AirAsia X ‘to cut some routes’ to trim losses
Leslie Lopez The Straits TimesPublication Date : 12-01-2012
Malaysia’s long-haul budget carrier, AirAsia X, will scrap flights to London, Paris, Mumbai and New Delhi, but will add a daily flight to Sydney in hopes of cutting losses run up last year, say financial executives familiar with a reorganisation plan to be announced this week.
The spin-off of the phenomenally successful AirAsia, which operates regional routes of less than three hours’ flight time, has had to constantly tinker with its long-haul business model in the face of stiff competition from cash-flush Middle Eastern airlines.
AirAsia X will now focus on expanding routes of under eight hours of flight time, the executives said.
The carrier has also secured a go-ahead from the Malaysian government to fly daily to Sydney. It won that concession after its feisty boss, mr Tony Fernandes, argued that it could not afford to lose out to Singapore’s soon-to-be-launched no-frills airline Scoot.
Executives familiar with the revamp noted that AirAsia X has also secured the green light to fly daily to Haneda in Japan, a highly profitable destination that it now flies to three times a week.
The long-haul carrier is likely to temporarily shelve plans to list its operations until some time later next year.
The performance of long-haul budget carriers worldwide has been mixed.
Laker Airways, founded in the late 1960s, pioneered such airlines but the carrier, which was established by British entrepreneur Freddie Laker, folded in 1982 after the recession. Similar ventures – Canada’s Zoom, British-based Flyglobespan and Oasis of Hong Kong – soon followed its demise.
AirAsia X, which began operations four years ago, has so far proven sceptics wrong but it remains a tough slog. with a fleet of 11 aircraft, it serves 15 destinations in places such as Australia, Taiwan, South Korea, China, Iran, New Zealand and Japan.
While most are profitable, the flights to Mumbai and New Delhi have been a drag. The chief bugbear is the restriction India imposes on visa holders that prohibits travellers returning to the country within two months of leaving.
The London and Paris routes have enjoyed strong load factors of around 80 per cent but have not been able to turn a profit because Middle Eastern airlines offer highly discounted ticket prices, forcing AirAsia X to substantially cut its fares.
Financial executives familiar with the revamp blamed the two European destinations and those in India for the airline slipping into the red last year after turning a profit in 2010, but noted that the dark clouds are clearing.
A recent agreement between state-controlled Malaysia Airlines (MAS) and AirAsia’s main promoters, mr Fernandes and his partner Kamarudin Meranun, has paved the way for closer cooperation between the former rivals.
The easing of business tensions was crucial in the yet-to-be-announced approval of the Sydney route, strongly opposed by MAS in the past, financial executives close to AirAsia X said.
“By scrapping the Paris and London flights, MAS will now benefit from the load factor Air Asia X was enjoying,” said one of the financial executives.