - - Seeking supplies no less than a million tourists to the Philippines a year.” "We have tens of thousands of Filipino workers in “Aside from Malaysia, Hong Kong, Taiwan, Singapore and Hong Kong, and a number Macau and Singapore, the Civil of them are from ... Bulacan, Pampanga and the Aeronautics Board (CAB) also granted Market Ilocos region. [They] will benefit from our super the carrier rights to fly to Cambodia Hong Kong Hong Kong 2012 1 - - Seeking low fares and newest routes.” and Japan.” “Hong Kong, which is made possible by the recent extension of the Philippines-Hong Kong air services agreement.” Kota Market Malaysia 2013 3 - - - - Kinabalu Seeking “It is currently developing Cebu as a prime “There are nine freedoms of air destination for tourists coming from AirAsia's established by the International Civil main hub in Kuala Lumpur.” “AirAsia granted the Aviation Organization. Within Kuala Market Malaysia 2012 1 wishes of its guests who were clamouring for ASEAN, your leaders have agreed in - - Lumpur Seeking more.” 2015 (to achieve) open skies, but actually they have only agreed to have open skies up to the fifth freedom.”
104
1. 6. Thai AirAsia Int. Route Host Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Country Category Motive National Airport Level “We are confident that this route it will perform “The firm won a license to offer Hanoi- and the response so far has proven to be better Bangkok flights in May.” than we had anticipated, even though this is our Market Hanoi Vietnam 2005 2 first destination to Vietnam." "As Vietnam gears - - Seeking up for foreign investments, there is a surge of business travellers flocking to the country for business opportunities.” Kuala Malaysia 2005 1 - - - - - Lumpur “TAA will instead this year seek to raise “Airlines from Singapore, Malaysia, frequencies on its existing Chinese routes, which Thailand, Myanmar and Vietnam now Market have enjoyed good load factors and profitability. have unlimited third/fourth freedom Macau Macau 2005 2 - - Seeking "Again, we want to dominate the Chinese routes capacity into points in China with the we are operating," said Mr Tassapon.” exception of Hong Kong Macao and Taiwan.” Penang Malaysia 2005 2 - - - - - “Mr Tassapon is upbeat about traffic potential on “TAA secured permission from the route, expecting to reach a load factor of as Cambodian authorities to launch a Phnom Market Cambodia 2005 2 much as 80% within three months of the launch.” daily service starting on Oct 1 as - - Penh Seeking Phnom Penh ended Bangkok Airways' monopoly of over 16 years.” “The Civil Aviation Authority of “Despite failing to obtain Singapore (CAAS) has stepped up its lower operating fees in surveillance and ramp inspections of Singapore, ..” “But the Thai airlines' aircraft operations in decision to fly into Singapore, but has not imposed any Changi represents a huge Singapore Singapore 2005 1 - - restrictions on them thus far.” “But the change of heart by the - joint venture will have to apply for an airline, which up to now Air Operators Certificate from the had refused to fly direct to Ministry of Transport.” Singapore because it said Changi airport was too expensive.” "Our decision to fly to Xiamen daily will Market accommodate the strong demand on the Bangkok- Xiamen China 2005 2 - - - Seeking Xiamen route. Travel between these two cities continues to increase in popularity.” “Chief executive Tasapon Bijleveld said the “An official from the airline industry Burmese capital would become a popular said that AirAsia is one of a few destination for Thai tourists due to its historical airlines approved by the Burmese Market sites and proximity, and despite its political government to fly into the country. In Yangon Myanmar 2006 2 - - Seeking conflicts.” return, Burma's Air Bagan has obtained rights to operate flights from Rangoon to Bangkok, which are expected to begin in October.”
105
Market “It is a natural plan of action to capture the leisure Shenzhen China 2007 2 - - - Seeking and business market in that region” “We look forward to expanding our reach to Langkawi because of the growing tourism appeal towards the island, especially for tourists visiting Langkawi Market Bangkok. As a tourism hub, Bangkok brings in (Term. Malaysia 2007 4 - - - Seeking millions of tourists every month. These tourists are 2012) always interested in visiting neighbouring destinations, and Langkawi is among their favourite destinations.” “the airline would aim for an average load factor “Airlines from Singapore, Malaysia, “Those guys are asleep; of 80 per cent and hoped Hong Kong would Thailand, Myanmar and Vietnam now they are only interested in become a favourite destination for Thai have unlimited third/fourth freedom Cathay Pacific. One day Market travellers.” “Mr Santisuk said travel demand capacity into points in China with the Hong Kong will realise Hong Kong Hong Kong 2008 1 - Seeking between Thailand and China, especially for exception of Hong Kong Macao and that it needs to be in this leisure, had been growing robustly, with Chinese Taiwan.” market.” arrivals in the first 11 months of last year topping 7.3 million.” Denpasar Indonesia 2009 2 - - - - - “China is one of AirAsia's major markets. Besides the big population, the people have more Market Guangzhou China 2009 1 purchasing power and have begun travelling - - - Seeking outside the country, thanks to the ongoing economic boom.” “The company expects 120,000 Indians to travel “But India is not yet open skies. For “TAA's two initial Indian “Now we have our sister to Thailand on Thai AirAsia this year.” “India is a ASEAN carriers India, does allow routes Bangkok-Delhi company in India, AirAsia logical growth market for Thai AirAsia, given the unlimited access to 18 non-metro and Bangkok-Kolkata India, so we are much rapid growth in the Thailand-India market and the Indian cities – but currently has no were introduced in better with branding and Strategic- airline’s current small presence in the Indian plans to allow open skies on the major December 2010 and distribution.” Kolkata Asset market.” cities, which will remain subject to terminated in March 2012 (Term India 2010 2 Seeking & existing bilateral controls.” and March 2014, 2014) Market respectively, due to high Seeking costs, especially fuel and ground handling charges imposed by Indian airports.” “We... to come to Thailand. Look at TAAs daily “TAA's two initial Indian flights from Bangkok to Mumbai and Delhi, they routes Bangkok-Delhi and are full every day.” Bangkok-Kolkata were introduced in December Delhi 2010 and terminated in Market (Term. India 2010 1 - March 2012 and March - Seeking 2012) 2014, respectively, due to high costs, especially fuel and ground handling charges imposed by Indian airports.”
106
Ho Chi Vietnam 2011 1 - - - - - Minh “Thailand ranks No.6 for Indians' top 10 preferred destinations, making it a compelling market for Market TAA to revive its market penetration. The Chennai India 2012 2 - - - Seeking Tourism Authority of Thailand reported 1 million arrivals from India last year, with 1.1 million projected to arrive this year.” “The influx of Chinese travellers to Thailand is “The landmark ASEAN-China Air “The group typically making a huge impact on passenger traffic outlook Transport Agreement adopted in 2010 opens new cities first from Market for Thai AirAsia (TAA), which expects their is one example. It is today already in its Malaysian operations.” Chongqing China 2012 3 - Seeking cumulative numbers over the next five years to hit force among China, Singapore, the 5-million mark in 2018.” Malaysia, Thailand, Myanmar and Vietnam.” “Thai AirAsia in Myanmar AirAsia will on “The new visa waiver programme will October 4 add Mandalay to its Thai network the help boost inbound tourism figures Market Mandalay Myanmar 2012 3 first service to the quaint Myanmar city from from Thailand as Mandalay is one of - - Seeking Bangkok to cash in on its unspoiled ambience and Myanmar’s largest tourist destinations many attractive tourism products.” and is famous for Buddhist temples.” “Thai AirAsia (TAA) is kicking off the year with “Permission to operate Phuket-Wuhan a new route linking Thailand and China, a flights underscores that Beijing is using Market country-pair which appears to offer high traffic its own judgement on the matter rather Wuhan China 2012 2 - - Seeking potential.” than following the blanket guidelines put out by the global aviation auditing agency.” “The influx of Chinese travellers to Thailand is “The landmark ASEAN-China Air making a huge impact on passenger traffic outlook Transport Agreement adopted in 2010 for Thai AirAsia (TAA), which expects their is one example. It is today already in cumulative numbers over the next five years to hit force among China, Singapore, Market Xian China 2012 2 the 5-million mark in 2018.” Malaysia, Thailand, Myanmar and - - Seeking Vietnam.” “The Singapore, Malaysian and Thai carriers, in particular have lost no time in launching flights to new Chinese destinations.” “Since tickets for his route went on sale on 4 “Airport charges are also January 2012, we have received tremendous typically lower at Colombo Market positive feedback and we are very pleased to see secondary airports, (Term. Sri Lanka 2012 2 - - Seeking that there is much demand for travel between the incentivising AirAsia to 2012) two cities.” try a route that otherwise may be margin.” “Meanwhile, TAA reveals that its recent traveller “The landmark ASEAN-China Air profiles reflect a younger Chinese demographic Transport Agreement adopted in 2010 with high purchasing power, which will surely is one example. It is today already in Market play a positive role in stimulating the hotel and force among China, Singapore, Changsha China 2013 3 - - Seeking tourism industry in Thailand.” Malaysia, Thailand, Myanmar and Vietnam.”
107
“The influx of Chinese travellers to Thailand is “The Singapore, Malaysian and Thai making a huge impact on passenger traffic outlook carriers, in particular have lost no time for Thai AirAsia (TAA), which expects their in launching flights to new Chinese Market cumulative numbers over the next five years to hit destinations.” Kunming China 2013 2 - - Seeking the 5-million mark in 2018.” “Kunming and Xi’an in particular are known for tourist offerings, with Kunming serving as the base for many visitors of Yunnan province.” “The firm expects its load factor on the Siem Reap “Thai AirAsia is also in talks with the route to be more than 80 per cent. The city is a Cambodian government about adding major destination for foreigners travelling to Siem Reap” “TAA chief executive Cambodia. Chinese, Japanese and Koreans are the Tassapon Bijleveld on Monday said it Market major groups going there. The new AirAsia flight took the airline five years to obtain Siem Reap Cambodia 2013 2 - - Seeking is expected to bring an additional 300,000-500,000 permission as Cambodia realised that tourists there annually.” more flights would help its drive to raise foreign visitors to the 12th- century Angkor Wat, a UNESCO world heritage site.” “The new route aims to facilitate Thai athletes and “The airline is currently seeking “Technically only three of “Thai AirAsia which until Naypyidaw those planning to participate in the 27th Southeast official approval to provide direct Myanmar’s airports are now has focused more on Market (Term. Myanmar 2013 3 Asian Games in Myanmar in December.” flights for passengers from Bangkok’s open to international leveraging the stronger Seeking 2013) Don Mueang Airport to Naypyidaw’s services – Mandalay, international brand of airport.” Yangon and Naypyidaw.” AirAsia.” “Northern Thailand has seen a huge influx of “Mr Tassapon said TAA secured the Market Hangzhou China 2014 2 Chinese tourists, spurred by a popular Chinese rights for new routes from China and - - Seeking movie that was filmed in the region.” India after the SSCs cropped up.” “It will be parallel – China on one side and also “But issues related to India-Thailand “Mr Tassapon declined to “Now we have our sister India on another side – so we will bring more air traffic rights, now fully utilised, name the four Chinese company in India, AirAsia tourists into Thailand.” complicate TAA's plan to spread its cities where TAA has India, so we are much Market wings to India, he said.” secured rights but cited better with branding and Bangalore India 2015 2 Seeking Bengaluru, the southern distribution.” Indian city previously known as Bangalore, as a new destination.” “The new service will help to encourage tourism “One or two cities in Laos could be “In the past, the in the region. The Luang Prabang service will served by TAA from its Don Mueang authorities rejected complete Thai AirAsia's network in the airport base as the landlocked nation applications by low-cost (Mekong).” opens its restrictive air space to airlines airlines to fly to Luang from neighbouring countries under the Prabang.” Luang Market ASEAN Economic Community (AEC) Laos 2015 2 - Prabang Seeking next year.” “Bijleveld noted that Laos also opted out of the ASEAN Open Skies agreement, apparently to protect its national airline, at the expense of its fledgling tourism industry that has called for more flights.”
108
“"The reason we're continuing to launch new “Japan, South Korea and China were “Chinese airports often routes from U-tapao is we see its potential and the the first to impose those restrictions offer attractive packages opportunity to draw travel and investment to the after March 29, putting Thai airlines' to support new Eastern Seaboard, be it to the popular permissible flights under closer international routes and entertainment destination Pattaya or Rayong's scrutiny, though Beijing has now eased that he expects the industrial centre," he said.” the limitations for TAA. That makes number of Chinese Market Nanchang China 2015 3 TAA the only known Thai-registered airports offering such - Seeking airline to win the rights as others packages will surge, struggle to maintain existing traffic given the boom in airport rights for flights to foreign countries construction in China.” and place their international expansion on the back burner while the ICAO issues remain unresolved.” “The reason we're continuing to launch new routes “Japan, South Korea and China were “Chinese airports often from U-tapao is we see its potential and the the first to impose those restrictions offer attractive packages opportunity to draw travel and investment to the after March 29, putting Thai airlines' to support new Eastern Seaboard, be it to the popular permissible flights under closer international routes and entertainment destination Pattaya or Rayong's scrutiny, though Beijing has now eased that he expects the industrial centre.” the limitations for TAA. That makes number of Chinese Market Nanning China 2015 2 TAA the only known Thai-registered airports offering such - Seeking airline to win the rights as others packages will surge, struggle to maintain existing traffic given the boom in airport rights for flights to foreign countries construction in China.” and place their international expansion on the back burner while the ICAO issues remain unresolved.” “Thailand reported a 108% increase in visitor “AirAsia is the largest Market numbers from China in 1H2015 to 3.8 million, LCC brand in China’s Ningbo China 2015 3 - - Seeking which more than offset the decrease in 1H2014 international market.” caused by the civil unrest in Bangkok.” “Thailand reported a 108% increase in visitor “AirAsia is the largest Market numbers from China in 1H2015 to 3.8 million, LCC brand in China’s Wenzhou China 2015 3 - - Seeking which more than offset the decrease in 1H2014 international market.” caused by the civil unrest in Bangkok.” “We are ready to move forward in India this year “The AirAsia brand is as we can clearly see opportunities both in the already familiar to the travel sector and trade segment.” people of India following Market the success of our Chennai Kochi India 2016 2 - - Seeking and Bangalore routes, which both saw load factors of 84 per cent in 2015.” “TAA chief executive Tassapon Bijleveld “In some Chinese cities, expressed confidence about the new route's traffic AirAsia now has as many Market potential as there is a strong connection for Thais as five routes, providing Shantou China 2016 5 - - Seeking of Chinese descent to the homeland of Teochew the scale to add routes in people, many of whom migrated to Thailand and new markets with other Southeast Asian countries.” relatively minimum risk.”
109
“TAA chief executive Tassapon Bijleveld “TAA was given a green light to fly the revealed the airline's strategic plan for the socialist state's restricted skies after landlocked state, voicing confidence about air pursuing the matter for eight years. In Market Vientiane Laos 2016 2 travel demand between the two countries.” part, Laotian authorities have appeared - - Seeking to soften to the idea that LCCs can spur much needed tourism in a country hungry for foreign exchange.”
1. 7. Thai AirAsia X Int. Route Home Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Country Category Motive National Airport Level “The company anticipates a warm welcome from “Thai AirAsia X Co Ltd (TAAX) will travellers as South Koreans are among Thailand's commence application for operating top five visitors, with over 1.3 million tourists from permits and slots for its intended Market Seoul Korea 2014 1 this country in 2013. With no visa requirement, international routes. This follows the - - Seeking more than 400,000 Thai people visited South approval from Thailand's Department Korea last year.” of Civil Aviation for the air operator's certificate on February 3.” “The airline's network expansion is geared towards “The Japan Civil Aviation Bureau cities popular among Thai travellers in terms of (JCAB), which also banned chartered Market attractiveness, food and culture, with convenient flights to Japan from Thai airlines, Osaka Japan 2014 1 - - Seeking entry access in terms of easy or no visa recently agreed to allow six Thai- requirements.” registered airlines to operate flights to Japan from April 11 to May 31.” “That is in sharp contrast with TAAX's services to “That is in sharp contrast with TAAX's Japan -- two daily flights to Narita and one to services to Japan -- two daily flights to Market Tokyo Japan 2015 1 Osaka -- which see robust demand year-round, Narita and one to Osaka … and the - - Seeking thanks to Thais' love affair with Japan and the country's visa-waiver program.” country's visa-waiver program.” “The launch was not made known locally earlier “In sharp contrast to Tokyo, Chinese although the airline started the sales campaign in authorities gave TAAX the right to Market China two months ago. That explains why up to embark on a new flight to Shanghai a Shanghai Shanghai 2015 1 - - Seeking 90% of the passenger load for the initial Shanghai month ago, despite the ICAO's red flight on the 377-seat Airbus 330 was made up of flag.” Chinese tourists.” “The airline is confident that the two cities, with “The lifting of economic sanctions their great travel and investment potential, will against Iran in January has turned Market Tehran Iran 2016 2 prove popular among Thai travellers, he added.” Tehran into a new economic frontier - - Seeking and an emerging tourism market, said Mr Nadda.” “I think it will be the same as before. Medical “At Muscat International Strategic tourism in Thailand is known for its high standards Airport, we strive to Asset and low cost, so I think it will still be attractive. facilitate procedures for Muscat Oman 2016 2 Seeking & What is great for Omanis is that Thai second tier - airline carriers wishing to - Market hospitals have been upgraded to become very launch new routes Seeking good, so the Omani customer will have a lot more through the airport.” choices." 110
“That is in sharp contrast with TAAX's services to “TAAX, like most Thailand-registered Japan -- two daily flights to Narita and one to airlines, is largely in a mode of retreat Osaka -- which see robust demand year-round, or maintaining the status quo because thanks to Thais' love affair with Japan and the of restrictions imposed by some country's visa-waiver program.” countries in accordance with the punitive guidelines established by the Market UN aviation auditor. The essence of Sapporo Japan 2016 3 - - Seeking the ICAO's red-flagging means that Thailand-registered airlines are not allowed to open new routes, nor raise the frequency of existing flights to foreign countries, nor change aircraft types already deployed for current services.”
Case 2. Lion Air 2.1. Lion Air Int. Route Host Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Country Category Motive National Airport Level “We would establish several new “He said upon closer “Lion has the brand flights to the region after we get the scrutiny, many of the recognition in Indonesia to traffic rights.” advertised benefits were capitalize on this and grow just a mirage. For internationally as Kuala Market Malaysia 2000 1 - example, open skies exist Indonesians start to travel Lumpur Seeking for capital cities, but there more overseas.” is a cap on slots so it amounts to no net benefit.” “Establishing a base in Singapore, a growing “Indonesian airlines like Garuda and “Lion Air will receive, aviation financing hub, might help Lion Air to Lion Air have been given permission among other perks, a 15 diversify its portfolio outside Indonesia, where the to fly from Singapore to other parts of per cent discount in Strategic- country risk is much higher, and enable it to tap into Asia, The Straits Times has learned. landing charges for the Asset a wider circle of banks for funding” "The Singapore- However, they will first have to apply first two years”. Singapore Singapore 2003 1 Seeking & Jakarta market is mainly business traffic and people to their government for the go-ahead.” - Market visiting friends and relatives, but there is very good “This in fact happened recently when Seeking potential to market places like Bandung and Indonesian carriers wanted to expand Surabaya for leisure travellers." operations to Singapore, but came up against their government, which had to renegotiate bilateral capacity, he said.” “Lion has operated for several years on religious “The SA Government has ambitious pilgrimage flights to Saudi Arabia.” “Indonesia plans to modernise and liberalise the Market Jeddah Saudi Arabia 2010 2 Deputy Transport Minister, Bambang Susantono, national aviation system, to improve - - Seeking stated the lucrative Jakarta-Jeddah route would options for passengers and enhance the benefit from further competition.” sectors efficiency.” Ho Chi 2003- Market “Ho Chi Minh City are traditional favourites.” Vietnam 1 - - - Minh 2010 Seeking
111
“Lion Air’s Penang route is initiated to feed Malindo “Penang, which has close Strategic- Air hub Penang within the next three years. The cultural ties with Medan, 2003- Penang Malaysia 2 Asset airline, which operates six daily flights to Penang, - - as the two cities lie on 2010 Seeking will be improving connectivity to the island state by opposite end of the deploying 10 flights by the end of the year.” Malacca strait.”
2. 2. Thai Lion Air Int. Route Host Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Country Category Motive National Airport Level “But the Thai subsidiary of Indonesia's Lion Group “TLA faces a dilemma in that this “The frequencies and believes there is enough market for it to capture along would risk it losing its Bangkok-Kuala commencement dates for with other players given the fast-growing traffic Lumpur flying rights granted by civil the routes planned in demand and future potential, the insider said.” aviation authorities.” 2016 are still being Kuala Market Malaysia 2013 1 worked out, pending final - Lumpur Seeking approval from civil authorities involved as well as the airport time- slot arrangements.” “Thai Lion believes that demand for Bangkok-Jakarta “The no-frills carrier controlled by “The carrier is in the “Thai Lion will mostly has sufficiently improved to support one daily flight.” Indonesian Giant Lion Group last process of applying for rely on sales in Indonesia, week obtained a final clearance from international traffic rights where it is able to Market Jakarta Indonesia 2013 1 Indonesian and Malaysian aviation and hopes to launch leverage the strong Seeking authorities to operate regular flights services early next month distribution network and from its Don Mueang airport base in from Don Mueang to .. brand of its parent Lion Bangkok to .. and Jakarta.” and Jakarta.” Air.” “But both routes are logical as Subang is a hub for Efficiency Malindo’s ATR operation” “We want to create new Subang Malaysia 2014 3 - - - Seeking opportunities for both business and leisure travellers by focusing on domestic and international routes.” “Medan is a hub for Lion and sister carrier Wings Air.” “Thai Lion will both need Strategic- “The decision to launch services to Medan and Kuala to accelerate international Asset Lumpur is part of the commitment to help develop expansion and start Medan Indonesia 2014 3 Seeking & - - passenger services among ASEAN countries.” building up the Lion Market brand outside the Seeking domestic markets.” “As it is a large and potentially strategically important “They will likely have to “Thai Lion could face route the group has decided to give it a try using Thai settle on operating in and large challenges in Lion.” “Lion Group’s entrance could be seen as a out of Singapore Changi making the Bangkok- strategic move as it will give Lion a presence on all during middle of the day Singapore route work, three of the largest routes from Singapore” hours as Changi does not particularly during the Strategic- have available peak hour initial phases. The route Singapore Singapore 2015 1 Asset - slots.” is extremely competitive Seeking and Thai Lion is not yet a recognised brand outside Thailand as it has so far focused on the domestic market.”
112
“Still expects growth in traffic demand on the route, “The green light granted to TLA citing the emergence of Myanmar's economy and its comes in the wake of reports that growing economic ties with Thailand.” Myanmar's civil aviation department is crafting new regulations to restrict Market Yangon Myanmar 2016 2 airline expansion in the country. - - Seeking Myanmar has 11 airlines in operation, and officials have suggested that rules governing applications for permits will be tightened.” “China is considered the first priority of its network “Chinese authorities typically approve expansion because of big market potential. ““China is new routes for foreign airlines that are Market Guanzhou China 2016 1 the largest international market from Vietnam, while new to the Chinese market on a - - Seeking Singapore is the second largest based on current seat gradual piecemeal basis, and are capacity.” unlikely to allow a rapid expansion.” “As is the case with Myanmar, Vietnam will be a ” TLA is expected tomorrow to Strategic- challenging market given the current extremely reactivate ticket sales for the route that Asset Ho Chi competitive environment, but strategically Thai Lion was abruptly halted earlier this month Vietnam 2016 1 Seeking & - - Minh needs to have a presence. Vietnam and Myanmar are after Vietnamese authorities required Market both among the 10 largest international markets from "additional documents" to support the Seeking Thailand based on current seat capacity.” application for a permit.”
2. 3. Malindo Air Int. Route Host Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion country Category Motive National Airport Level “The Delhi and Mumbai markets have more business “Malindo had to postpone several “Malindo essentially “With the right local traffic and significantly less competition”. “India- times the launch of India services as it received the last available distribution strategy, it Indonesia is a particularly attractive market as it is waited to secure the required Malaysian allotments at should be able to Market Delhi India 2013 1 growing rapidly but not served non-stop by any approvals from Indian authorities”. the six main cities, taking stimulate leisure demand Seeking carrier.” “Malindo prior to its launch was able over the rights which and also attract some to secure from Malaysian authorities were previously used by business traffic.” most of the traffic rights to India.” Air Asia X.” “The new destination serves as an important “The two countries have a liberal air “Malindo will be able to destination for the airline as it is expecting about services agreement and Bangladeshi leverage the strong Lion 100,000 Bangladeshi tourists to visit Malaysia in the authorities were very welcoming to brand in Indonesia, where next two years.” Malindo, quickly approving its initial the Lion group accounts Market Dhaka Bangladesh 2013 2 application to serve Dhaka while - for about 50% of the Seeking Malindo’s applications to Indian domestic market. But authorities dragged on for several India and Bangladesh are months.” .. new destinations for the Lion group.” “The flights to Jakarta and Bali are the latest additions “Malindo has not yet finalised a to Malindo Air's services in the region, which is part of schedule for the planned Kuala Strategic- its long-term plan to convert Kuala Lumpur into a Lumpur-Bali-Brisbane route but the Denpasar Indonesia 2013 3 Asset regional transit hub.” Malaysia-Indonesia bilateral limits - - Seeking Malaysian carriers to a maximum of four weekly frequencies to points beyond Indonesia.”
113
“Expansion in Indonesia is sensible and relatively low “The Malaysia-Indonesia market is “The fact that Malindo “Malindo’s business plan risk as Malindo is able to leverage the Lion Group more liberal.” managed to secure a spot has always envisioned network.” in the heavily congested several routes to Strategic- Soekarno-Hatta Indonesia, where it is able Jakarta Indonesia 2013 1 Asset International Airport in to leverage Lion’s strong Seeking Jakarta reveals its brand and network.” financial and political muscle.” “Malindo is taking a bit of a gamble with Ahmedabad “Malindo is also keen to test out new Market as it is an unproven market.” Malaysia-India routes that are not Ahmedabad India 2014 5 - - Seeking restricted by the bilateral, starting with Kuala Lumpur-Ahmedabad.” “Malindo has benefitted from robust local demand for “While Malindo’s applications to Market India-Malaysia services as well as demand to Indian authorities dragged on for Amritsar India 2014 5 - - Seeking Indonesia and Thailand." “Both are hugely popular several months.” tourist spots.” “Bali, Bangkok and Jakarta are critical markets where The Lion Group Strategic- Malindo is able to leverage support from its sister discovered Malindo was Asset carriers, Thai Lion Air and Lion Air." “Having the better placed brand Bangkok Thailand 2014 2 Seeking & Malindo, other than Thai Lion Air, operate between - - for the Bangkok-Kuala Market the two hubs is logical as KL-Bangkok is mainly an Lumpur market as most Seeking inbound market from Malaysia.” passengers on this route are Malaysians.” “Malindo is wisely staying away from Kochi during its “Malindo is free to add capacity to initial India expansion phase as it is a relatively small Kochi and Tiruchirappalli as these are Market market.” two of 18 secondary destinations Kochi India 2014 2 - - Seeking which are not capped under India’s bilateral with Malaysia and other Southeast Asian Countries." “Singapore and Kuala Lumpur to Tiruchi international “Malindo is free to add capacity to Strategic airport was introduced, the benefits for airline Kochi and Tiruchirappalli as these are Asset operators have been huge in terms of fuel and cost two of 18 secondary destinations Trichy India 2014 3 Seeking & savings.” “Southern India and particularly which are not capped under India’s - - Market Tiruchirappalli is a huge market for Malaysia as a bilateral with Malaysia and other Seeking large portion of India’s Malaysia population is from Southeast Asian Countries.” that region of India." Strategic- “Bandung is also a large destination for Lion Air and “Expansion in Indonesia Asset Wings Air." “The launch of Malindo from Kuala is sensible and relatively Bandung Indonesia 2014 3 Seeking & Lumpur could result in Lion Group becoming the - - low risk as Malindo is Market market leader in Bandung.” able to leverage the Lion Seeking Group Network.” “Enabling Malindo to offer connections to secondary “Malindo’s business plan Indonesian points.” has always envisioned Strategic- several routes to Batam Indonesia 2014 3 Asset - - Indonesia, where it is able Seeking to leverage Lion’s strong brand and network.”
114
“Enabling Malindo to offer connections to secondary “Lion’s strong presence Indonesian points.” in Sumatra significantly Strategic- reduces the risk of the Pekanbaru Indonesia 2014 3 Asset - - new Malindo routes as Seeking Malindo uses Lion’s distribution channels in Indonesia.” “Singapore is by far the biggest destination from KLIA “We have also applied to “Malindo’s brand is not Strategic- with about 85.000 weekly return seats." “Lion is better fly to Singapore. If the as strong as its Asset off reallocating capacity and its Singapore slots to approval is granted, we competitors, particularly Singapore Singapore 2014 1 Seeking & - focus on more strategic routes such as Singapore- will be flying to in Singapore where the Market Jakarta and Singapore-Kuala Lumpur." Singapore from Subang airline is unknown.” Seeking airport.” “The Delhi and Mumbai markets have more business “Malindo is hoping India will agree to “Malindo essentially traffic and significantly less competition.” expand the current air services received the last available agreement with Malaysia, but this is Malaysian allotments at Market Mumbai India 2014 1 not likely at least in the short term.” the six main cities, taking - Seeking over the rights which were previously used by Air Asia X.” “Malaysia-Bangladesh is a large migrant worker “Bangladesh has also been very Market Chittagong Bangladesh 2015 3 market that is currently served by five carriers.” receptive in having Malindo serve - - Seeking Chittagong.” “This new AirAsia route is in response to growing “In the meantime, I cannot disclose “For now, Malindo only “Malindo relies heavily demand for services from China to the east Malaysian when we will open for India and has rights for two weekly on agents across all of its state of Sabah." “Seats have been blocked by agents in Southern China as they are pending flights to Sanya and two markets but on other both Malaysia and China. Penang and Kuala Lumpur approval from the authorities.” weekly flights to flights seats are not block are both popular destinations for Chinese tourists and Wuhan.” booked or pre-committed Market Sanya is also a tourist destination for Malaysians." like they are for Sanya Sanya China 2015 3 Seeking and Wuhan. These type of bookings minimise the risk for Malindo as it builds up a presence in China, where its brand is not known.” “The route was driven by the “big demand” for flights “The airline also says it recently Market between Perth and Malaysia." “Perth will expand our passed a full audit by Australia's safety Perth Australia 2015 2 - - Seeking coverage and strengthen our customer proposition in watchdog, the Civil Aviation Safety the strategically important market of Asia.” Authority”. Colombo Sri Lanka 2015 2 - - - - - “The company believes Kathmandu, being a scenic “Malindo Air has received temporary and attractive holiday destination, will be a popular operating permit (TOP) from Civil tourist pull for travellers young and old.” Aviation Authority of Nepal Market (CAAN)." “The existing Air Service Kathmandu Nepal 2015 2 - - Seeking Agreement (ASA) allows carriers of Nepal and Malaysia to operate a maximum of 21 flights each per week.”
115
“Malindo is increasing capacity to South India because of passenger demand." “Due to the overwhelming Market Trivandrum India 2015 2 response received from the travel community, we are - - - Seeking all set to commence four times weekly operations from Trivandrum.” “Malindo believes there are opportunities to expand in “Malindo’s new Chiang Thailand as Thailand is a popular destination for Mai service included Market Malaysians and Malindo is able to work with its sister from late Oct-2016 but Chiang Mai Thailand 2016 2 - - Seeking airline Thai Lion.” Phuket not yet captured as Malindo is still waiting for final local approvals.” “Vietnam is a growing source market for Malaysia’s tourism sector and business ties between the two Market Hanoi Vietnam 2016 2 countries have been increasing.” “Obviously, - - - Seeking Vietnam’s market has a huge potential for us among ASEAN countries.” “Malindo is confident there is sufficient inbound and Ho Chi Market Vietnam 2016 1 outbound demand to support a new competitor on Ho - - - Minh Seeking Chi Minh and Hong Kong routes.” “The China-Malaysia market has recovered in recent “For now Malindo is limited to only “For now, Malindo only “Malindo relies heavily months, prompting several airlines from both sides to Sanya and Wuhan, in line with a has rights for two weekly on agents across all of its launch new routes and add capacity on existing Chinese policy which typically limits flights to Sanya and two markets but on other routes.” “Malindo currently accounts for less than 2% new foreign carriers to an initial two weekly flights to flights seats are not block of Malaysia-China seat capacity and is keen to expand routes." “Chinese authorities typically Wuhan.” booked or pre-committed Market its presence in this strategically important and fast- authorise foreign carriers more routes like they are for Sanya Wuhan Vietnam 2016 2 Seeking growing market.” in phases once its initial two routes are and Wuhan. These type of operating.” bookings minimise the risk for Malindo as it builds up a presence in China, where its brand is not known.” “Hong Kong is a popular destination for Malaysians “Malindo has secured an and vice versa and there is also strong local business early afternoon slot pair Hong Market traffic.” “Malindo is confident there is sufficient at Hong Kong Hong Kong 2016 1 - - Kong Seeking inbound and outbound demand to support a new International Airport after competitor on Ho Chi Minh and Hong Kong routes." a lengthy negotiating process.” “Malindo Air will also open many doors of “Malaysia is honoured to continue the “He thanked Pakistan opportunities for both the countries while Pakistanis spirit and tradition of the close ties Civil Aviation Authority working in Malaysia will also get benefit of this flight between Malaysia and Pakistan.” (CAA), Tourism operation.” Development Authority of Punjab, Airports Market Lahore Pakistan 2016 2 Security Force Pakistan - Seeking (ASF), Pakistan High Commission in Malaysia, Chief Minister of Punjab's Office for their encouraging support.”
116
“The carrier aims to attract about 25,000 tourists from “Mr. Chandran said Malindo already “The launch of Taipei has Taiwan to Malaysia by September 2017.” has authority to serve Taipei from been on hold pending the KLIA." “Malindo should be able to completion of a runway Market secure rights to pick up passengers renovation project at Taipei Taiwan 2016 1 - Seeking from Taiwan to South Korea and Taipei Taoyuan Airport, Japan.” which has placed constraints on expansion over the last year.”
2. 4. Batik Air Int. Route Host Airport Expansion Formal Institutional barriers Year Expansion Motive Supporting Quotes FSA-based analysis Expansion Country Category Motive National Airport Level “We chose Singapore as our first international “But while traffic rights to Singapore “In Singapore, Batik’s “Batik has an unknown destination because we can see that demand are available for Indonesian carriers”. biggest challenge will be brand overseas, which will continues to increase.” “This decision to take a break from securing slots that are make it hard to sustain its expansion in Indonesia is partially needed to make the route 90% load factor as it driven by relatively weak economic viable.” spreads its wings.” “New Market conditions and regulatory constraints.” international routes come seeking & “So far, though, Indonesia has opened with much higher start-up Singapore Singapore 2015 1 Strategic- up Jakarta only.” costs and risks than new asset seeking domestic routes. As Batik’s brand is unknown in the international market it would be sensible to expand cautiously in the initial phase.”
117
Appendix 2: Airport Categorization: List of all destinations of Lion Air & AirAsia
Passenger traffic2 Int. Transit Airport City Country IATA Airport Served by1 Leisure3 2015 2014 flights Hub Category Abu Dhabi United Arab Emirates AUH Abu Dhabi International Airport Terminated 23,286,632 19,865,127 Yes Yes - 1 Bangkok Thailand BKK Suvarnabhumi Airport Terminated 52,902,110 46,423,353 Yes Yes - 1 Beijing China PEK Beijing Capital International Airport AAX & TAAX 89,939,049 86,128,313 Yes Yes - 1 Delhi India DEL Indira Gandhi International Airport AAX & Malindo 48,424,165 40,895,555 Yes Yes - 1 Guangzhou China CAN Guangzhou Baiyun Int,Airport MAA, TAA & Thai Lion 55,201,915 54,780,346 Yes Yes - 1 Ho Chi Minh Vietnam SGN Tan Son Nhat International Airport MAA, TAA, Lion & Thai Lion 26,546,475 22,153,349 Yes Yes - 1 Hong Kong Hong Kong HKG Hong Kong International Airport MAA, TAA, TAAX & Malindo 68,496,000 63,343,000 Yes Yes - 1 MAA, IAA, Batik, Lion, Malindo & Thai - Jakarta Indonesia CGK Soekarno–Hatta International Airport 54,291,336 57,221,169 Yes Yes 1 Lion MAA, AAX, TAA, IAA, TAAX, Malindo - Kuala Lumpur Malaysia KUL Kuala Lumpur International Airport 48,938,424 48,930,409 Yes Yes 1 & Lion London United Kingdom LGW London Gatwick Airport Terminated 40,269,087 38,103,667 Yes Yes - 1 Melbourne Australia MEL Melbourne Airport AAX 33,704,854 31,935,600 Yes Yes - 1 Mumbai India BOM Chhatrapati Shivaji Int. Airport Malindo 41,786,352 37,694,824 Yes Yes - 1 Osaka Japan KIX Kansai International Airport AAX & TAAX 23,136,223 19,218,083 Yes Yes - 1 Paris France ORY Paris-Orly Airport Terminated 95,431,979 92,676,342 Yes Yes - 1 Seoul Korea ICN Incheon International Airport AAX, PAA & TAAX 49,281,210 45,512,099 Yes Yes - 1 Shanghai China PVG Shanghai Pudong International Airport AAX, PAA & TAAX 60,098,073 51,687,894 Yes Yes - 1 MAA, TAA, IAA, PAA, Batik, Lion, - Singapore Singapore SIN Singapore Changi Airport 55,448,964 54,093,070 Yes Yes 1 Malindo & Thai Lion Sydney Australia SYD Sydney Airport AAX 41,090,678 39,021,740 Yes Yes - 1 Taipei Taiwan TPE Taipei Taoyuan International Airport MAA, AAX & Malindo 38,473,333 34,140,634 Yes Yes - 1 Tokyo Japan HND Haneda Airport AAX 75,254,942 72,743,763 Yes Yes - 1 Tokyo Japan NRT Narita International Airport TAAX 34,751,221 32,866,898 Yes Yes - 1 Auckland New Zealand AKL Auckland Airport AAX 15,892,741 15,098,346 Yes Regional - 2 Bandar Seri Regional - Brunei BWN Brunei International Airport MAA 1,300,000 (2005) - Yes 2 Begawan Bangalore India BLR Kempegowda International Airport MAA 18,971,149 15,401,392 Yes Regional - 2 Bangkok Thailand DMK Don Mueang International Airport MAA, TAA, IAA, TAAX & Thai Lion 30,304,183 21,546,568 Yes Regional - 2 Busan Korea PUS Gimhae International Airport AAX & TAAX 12,382,150 10,378,866 Yes Regional - 2 Chengdu China CTU Chengdu Shuangliu Int. Airport AAX 42,239,468 37,675,232 Yes Regional - 2 Chennai India MAA Chennai International Airport MAA & TAA 15,218,017 14,299,200 Yes Regional - 2 Chiang Mai Thailand CNX Chiang Mai International Airport MAA, TAA & Thai Lion 8,365,851 6,630,624 Yes Regional - 2 Colombo Sri Lanka CMB Bandaranaike International Airport MAA & Malindo 8,526,578 7,780,724 Yes Regional - 2 Da Nang Vietnam DAD Da Nang International Airport MAA 6,722,587 4,989,687 Yes Regional - 2 MAA, TAA, IAA, TAAX, Batik, Wings & Regional - Denpasar Indonesia DPS Ngurah Rai International Airport 17,108,387 17,271,415 Yes 2 Lion Dhaka Bangladesh DAC Shahjalal International Airport MAA & Malindo 6,154,215 - Yes Regional - 2 Fukuoka Japan FUK Fukuoka Airport Terminated 20,968,463 19,703,769 Yes Regional - 2 Guilin China KWL Guilin Liangjiang International Airport MAA 6,361,045 6,897,741 Yes Regional - 2
118
Hangzhou China HGH Hangzhou Xiaoshan Int. Airport MAA, AAX & TAA 28,354,435 25,525,862 Yes Regional - 2 Hanoi Vietnam HAN Noi Bai International Airport MAA & TAA, Malindo 17,213,715 14,190,675 Yes Regional - 2 Hyderabad India HYD Rajiv Gandhi International Airport MAA 12,388,159 10,404,299 Yes Regional - 2 Jeddah Saudi Arabia JED King Abdulaziz International Airport AAX 29,785,874 27,941,720 Yes Regional - 2 Kathmandu Nepal KTM Tribhuvan International Airport AAX & Malindo 3,210,000 - Yes Regional - 2 Kochi India COK Cochin International Airport MAA , TAA & Lion 7,749,901 6,407,302 Yes Regional - 2 Kolkata India CCU Netaji S, Chandra Bose Int. Airport MAA & TAA 12,421,244 10,916,669 Yes Regional - 2 Kunming China KMG Kunming Changshui Int. Airport MAA & TAA 37,523,098 32,230,883 Yes Regional - 2 Lahore Pakistan LHE Allama Iqbal International Airport Malindo 4,572,190 4,521,144 Yes Regional - 2 Luang Prabang Laos LPQ Luang Prabang International Airport MAA & TAA - - Yes Regional - 2 Macau Macao MFM Macau International Airport MAA & TAA 5,831,459 5,481,441 Yes Regional - 2 Manila Philippines MNL Ninoy Aquino International Airport MAA & PAA 36,681,601 34,015,169 Yes Regional - 2 Medina Saudi Arabia MED Prince M, bin Abdulaziz Airport AAX & Lion 5,831,163 5,703,349 Yes Regional - 2 Muscat Oman MCT Muscat International Airport TAAX 10,314,449 8,709,505 Yes Regional - 2 Nagoya Japan NGO Chubu Centrair International Airport AAX 10,177,713 9,755,531 Yes Regional - 2 Nanning China NNG Nanning Wuxu International Airport MAA & TAA 10,393,728 9,412,246 Yes Regional - 2 Okinawa Japan OKA Naha Airport Terminated 18,336,030 17,293,780 Yes Regional - 2 Penang Malaysia PEN Penang International Airport MAA, TAA, IAA & Malindo 6,258,756 6,041,583 Yes Regional - 2 Perth Australia PER Perth Airport AAX, IAA, Malindo 12,558,276 12,730,118 Yes Regional - 2 Phnom Penh Cambodia PNH Phnom Penh International Airport MAA & TAA 3,079,068 2,665,894 Yes Regional - 2 Shenzhen China SZX Shenzhen Bao'an International Airport MAA & TAA 39,721,619 36,272,701 Yes Regional - 2 Siem Reap Cambodia REP Siem Reap International Airport MAA & TAA 3,296,513 3,018,669 Yes Regional - 2 Surabaya Indonesia SUB Juanda International Airport MAA, IAA, Batik, Wings & Lion 17,143,912 17,285,085 Yes Regional - 2 Tehran Iran IKA Tehran Imam Khomeini Int. Airport AAX 7,243,120 6,049,062 Yes Regional - 2 Trivandrum India TRV Thiruvananthapuram Int. Airport Malindo 3,470,788 3,174,018 Yes Regional - 2 Tianjin China TSN Tianjin Binhai International Airport Terminated 14,314,322 12,073,041 Yes Regional - 2 Vientiane Laos VTE Wattay International Airport MAA & TAA - - Yes Regional - 2 Wuhan China WUH Wuhan Tianhe International Airport TAA & Malindo 18,942,038 17,277,104 Yes Regional - 2 Xiamen China XMN Xiamen Gaoqi International Airport Terminated 20,814,244 20,863,786 Yes Regional - 2 Xian China XIY Xi'an Xianyang International Airport AAX & TAA 32,970,215 29,260,755 Yes Regional - 2 Yangon Myanmar RGN Yangon International Airport MAA, TAA & Thai Lion 4,680,000 4,394,366 Yes Regional - 2 Adelaide Australia ADL Adelaide Airport Terminated 7,777,747 7,670,201 Yes Domestic - 3 Balikpapan Indonesia BPN Sultan Aji M, Sulaiman Airport MAA, Batik, Wings & Lion 7,374,517 7,701,216 No Domestic - 3 Bandung Indonesia BDO Husein Sastranegara Int. Airport MAA, IAA, Wings, Lion & Malindo 3,146,807 2,927,304 Yes Domestic - 3 Batam Indonesia BTH Hang Nadim Airport Batik, Wings & Lion 5,030,785 4,772,873 Yes Domestic - 3 Cebu Philippines CEB Mactan-Cebu International Airport MAA & PAA 6,712,293 (2012) - Yes Domestic - 3 Changsha China CSX Changsha Huanghua Int. Airport TAA 18,715,278 18,020,501 Yes Domestic - 3 Chittagong Bangladesh CGP Shah Amanat International Airport Malindo 1,500,000 - Yes Domestic - 3 Chongqing China CKG Chongqing Jiangbei Int. Airport AAX & TAA 32,402,096 30,264,435 Yes Domestic - 3 Christchurch New Zealand CHC Christchurch International Airport Terminated 5,915,785 5,709,272 Yes Domestic - 3 Clark Philippines CRK Clark International Airport MAA & PAA 1,309,883 (2012) - Yes Domestic - 3 Darwin Australia DRW Darwin International Airport IAA 2,041,309 2,057,377 Yes Domestic - 3 Davao Philippines DVO Francisco Bangoy International Airport PAA& Wings 2,963,243 (2012) - Yes Domestic - 3 Gold Coast Australia OOL Gold Coast Airport AAX 6,273,682 5,867,294 Yes Domestic - 3 Haikou China HAK Haikou Meilan International Airport Terminated 16,167,004 13,853,859 Yes Domestic - 3 Hat Yai Thailand HDY Hat Yai International Airport MAA, TAA & Thai Lion 3,639,936 3,147,281 Yes Domestic - 3
119
Jakarta Indonesia HLP Halim Perdanakusuma Batik & Wings 3,059,153 1,646,864 Yes Domestic - 3 Johor Bahru Malaysia JHB Senai International Airport MAA, IAA & Malindo 2,581,966 2,325,816 Yes Domestic - 3 Kota Kinabalu Malaysia BKI Kota Kinabalu International Airport MAA, IAA & Malindo 6,573,461 6,792,968 Yes Domestic - 3 Kuching Malaysia KCH Kuching International Airport MAA & Malindo 4,772,453 4,852,822 Yes Domestic - 3 Makassar Indonesia UPG Sultan Hasanuddin Int. Airport MAA, IAA, Batik, Wings & Lion 9,306,184 8,848,354 Yes Domestic - 3 Mandalay Myanmar MDL Mandalay International Airport TAA - - Yes Domestic - 3 Medan Indonesia KNO Kuala Namu International Airport MAA, IAA, Batik, Wings, Lion & Malindo 8,004,791 8,059,796 Yes Domestic - 3 Nanchang China KHN Nanchang Changbei Int. Airport TAA 7,487,930 7,240,861 Yes Domestic - 3 Ningbo China NGB Ningbo Lishe International Airport TAA 6,855,075 6,359,139 Yes Domestic - 3 Palembang Indonesia PLM Sultan Mahmud Badaruddin II Airport MAA, Batik, Wings & Lion 3,384,464 3,258,834 No Domestic - 3 Pekanbaru Indonesia PKU Sultan Syarif Kasim II Int. Airport MAA, IAA, Batik, Wings, Lion & Malindo 2,670,046 2,993,872 Yes Domestic - 3 Puerto Princesa Philippines PPS Puerto Princesa International Airport PAA 1,322,925 (2012) - Yes Domestic - 3 Sanya China SYX Sanya Phoenix International Airport Malindo 14,942,356 16,191,930 Yes Domestic - 3 Sapporo Japan CTS New Chitose Airport AAX & AAJ 20,461,531 19,270,922 Yes Domestic - 3 Subang Malaysia SZB Sultan Abdul Aziz Shah Airport Malindo 3,059,144 2,762,556 Yes Domestic - 3 Trichy India TRZ Tiruchirapalli Airport MAA & Malindo 1,297,212 1,189,218 Yes Domestic - 3 Wenzhou China WNZ Wenzhou Longwan Int,Airport TAA 7,360,467 6,802,179 Yes Domestic - 3 Yogyakarta Indonesia JOG Adisucipto International Airport IAA, Batik, Wings & Lion 6,380,336 6,236,578 Yes Domestic - 3 Hua Hin Thailand HHQ Hua Hin Airport Terminated 11,437 11,575 No No Yes 4 Kalibo Philippines KLO Kalibo International Airport MAA & PAA 1,832,168 (2012) - Yes No Yes 4 Krabi Thailand KBV Krabi Airport MAA, TAA & Thai Lion 3,689,672 2,700,950 Yes No Yes 4 Kuala Malaysia TGG Sultan Mahmud Airport MAA & Malindo 857,239 842,651 Yes No Yes 4 Terengganu Langkawi Malaysia LGK Langkawi International Airport MAA & Malindo 2,336,177 2,221,997 Yes No Yes 4 Lombok Indonesia LOP Lombok International Airport MAA, Wings & Lion 2,552,399 2,417,875 Yes No Yes 4 VRM Maldives Maldives Ibrahim Nasir International Airport MAA 4,697,207 4,341,091 Yes No Yes 4 M Mauritius Mauritius MRU Sir S, Ramgoolam Int. Airport AAX 3,197,308 2,916,411 Yes No Yes 4 Phuket Thailand HKT Phuket International Airport MAA, TAA, IAA, Thai Lion 12,859,356 11,401,498 Yes No Yes 4 Ranong Thailand UNN Ranong Airport Terminated 90,206 63,773 No No Yes 4 Surat Thani Thailand URT Surat Thani Airport MAA, TAA & Thai Lion 1,856,315 1,321,909 Yes No Yes 4 Ahmedabad India AMD Sardar Vallabhbhai Patel Int. Airport Terminated 5,050,433 6,480,111 Yes No No 5 Alor Setar Malaysia AOR Sultan Abdul Halim Airport MAA & Malindo 719,029 660,264 Yes No No 5 Ambon Indonesia AMQ Pattimura Airport Batik, Wings & Lion 1,192,375 1,318,041 No No No 5 Amritsar India ATQ Sri Guru Ram Dass Jee Int. Airport Malindo 1,083,684 1,250,370 Yes No No 5 Bacolod Philippines BCD Bacolod-Silay International Airport Terminated 1,518,417 (2012) - Yes No No 5 Banda Aceh Indonesia BTJ Sultan Iskandar Muda Int. Airport MAA, Batik, Wings & Lion 748,721 721,727 Yes No No 5 B, Lampung Indonesia TKG Radin Inten II Airport Wings & Lion 1,419,342 634,497 No No No 5 Banjarmasin Indonesia BDJ Syamsudin Noor Airport Wings & Lion 3,546,554 3,714,463 No No No 5 Banyuwangi Indonesia DQJ Blimbingsari Airport Wings - - No No No 5 Bau-Bau Indonesia BUW Betoambari Airport Wings 122,676 88,771 No No No 5 Bengkulu Indonesia BKS Fatmawati Soekarno Airport Batik & Lion - 736,315 No No No 5 Bima Indonesia BMU Sultan Muhammad Salahudin Airport Wings 134,977 142,168 No No No 5 Bintulu Malaysia BTU Bintulu Airport MAA 800,008 832,44 No No No 5 Buli Indonesia WUB Buli Airport Wings - - No No No 5 Buriram Thailand BFV Buriram Airport TAA 117,710 17,627 No No No 5
120
Cagayan De Philippines CGY Laguindingan International Airport Terminated 1,614,157 (2012) - Yes No No 5 Oro Chiang Rai Thailand CEI Mae Fah Luang International Airport TAA & Thai Lion 1,745,568 1,379,022 Yes No No 5 Dumai Indonesia DUM Pinang Kampai Airport Wings - - No No No 5 Ende Indonesia ENE H, Hasan Aroeboesman Airport Wings 208,284 180,297 No No No 5 Fakfak Indonesia FKQ Fakfak Airport Wings - - No No No 5 Gorontalo Indonesia GTO Jalaluddin Airport Batik, Wings & Lion 381,082 (2012) - No No No 5 Gunung Sitoli Indonesia GNS Binaka Airport Wings 225,147 207,544 No No No 5 Iloilo Philippines ILO Iloilo International Airport PAA 1,854,427 (2012) - Yes No No 5 Ipoh Malaysia IPH Sultan Azlan Shah Airport Malindo 222,606 98,768 Yes No No 5 Jambi Indonesia DJB Sultan Thaha Airport Lion 1,168,219 1,316,379 No No No 5 Jayapura Indonesia DJJ Sentani Airport Batik & Lion 1,728,549 1,333,625 No No No 5 Kaimana Indonesia KNG Kaimana Airport Wings - - No No No 5 Kendari Indonesia KDI Haluoleo Airport Batik, Wings & Lion - - No No No 5 Kerteh Malaysia KTE Kerteh Airport Malindo 12,558,276 - No No No 5 Khon Kaen Thailand KKC Khon Kaen Airport TAA 1,280,185 592,191 No No No 5 Kota Bharu Malaysia KBR Sultan Ismail Petra Airport MAA & Malindo 2,063,747 1,800,836 No No No 5 Kotabaru Indonesia KBU Gusti Syamsir Alam Airport Wings - - No No No 5 Kuantan Malaysia KUA Sultan Haji Ahmad Shah Airport Terminated 292,109 314,13 Yes No No 5 Kupang Indonesia KOE El Tari Airport Batik, Wings & Lion 1,523,342 1,310,734 No No No 5 Labuan Malaysia LBU Labuan Airport MAA 684,108 789,494 No No No 5 Labuan Bajo Indonesia LBJ Komodo Airport Wings 200,212 265,521 No No No 5 Labuha Indonesia LAH Oesman Sadik Airport Wings - - No No No 5 Loei Thailand LOE Loei Airport TAA 234,419 41,870 No No No 5 Luwuk Indonesia LUW Syukuran Aminuddin Amir Airport Wings - - No No No 5 Malacca Malaysia MKZ Malacca International Airport Malindo 69,710 141,780 Yes No No 5 Malang Indonesia MLG Abdul Rachman Saleh Airport Batik, Wings & Lion 221,589 (2010) - No No No 5 Mamuju Indonesia MJU Tampa Padang Airport Wings - - No No No 5 Manado Indonesia MDC Sam Ratulangi International Airport Batik, Wings & Lion 2,113,737 2,016,136 Yes No No 5 Manokwari Indonesia MKW Rendani Airport Wings & Lion - 479,889 No No No 5 Maumere Indonesia MOF Frans Seda Airport Wings - - No No No 5 Melangguane Indonesia MNA Melangguane Airport Wings - - No No No 5 Merauke Indonesia MKQ Mopah Airport Batik & Lion 300,332 - No No No 5 Meulaboh Indonesia MEQ Cut Nyak Dhien Airport Wings - - No No No 5 Miri Malaysia MYY Miri International Airport MAA & Malindo 2,249,206 2,363,080 Yes No No 5 Mukah Malaysia MKM Mukah Airport Terminated 163,379 159,3 No No No 5 Nabire Indonesia NBX Nabire Airport Wings - - No No No 5 Naha / Tahuna Indonesia NAH Naha Airport Wings - - No No No 5 N, Phanom Thailand KOP Nakhon Phanom Airport TAA 298,013 220,060 No No No 5 Nakhon Si T, Thailand NST Nakhon Si Thammarat Airport TAA & Thai Lion 1,243,179 1,112,849 No No No 5 Nan Thailand NNT Nan Airport TAA 349,264 114,114 No No No 5 Narathiwat Thailand NAW Narathiwat Airport TAA 162,413 117,961 No No No 5 Naypyidaw Myanmar NYT Naypyidaw Airport TAA - - Yes No No 5 Padang Indonesia PDG Minangkabau International Airport MAA, Batik & Malindo 3,169,122 2,791,411 Yes No No 5 Palangkaraya Indonesia PKY Tjilik Riwut Airport Lion 642,330 732,903 No No No 5 Palu Indonesia PLW Mutiara Airport Batik, Wings & Lion 672,698 - No No No 5
121
Pangkal Pinang Indonesia PGK Depati Amir Airport Wings & Lion 1,658,920 1,401,308 No No No 5 Pontianak Indonesia PNK Supadio Airport MAA & Lion 2,713,259 2,502,957 No No No 5 Poso Indonesia PSJ Kasiguncu Airport Wings - - No No No 5 Roi Et Thailand ROI Roi Et Airport TAA 284,667 70,012 No No No 5 Sakon Nakhon Thailand SNO Sakon Nakhon Airport TAA 425,453 199,525 No No No 5 Sandakan Malaysia SDK Sandakan Airport MAA 853,411 900,016 Yes No No 5 Saumlaki Indonesia SXK Saumlaki Airport Wings - - No No No 5 Semarang Indonesia SRG Achmad Yani International Airport MAA, IAA, Batik, Wings & Lion 3,682,108 3,469,395 Yes No No 5 Shantou China SWA Jieyang Chaoshan International Airport MAA & TAA 3,204,464 2,870,252 Yes No No 5 Sibu Malaysia SBW Sibu Airport MAA 1,454,360 1,440,935 No No No 5 Solo Indonesia SOC Adisumarmo International Airport MAA & Lion 1,525,013 1,417,576 Yes No No 5 Sorong Indonesia SOQ Domine Edward Osok Airport Batik, Wings & Lion 347,355 (2010) - No No No 5 Sumbawa Indonesia SWQ Sultan M. Kaharuddin III Airport Wings - - No No No 5 Tacloban Philippines TAC Daniel Z. Romualdez Airport PAA 1,149,592 (2012) - Yes No No 5 Tagbilaran Philippines TAG Tagbilaran Airport PAA 734,207 (2012) - Yes No No 5 Tambolaka Indonesia TMC Tambolaka Airport Wings - - No No No 5 Tanjung Pandan Indonesia TJQ H.A.S. Hanandjoeddin Airport Wings & Lion 421,211 405,661 No No No 5 Tanjung Pinang Indonesia TNJ Raja Haji Fisabilillah Airport Wings & Lion 258,936 265,407 No No No 5 Tarakan Indonesia TRK Juwata International Airport Batik, Wings & Lion 1,002,484 970,580 Yes No No 5 Tawau Malaysia TWU Tawau Airport MAA 1,203,792 1,218,616 Yes No No 5 Ternate Indonesia TTE Sultan Babullah Airport Batik, Wings & Lion 342,313 (2010) - No No No 5 Timika Indonesia TIM Timika Airport Batik 429,774 (2010) - No No No 5 Trang Thailand TST Trang Airport TAA 612,629 529,228 No No No 5 Tual Indonesia LUV Dumatubin Airport Wings - - No No No 5 Ubon Thailand UBP Ubon Ratchathani Airport TAA & Thai Lion 1,467,256 1,078,612 No No No 5 Ratchathani Udon Thani Thailand UTH Udon Thani Airport TAA & Thai Lion 2,213,689 1,682,709 Yes No No 5 Vizag India VTZ Visakhapatnam Airport MAA & Malindo 1,804,634 1,099,480 Yes No No 5 Waingapu Indonesia WGP Mau Hau Airport Wings - - No No No 5 1For each destination that is a single domestic destinations and passenger number under 5 million we make a distinction between single leisure destinations (category 4) and single destinations (category 5). 2Presents the carrier serving the destination (MAA: Malaysia AirAsia, AAX: AirAsia X, TAA: Thai AirAsia, IAA: Indonesia AirAsia, PAA: Philippines AirAsia, IAAX: Indonesia AirAsiaX, TAAX: Thai AirAsia X). 3Passenger traffic statistics represent the amount of passengers departing from an airport on domestic and international routes.
122
Appendix 3: Overview of sources used for analyzing route expansions
Sources Newspaper articles derived from LexisNexis database between 1-1-2000 and 1-12-2016
Internet sources Aviation Analysis, Centre of Aviation (CAPA). Available from: https://centreforaviation.com/analysis/ About Lion Air, Lion Air (2016). Available from: http://www.lionair.co.id/lion- experience/about-us About us, Malindo Air (2016). Available from: http://www.malindoair.com/about-us About us, Thai Lion Air (2016). Available from: http://www.lionairthai.com/en/About-us Corporate Profile, AirAsia (2016). Available from: http://www.airasia.com/ot/en/about- us/corporate-profile.page Welcome to AirAsia X, AirAsiaX (2016). Available from: http://airasiax.listedcompany.com
Annual reports AirAsia Annual Reports 2005 – 2015: http://www.airasia.com/my/en/about-us/ir-annual- reports.page
Appendix 4: Overview of sources used for airport categorization
Passenger Traffic Statistics Passenger traffic airport benchmark data, Centre of Aviation (CAPA) (2016). Available from: https://centreforaviation.com/data/traffic/#airlinetrafficcompare
Unavailable data acquired through local airport websites: 28 local airport sources available upon request.
Role / Leisure indication Airport profiles, Centre of Aviation (CAPA) (2016). Available from: https://centreforaviation.com/profiles/airports/
123