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Revenue Recogniation Essay

1365 words - 6 pages

University Malaysia Kelantan (UMK)

Malaysian Graduate School of Entrepreneurship and Business (MGSEB)

Course Name: Financial Reporting & Controlling

Course Code: GST 5033

“Revenue Recognition of AirAsia”

Submitted To:
Prof Dr. Zulkarnain Bin Muhamad Sori
Submitted By:
Mohammad Osman Goni (Matric No. P13D179F)
Hayder Alwan Kadhim – P13D20F
Wesam Esam Hamzi - P14D482F
Assel Faisal - P14D484

To better understand and analyze the specific activities through which AirAsia can create a competitive advantage, a value chain analysis for airline industry has been conducted as below to model AirAsia as a chain of value creating activities. The ...view middle of the document...

Services: Now a days retaining a customer is a difficult task so to overcome this Air Asia provide different type of services to its customer like if flight is delayed by more than three hours then e-gift voucher is given, passenger can also pre-book their checked baggage for a lower rate, and customers can also online book hotels, hostels, rent a car and medical services.
Support Activities: The value chain analysis has some$ support activities as well. The support activities that Air Asia has to follow in order to keep their business clean and operational are;
1. Firm Infrastructure: Air Asia has a strong firm infrastructure they have evolved from a classic LCC into an integrated service provider, they are focusing towards their goals, they are providing the cheapest fare, they are exploring new markets, and decision making process is simple.
2. Human Resource Management: Air Asia hire capable workers and they assign multi skilled people so that they can overcome their price in term of human resource and can maintain their company mission of low price airline, and they also compensate their employees in terms of performance.
3. Technology Development: Air Asia uses different type of technology to minimize its cost and to make their operation easy and efficient, they are using yield management system (YMS) which takes into account the operating cost and expected revenues, and they also use computer reservation system (CRS) as it is web-based reservation and inventory system as it is a direct sale engine which eliminates the middle man, and they also implemented enterprise resource planning system (ERP) which helps to save the time at month end closing, and speed up reporting and data retrieval processes.

Cost and Revenue Implication:

Operating Revenues of the Airline Industry

The major sources of revenues for AirAsia are from passengers, which accounted as operating revenues. The fare system in the airline industry has become very complex with the usage of yield management systems trying to optimize income by constantly changing the fares. The outcome is on a flight many passengers have paid very different fares depending on the circumstances in which they bought their tickets. Business and first class tickets come at a high price partially because of the amenities they provide (e.g. lounge, boarding priority, comfort and food) and also that they tend to be booked much later.

The revenue recognition policies varies based on nature of services provided by airline companies. Overall, the treatment of passenger and freight revenue is similar. To attract customer, the airline companies issues airline passenger tickets or freight airway bill in advance of the service or transportation date. 
Further, the amount paid as air fare on booking air tickets has two components – refundable fare and non-refundable fare, the proportion of two varies with passage of time. All amount received in advance from prospective customer is...

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