The case provides an opportunity to formulate the response of a late entrant to competitive dynamics created by its own entry into the market. It presents the dilemma before Tony Fernandes, CEO, AirAsia Sdn. Bhd. (AAB), in responding to competitive retaliation from Malaysia Airlines (MA), the incumbent national carrier of Malaysia. Fernandes had recently entered the Malaysian airline industry by acquiring the loss-making airline, AAB. He had made AAB debt-free within eight months by reducing costs of operations and maximising capacity utilisation of the plane. The following year, MA announced its super saver offer of a full-service flight experience at 50% of the original fare. This resulted in a 40% drop in AAB’s bookings, threatening its survival. Fernandes has to respond to the new development.