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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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At the Farnborough Airshow on 15-Jul-2014, AirAsia X became the launch airline customer for the new A330-900neo, with 50 commitments. That is an important order – but it is made doubly special because AirAsia X is a long-haul low-cost airline, a model that is consistently written off by industry experts.
What makes the story most significant for the purposes of this discussion about airline business models – and more challenging as the industry goes through its gentle process of disruption – is that AirAsia X has also very quickly become a network airline.
Nearly half of its passengers through its Kuala Lumpur hub are transfer traffic; and that percentage is growing steadily. Many full service hub operators do not manage that level of connectivity.
This is a slightly amended version of a report that first appeared in CAPA's Airline Leader, Issue 23, 2014.
Malaysia Airlines (MAS) parent Khazanah is banking on a difficult to achieve combination of cost cuts and yield improvements as part of a recovery plan aimed at restoring profitability by the end of 2017. The new plan calls for MAS to focus primarily on its regional operation within Asia-Pacific, where there are better prospects for growth and sustainability but also extremely fierce competition.
Khazanah, which is in the process of raising its stake in MAS from 69% to 100%, has set an ambitious target of improving unit revenues by 10% to 15%. At the same time it aims to narrow the cost gap between the MAS short-haul operation and LCC competitors from 42% to about 15%.
Raising yields in a competitive marketplace dominated by price sensitive short-haul passengers will not be easy. Costs should be reduced to more competitive levels as MAS cuts 6,000 jobs - but that only solves one of the multiple challenges facing the ailing flag carrier.
At a higher level, Khazanah's contrast between subsidising the national "flag carrier" and supplying water and electricity to 200,000 homes will echo widely around a region where change in aviation market conditions has occurred much faster than some of its airlines have been able to adapt.
Malaysia Airlines (MAS) plans to increase focus on regional operations as it starts to implement capacity and job cuts as part of a new recovery plan. Cuts to the long-haul network are expected as the group’s new strategy aims to leverage partnership and its membership in oneworld.
The changes could create a void In Malaysia’s long-haul market and persuade AirAsia X to reconsider services to Europe. But it could also lead to an opening for oneworld partners such as British Airways and Finnair to enter the market, possibly as part of a joint venture with MAS.
The new strategy, which also includes a focus on premium services and improving yields, is not actually new. MAS tried to implement a similar strategy as it entered oneworld in early 2013. Then it became distracted over the last year and started pursuing ambitious growth at the expense of yields. A second attempt at the same strategy has a better chance of succeeding as this time it comes with the job cuts that MAS has needed for years. But there will still be challenges.
Malaysia Airlines (MAS) has incurred another steep loss for the quarter ending 30-Jun-2014 as already unfavourable market conditions were exacerbated by the MH370 incident. The flag carrier is expecting more steep losses in 2H2014 as it tries to recover from the unprecedented twin tragedies of MH370 and MH17.
The deep restructuring which MAS has needed for years but never was able to implement due to political and union opposition seems to finally be in sight. Capacity and job cuts are expected to be implemented over the final months of 2014, putting MAS in a stronger but still challenging position for 2015 and beyond.
Rebuilding the brand and overcoming intense competition in the Malaysian and broader Asian marketplaces, where other airlines will be eager to fill any voids left by MAS, will be immensely difficult. There is no guarantee a smaller and nimbler MAS will succeed. But continuing the prior strategy of ambitious expansion along with aggressive pricing is clearly not an option.
Indonesia AirAsia, Philippines AirAsia and new India and Japan joint ventures. The next stage begins
Part 2 of this report on the financial results of the AirAsia Group for 2Q2014 covered the – probably temporary – decline in fortunes for AirAsia's first and largest affilliate, Thai AirAsia.
Part 3 now examines the results on the outlook for the other affiliaties of the now-sprawling AirAsia group in other markets. As competition among LCCs grows in Asia, AirAsia is reaching the stage where its geographic market power can offer a unique strength. But it is not all plain sailing.
Indonesia AirAsia represents the group in that national market, where Bali/Denpasar is to become a transfer hub for Indonesia Air Asia and long-haul local JV Indonesia AirAsia X. Indonesia AirAsia is already Indonesia's largest international airline (by seats), but domestically the market competition has been intense, now partly diminished by the recent withdrawal of two competitors. Meanwhile, Philippines AirAsia has a more challenging path in what is a strenuously contested market.
As AirAsia ventures into India with AirAsia India and renews its presence in Japan's market with AirAsia Japan, the group will need its southeast Asian affiliates to maintain profitability.
AirAsia had one of its most challenging quarters in its 13-year history in 2Q2014 as overcapacity and intense competition across Southeast Asia impacted the group’s profitability. While the AirAsia Group’s Malaysian subsidiary remained profitable in 2Q2014, albeit with one of its lowest operating margins in several years, all of the group’s overseas affiliates incurred losses.
The group’s oldest and most established affiliate, Thai AirAsia (TAA), had a rare loss as political instability impacted inbound demand while domestic competition intensified. But TAA should also see an improvement in 2H2014 as Thailand’s tourism sector begins to recover and it starts to get feed from its new long-haul sister carrier, Thai AirAsiaX (TAAX).
The biggest medium and long-term challenges are in Indonesia and the Philippines, where AirAsia has been restructuring networks as part of turnaround initiatives. The group has decided to cut its fleet in the Philippines by eight aircraft while fleet growth at Indonesia AirAsia has been frozen for a second year, which will keep the airline at the 30 aircraft mark for all of 2014 and 2015. This second instalment of a three-part report on the AirAsia Group's 2Q2014 results deals with Thai AirAsia.