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2 AirAsia aims to X
long-haul rivals By David Fullbrook
Tony Fernandes, the flamboyant founder of
Malaysia's low-cost airline AirAsia, is set to
launch his fifth airline this July with the aim of
introducing cheap-ticket competition to the
long-haul market now dominated by state-controlled
Malaysia Airlines. Formally announced on Friday,
the new carrier, AirAsia X, also aims to poach
passengers from other Southeast Asian long-haul
carriers and could eventually alter the economics
of the region's broad aviation industry.
AirAsia X will fly routes longer than four
hours to places in Asia, Australia and Europe,
starting with the United Kingdom and the
Chinese cities of Guangzhou
and Tianjin. AirAsia X is expected to order up to
20 wide-body Airbus A330s or Boeing 777s this
month and will commence services with two to three
aircraft. Boeing's 777 is fit to carry more
passengers and cargo over longer distances than
Airbus's A330, but the latter is cheaper to lease
or buy.
Fernandes made his name by
introducing to Malaysia five years ago the showy
no-frills type of airline pioneered by America's
Southwest and later EasyJet and Ryanair in Europe
using narrow-body airliners such as Airbus's A320
and Boeing's 737. Ticket prices rise as takeoff
dates draw near, often on par with incumbent
full-service carriers, but most fares are
significantly less, for the first time bringing
air travel within the budget of the country's
middle and lower classes.
Fernandes is a
rabid adherent to the low-cost business model,
which aims to cut every cost without compromising
safety and squeeze efficiencies by training staff
to do many different jobs. Low-cost, no-frills
flights have thrived on short-haul routes in the
deregulated, open skies of Europe, India,
Indonesia and North America.
Many analysts
and airline executives are skeptical that the same
model will work on long-haul routes, partly
because for trips longer than four hours cost
advantages are eroded and indeed may be even more
expensive than full-service airlines flying
wide-body aircraft. "They will save on other
things such as using secondary airports. However,
faster turnarounds deliver very little benefit on
long-haul routes, unlike short-haul services,"
said an aviation analyst in Kuala Lumpur.
Qantas Airways, a full-service Australian
airline, had a go this decade when it started
Australian Airlines, which aimed for low costs
while offering some frills, but it fared poorly.
Its long-haul services were recently relaunched
under the Jetstar brand, Qantas' short-haul
no-frills carrier that operates in Australia and
Singapore. Last year, Oasis began services from
Hong Kong to London's Gatwick Airport applying the
low-cost, no-frills philosophy. It is still
flying, but whether it is at a loss is unclear
because the carrier is privately owned.
High-flying ambitions Enter
AirAsia X into the competitive picture. Fernandes
owns half, Kamarudin Meranum, executive director
of AirAsia, holds 30%, and Raja Azmi, AirAsia's
former chief financial officer the rest of the
carrier's shares. They will use their AirAsia
experience to ensure that AirAsia X is a lean and
efficient operation that exploits the Internet and
the latest airline-management systems. They are
ambitiously aiming for costs of 1.9 US cents per
seat-kilometer flown.
Even if they fall
short of such a slim target, AirAsia X will have a
substantially lower cost base than the notoriously
inefficient Malaysia Airlines (MAS). AirAsia X's
costs should also be lower than both Singapore
Airlines and Thai Airways, the two major Southeast
Asian long-haul carriers.
FlyAsianExpress,
or FAX, another airline started in recent years by
Fernandes, is licensing the AirAsia brand from
AirAsia and will operate the AirAsia X services.
FAX now serves routes to remote towns and villages
on the Malaysian part of the island of Borneo
under contract with AirAsia. Licensing the brand
to FAX avoids mucking up AirAsia's balance sheet
or upsetting shareholders because AirAsia X is
clearly a riskier business bet. Startup costs will
be higher than those of a short-haul carrier
because it is using larger aircraft, and losses
incurred while recouping initial investments will
likely be higher than for short-haul carriers.
AirAsia X's official launch did not go
into details about the carrier's planned on-board
service. Some changes to the short-haul product
will probably be necessary because flights will be
up to 12 hours in duration. Legroom, which is
tight on short-haul no-frills carriers, will
likely match economy class on other long-haul
carriers. Business class is probably out, which
makes operations simpler and therefore cheaper.
AirAsia X could provide meals, but given
Fernandes' low-cost zeal, it is more likely to
sell a wide range of food, drinks and
entertainment when services take off in July.
AirAsia typically
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