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AirAsia is a low cost carrier based at Kuala Lumpur International Airport, Malaysia. The carrier, which was formed out of Tune Air in 2002, is led by CEO Tony Fernandes and pioneered the cross-border joint venture in Asia, establishing Thai and Indonesian units with bases in Bangkok and Jakarta. The airline has also partnered with other airlines and investors to create ventures in the Philippines, India and Japan. AirAsia's extensive domestic and regional network includes services within Malaysia and to China, Southeast Asia and the Subcontinent.
Location of AirAsia main hub (Kuala Lumpur International Airport)
AirAsia share price
LCCs will continue to evolve into hybrids of the original core model. CAPA and OAG consider AirAsia fits the LCC profile and it is included in our reporting on this basis. Please note: when reporting for an airline is changed from or to LCC the historical data is not affected and it can lead to a distortion in the current reported data. Contact us if you have any queries.
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Malaysia Airlines' restructuring enters new phase with fleet & possible regional capacity reductions
Malaysia Airlines (MAS) has begun a new phase of its long restructuring process, as it starts to reject aircraft leases. MAS transitioned to a new company on 1-Sep-2015, but the restructuring in many respects is far from complete, and will take another year to implement.
MAS still has the flexibility to reject aircraft leases, giving it a benefit similar to US airlines that are restructuring through bankruptcy protection. While MAS cut capacity and head count prior to the transition to the new company, the flag carrier has only begun the process of reviewing its fleet.
A large portion of the fleet is expected to be returned over the next several months. More capacity cuts are possible, particularly in the domestic and short haul sectors, as MAS has already cut back its network outside Asia to a minimum level.
Long-haul low-cost airline group AirAsia X is optimistic it can complete a turnaround and return to profitability after seven consecutive quarters of losses. Conditions in most of its main markets are improving, including Australia and China.
AirAsia X has slowed growth significantly and is now planning to add only two aircraft over the next three years, both of which will be allocated to its Thai affiliate. But the group will consider reaccelerating expansion by sourcing additional A330-300s if market conditions continue to improve.
The Malaysian carrier will still be able to launch several new markets, starting with Honolulu and Delhi, without expanding its fleet as AirAsia X optimises its network and pursues fewer charter or wet lease commitments. Services to Europe could also potentially be resumed in the medium-term.
AirAsia’s operation in the Philippines is entering a new phase which the group hopes will lead to profitability in 2016 and eventually an initial public offering. Growth is also expected to resume in 2016, ending a phase of consolidation and fleet reductions.
The AirAsia Zest brand will be retired by the end of 2015 in favour of the Philippines AirAsia brand. AirAsia has already completed the transition to a single operating certificate in the Philippines, following a complicated and costly two years of maintaining two separate affiliates.
AirAsia’s Philippine operation has been highly unprofitable since it was launched in 2012. Turnaround efforts are banking on cost reductions driven by the transition to a single airline and higher yields that will be generated by a more international focused network. The network will be expanded to include several new routes from secondary hubs, in line with a new AirAsia Group strategy to open new unique point to point routes from secondary hubs throughout Southeast Asia.
This is the third in a Sep-2015 series of reports on the AirAsia Group, following CAPA's LCC Airports Congress in Bangkok.
AirAsia is preparing to establish a hub on the Malaysian island of Langkawi following a landmark deal which has resulted in a 70% reduction in charges – an indicator of the high importance placed on charges by the AirAsia Group. Langkawi will become Malaysia AirAsia’s sixth hub as services to Guangzhou and Hong Kong are launched.
Several other new international destinations are expected including Bangkok under a plan which will see at least five A320s based in Langkawi by 2020. Langkawi currently only has regular international services to Singapore.
The new Langkawi hub is part of an overall strategy by the AirAsia Group to focus growth on secondary airports. At the group’s original Malaysian subsidiary several new domestic and international routes from secondary hubs are planned for the next year despite a significant slowdown in fleet growth.
Thai AirAsia (TAA) is focusing expansion on secondary airports as Thailand’s largest low-cost carrier seeks to avoid intensely competitive trunk routes. TAA plans to open three new bases over the next year which will mainly be used to pursue expansion in the fast-growing Thailand-China market.
U-Tapao Airport near Pattaya will become in late Sep-2015 TAA’s fifth base after Bangkok Don Mueang, Chiang Mai, Krabi, and Phuket. TAA is allocating its last two A320 deliveries for 2015 to U-Tapao, which will initially be linked with three Chinese cities along with Singapore and Chiang Mai.
TAA plans to open two more bases in 2016 as it takes delivery of five additional A320s. All seven bases will have services to Greater China as well as domestic point to point routes, enabling visitors to bypass congested Bangkok while travelling around Thailand.
Southeast Asia’s airline sector was back in the black in 1H2015, boosted by improved market conditions, slower capacity growth and lower fuel prices. A sample of 16 airlines from the region generated combined operating profits of USD641 million in 1H2015 compared to operating losses exceeding USD500 million in 1H2014.
The improvement in profitability cut across virtually every market in Southeast Asia and all types of carriers. Overall 12 of the 18 airlines were profitable or break-even in 1H2015 compared to only five airlines in 1H2014.
But operating margins generally remain in the single-digits and lag most other regions. Southeast Asia remains an extremely competitive market with a high risk of continued overcapacity given the region’s huge order book.