INTERVIEW
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“What we’re sitting on is a unique market circumstance where demand is really ahead of capacity so it’s a lot easier. Would we launch AirAsia X from London to New York? Forget it, it’s crazy! Or would I do Dubai-London? No way!” Azran Osman-Rani, CEO of AirAsia X (From L-R) AirAsia Group CEO Dato’ Sri Tony Fernandes, AirAsia X CEO Azran Osman-Rani, Transport Minister of Malaysia YB Dato’ Sri Ong Tee Keat, AirAsia Regional Head of Commercial Kathleen Tan and AirAsia Director Fam Lee Ee.
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ecession, financing woe, a weak pound: the problems faced by Sir Freddie Laker would be as compelling today as they were in 1982. Yet before Laker’s Skytrain collapsed under the weight of unsustainable interest payments and cut-throat pricing by its rivals, the mould-breaking low-cost transatlantic service had been a success. In 1981, with bankruptcy looming, Laker remarked that the airline business had become “a hell of a poker game”. Indeed: the next three decades saw several chance their hands on the low-cost, long-haul (LCLH) model, each to fold ignominiously. The most recent casualties have been Zoom Airlines and Oasis Hong Kong. Both blamed high fuel prices — also the bane of Laker — for their respective demises, but many thought the malaise ran deeper. “Ultimately, Oasis was a low-cost airline with a high-cost operation,” concluded one commentator. Others surveyed the scale of competition on Zoom’s transatlantic routes and wondered how the carrier, which did keep a lid on costs, had even got as far as it did. The failures hardened attitudes to the viability of budget long-haul travel. One airline, however, didn’t implode: an offshoot of Asia’s most successful low-cost carrier, AirAsia X (AAX) began operations in 2007. It first concentrated on the Australia-Asia market, but has since added routes to China and, in March 2009, to London. Its base is in Kuala Lumpur, Malaysia, a well-sited springboard for onward travel in Southeast Asia. Though its London route will only start to generate positive returns next year, AAX as
July/August 2009
LCAW Issue 3 July-August 09.indd 15
a whole expects a profit of at least $40m in 2009. This, plus heavyweight backing from the likes of AirAsia and Richard Branson’s Virgin, has convinced many that AAX is here to stay. Jonathan Naylor, a director at AviaSolutions aviation consultants, says: “I remember years ago the threat from short-haul low-cost was a bit derided by full-service airlines, but it was gradually accepted that they would change the face of the short-haul market. People are generally seeing now that there is a role for long-haul, low-cost [airlines].”
New model airline At the root of AAX’s success is cost, or reduction thereof. Cost per available seat kilometre (ASK) stands at 2.8 US cents, about half that of Ryanair and significantly less than other airlines in the region can boast. “Most Asian airlines are operating at about seven cents per ASK and the European and American airlines are at about eight to 10 cents per ASK. What we’ve done is create a model that focuses on that unit cost difference, whereas I think quite a few airlines that have tried to do this have got sidetracked with competing with the big players, so they must have a longhaul product that includes all these services and amenities, and they never achieve such drastic cost differences,” says Azran OsmanRani, CEO of AirAsia X. To achieve rock-bottom unit costs, AAX exploits its aircraft to the maximum. At its inception the company targeted aircraft utilisation of 18.5 hours a day, a figure few believed possible. In fact, AAX records 17.5 hours per day, slightly below its target, but still
well above any of the competition. To add to that, its A330-300s carry 380 passengers, 100 more than its rivals. Yet a focus on cost is nothing new. Osman-Rani believes his company’s choice of market has also been crucial. He reiterates the point that routes flown by previous LCLH carriers, such as London-New York (Zoom) and London-Hong Kong (Oasis), were vigorously competed over, whereas AirAsia X only faced one incumbent operator, Malaysia Airlines, on starting its Kuala Lumpur-London and Kuala LumpurMelbourne services. “What we’re sitting on is a unique market circumstance where demand is really ahead of capacity so it’s a lot easier. Would we launch AirAsia X from London to New York? Forget it, it’s crazy! Or would I do Dubai-London? No way!” he adds. Two other carriers from Asia-Pacific are also making headway in the LCLH market: Jetstar International and V Australia. The latter flies transpacific, connecting Australia with the US; the former offers flights between Australia and Southeast Asia plus other destinations, though it doesn’t compete directly with AAX. “AirAsia X has more or less simply slotted in [to the Asia-Pacific market] as another carrier,” comments Peter Harbison, executive chairman of the Centre for Asia-Pacific Aviation. “There are some targeted responses, but not massive, as it has largely generated new traffic.” If AAX really has captured ‘a unique market’, one could speculate that Asia is the only region presently capable of sustaining an LCLH carrier. Route networks aren’t as developed as those in North America and Europe, and the sheer distances involved — Kuala Lumpur to
LOW COST AIRLINE WORLD
30/06/2009 14:40