World Routes Interview: AirAsia X eyes LCC partnership to support European return

AirAsia X will return to the European market from 2018 when it starts to receive its Airbus A330neos, the Malaysian budget carrier’s chief executive officer, Benyamin Ismail confirmed to Routesonline during the World Routes air service development forum in Chengdu, China. The airline is currently working with Airbus to finalise the definition of the aircraft and a possible increase in premium seating in preparation for these flights, with London top of the list.

“We are looking at the whole Europe opportunity and how it fits into our network jigsaw. We have succeeded in growing across ASEAN by establishing a presence in many markets, but this is not feasible in parts of Europe where major rivals are already well established,” explained Ismail. “Once we fly back to London, we will look to find a partner that day as setting up an AirAsia in UK would be difficult.”

Not deviating from its low-cost ethos, this operator would certainly come from the low-cost sector and Ismail highlighted easyJet and Ryanair as both possible options. “I would probably say that easyJet is the operator closest to us in terms of our model,” he added. This would also work with the airline’s preference to serve Gatwick Airport, where he is impressed with the facility’s Gatwick Connect flight transfer offering.

Clarifying the recent reports that AirAsia X was to actually return to Europe from later this year using its current A330 fleet with flights linking Kuala Lumpur to Barcelona via Istanbul (see AirAsia X may return to Europe in surprise network expansion), Ismail described the release of the erroneous information on its website as “simply a test” for future announcements.

“We wanted to see the information and how it is displayed. We know now and have learnt how we now need to approach things in the future with regard to new route announcements,” he explained.

AirAsia X’s boss believes its recent business rationalisation under its new management team will deliver sustainable profitability and provide the platform for this planned extension of its low-cost offering into Europe and North America. “We took out a lot of flying that was losing money, notably into markets like Australia, but we are now building this back up now we are in a stronger position with our brand in this market,” he explained.

The long-haul, low-cost affiliate of the AirAsia Group currently serves 20 destinations across Asia (Tokyo Haneda, Osaka, Sapporo, Seoul, Busan, Taipei, Xi’an, Beijing, Hangzhou, Chengdu, Shanghai, New Delhi, Kathmandu), Australia (Sydney, Melbourne, Perth, Gold Coast), New Zealand (Auckland) and the Middle East (Jeddah, Tehran) with a core fleet of 30 A330-300s with a seat configuration of 12 Premium Flatbeds and 365 economy seats.

We are already seeing a strong response from the market as we once again start to grow our network. Our flights from Kuala Lumpur to Tehran in Iran have been quite a success with 94% average loads. This is dominated by inbound demand from Iran,” said Ismail.

A further growth sees the launch next month of a new route into the Indian ocean island of Mauritius, a destination Ismail acknowledged came as a “bit of a surprise” when they looked at the numbers. Travel to Mauritius used to be dominated by European traffic, but since its recent economic slowdown there has been growth in trade with China, with it now ranked as the second largest island for Chinese arrivals after the Maldives.

On the financial side, last month the Malaysian business revealed it had posted its first second quarter profit since inception, boosted by strong revenue growth of 35% year-on-year to RM883.2 million on the back of 71% increase in scheduled flight revenue, due to stronger demand - the quarter ended with a 75% load factor, up 7 percentage points. This strong performance was facilitated by a 17% rise in available seat kilometres (ASKs) as increased frequencies were being flown on high-traffic routes compared to the same period last year.

The operating profit of RM 20.0 million compared to a loss of RM132.9 million in the same period last year. This was mainly due to better average base fare and load factor improvement seen across all core routes, especially China, according to Ismail.

Revenue from China also continued to improve during Q2 and grew 47% year-on-year, while load factors improved 11 percentage points to 82% and average base fares rose by 53%. “We believe this trend will remain for the remaining of the year as a result of the Malaysian Government initiative on visa waiver for Chinese travelling to Malaysia coupled with an increase in Fly-Thru traffic to our core markets with improved timing,” said Ismail, supported by the AirAsia Group strategy to develop its North Asia presence and build market dominance within the region.

The development of Malaysia AirAsia X will be complemented by growth in the group’s other long-haul airlines, particularly in Indonesia. The US Federal Aviation Administration (FAA) upgrade of Indonesia’s safety rating to Category 1 from last month will now permit Indonesia AirAsia X to return to scheduled flying and Ismail hopes will enable it to overcome losses – it posted a net loss of $8.9 million in 2Q16 – despite challenging operating environment. “We hope to hear soon on this plan,” he added.

With route success in 2016, there is already movement for Malaysia AirAsia X to add at least three additional markets to its network from 2017. A first quarter tentative date has been set for the launch of flights from Kuala Lumpur to Hawaii, its first North American destination. The service, which will operate via Osaka in Japan, has been on the cards for a while and simply awaits regulatory rubber-stamping.

“We have completed all the necessary paperwork for the FAA and this has all been submitted. We expect to have our audit next month and that will make Q12017 a realistic target for launch,” said Ismail. The airline plans to offer a four times weekly service, rising to a daily frequency in the summer.

An additional destination in Japan is on the cards for 2017 with Nagoya under consideration to tie into the return of AirAsia Japan to the skies. Similarly, the Indian market is an opportunity but only if it can link into the operations of AirAsia India within the country.