Going the Distance
Fernandes targets long-haul services, while boosting AirAsia's fleet
Tony Fernandes, the ebullient chief of Malaysian low-cost carrier (LCC), AirAsia, had little time for celebration as the New Year got underway. It was all business. Fernandes was in London ready to make two of the biggest announcements since the carrier was established in December 2001.
'Within the next seven years, I am convinced we will be the largest airline in the world with 54 million passengers a year’
Chief Executive, AirAsia
First, the AirAsia brand was going long-haul with AirAsia X, targeting China, India, Australia and Europe. Second, he was placing an order – worth US$6.7 billion at list prices – for up to 100 new A320 jets, a move that could see his LCC fleet grow to around 200.
The latter was hardly a surprise. AirAsia has been one of the fastest-growing carriers in Asia, leading the region’s no-frills boom. The first announcement was unexpected. Fernandes has repeatedly and publicly said the LCC model would not work beyond three to four hours’ range.
But with long-haul, low-cost operations surging – Oasis Hong Kong Airlines and Qantas’ Jetstar International are already pointing the way – Fernandes clearly recognizes an opportunity. And as always, he isn’t hanging around to let it pass.
AirAsia X, he declared, “will bring independence to the long-haul, low-cost traveller by providing a choice of service for their long-haul travel requirement.”
The new airline, owned by Fly Asian Express (FAX), a company established by Fernandes, Air Asia executive director Kamarudin bin Meranun and former AirAsia chief financial officer Raja Azmi, will operate as a separate entity. FAX currently utilizes Fokker 50 and Twin Otter turboprops in rural Malaysia. It started operations last August when AirAsia took over rural air routes from Malaysia Airlines (MAS). Under a 30-year franchise, AirAsia X will use the AirAsia brand, its website for bookings, and other services.
The new carrier will launch mid-year with three aircraft, have five operating by the end of its first year and reach its planned size of 20 by the end of the fourth year. A decision on fleet type was expected by the end of January or early February, with the A330-300 and the B777-300ER under consideration.
AirAsia X expects to carry 500,000 passengers in the first year. Average ticket prices will be about half those of full-service airlines. Inaugural flights, planned in July, will be to Tianjin and Hangzhou in China, and to either Manchester or London in the United Kingdom. If AirAsia X ends up flying to London, it will operate from one of Europe’s major LCC hubs, Stansted airport, said Fernandes.
India and Australia are firmly on the radar screen, with flights to the U.S. and South America also under consideration. Malaysia and Australia are already in talks to open a low-cost air route between the two countries.
A deal would likely involve access for Jetstar to the low-cost terminal at Kuala Lumpur International Airport, with AirAsia X flying to Avalon, a similar terminal near Melbourne.
AirAsia’s domestic and Asian regional flights will interlink with AirAsia X long-haul services. “While AirAsia and AirAsia X will be two separate legal entities and have separate management teams, I believe AirAsia X and AirAsia will have a symbiotic relationship.
Both carriers will enhance the feed of passengers into each other’s operations, and ensure passengers enjoy a seamless experience,” said Fernandes, who has not ruled out future tie-ups with LCCs in Europe such as easyJet and the Virgin Atlantic group, or Virgin Blue in Australia.
As for AirAsia itself, Fernandes made it clear the latest Airbus order marks a major leap forward. “Within the next seven years, I am convinced we will be the largest airline in the world with 54 million passengers a year,” he said. The airline carried about 15 million passengers last year and expects to reach 18 million by the end of 2007.
AirAsia already has 100 A320s on order, with 16 having been delivered. There are also 36 B737-300s in the current fleet, but they will gradually be replaced by A320s. The January deal was for another 50 firm orders, with 50 options.
The aircraft will be distributed among the AirAsia group, which includes Thai AirAsia and Indonesia AirAsia. Fernandes said the purchases would be funded by a combination of borrowings, internal reserves and cash generated by operations.
They will all have arrived by 2014. “We expect about 20 aircraft to be delivered each year, beginning this year,” said Fernandes.
With access to some 500 million people in the region, AirAsia needed more aircraft to properly fuel growth. “As we enter chapter two of AirAsia, the additional order for A320s will allow us to further strengthen our route network by developing our hubs in Bangkok and Jakarta, connecting more points and expanding into Indochina, Indonesia, southern China and India,” he said.