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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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Lion Group Malaysian affiliate Malindo Air is planning to launch services on 3-Nov-2014 to Singapore, which will become the hybrid carrier’s 10th international destination from Kuala Lumpur International Airport (KLIA). Malindo will be the fourth LCC on the KLIA-Singapore route, which will become the largest international LCC route in the world based on seat capacity.
Lion will join Asia’s other three main LCC groups – AirAsia, Jetstar and Tigerair – in competing in the busy Singapore-Kuala Lumpur market. While Malindo may find the local market challenging, particularly from a Singapore point of sales perspective given its unfamiliar brand, the carrier will also offer connections passengers beyond Kuala Lumpur with a focus on South Asia.
Kuala Lumpur-Singapore will be Malindo’s first destination with 162-seat 737-800s. Malindo is taking two 737-800s in 4Q2014, supplementing its existing jet fleet of six 180-seat 737-900ERs. The 737-800s will also be used to launch service to Bandung in Indonesia and to add a second daily flight to Bangkok.
AirAsia should see a surge in transfer traffic over the next several months as it introduces and expands its Fly-Thru transit product at additional hubs. AirAsia is evolving to become more like a network carrier, following other Asian LCC groups which have been promoting and selling connections for several years.
Bangkok Don Mueang in late 2013 became the second hub for AirAsia’s Fly-Thru product, which was initially introduced at Kuala Lumpur in 2010.
AirAsia introduced the transit product at Jakarta in Sep-2014 and is planning to extend Fly-Thru to Bali and Kota Kinabalu by the end of 2014.
The launch of long-haul affiliates in Indonesia and Thailand is driving much of the growth. But there is also growing demand for short-haul to short-haul connections.
AirAsia X SWOT: challenging times but first mover advantage and fleet flexibility are huge strengths
AirAsia X has had a challenging year. Ambitious capacity expansion has come just as market conditions deteriorated, impacting yields and profitability.
AirAsia X’s operating margin slipped to a negative 19% in 2Q2014. It has incurred this year some of the largest losses among Southeast Asian airlines, a sector which has generally underperformed.
But the last year also has been about exploiting opportunities and pursuing strategic growth that improves AirAsia X’s long-term position. The lack of profitability has been a major weakness but the group has an impressive list of strengths and opportunities.
The Lion Air Group has started to slow its capacity expansion in the intensely competitive Southeast Asian market, joining competitors in adjusting fleet plans in response to overcapacity and challenging market conditions.
The group, which consists of five airlines in three Southeast Asian countries, was initially planning to add at least 32 aircraft in 2H2014. An adjustment of three to six aircraft has been pursued by using its leasing subsidiary to start placing aircraft outside the group. Lion also has fallen behind its 3Q2014 target by several aircraft but at least for now expects to make it up in 4Q2014.
The group will again not end up placing in Southeast Asia all 60 aircraft slated for delivery in 2015 as its leasing subsidiary Transportation Partners further ramps up third party activity. But Lion is still on track to expand its fleet at a much faster rate than rival groups, enabling it to overtake or widen the gap with competitors.
Southeast Asian airlines have faced extremely challenging market conditions in 2014, resulting in an alarming amount of red ink. Of the 17 airlines in Southeast Asia that report earnings only four posted operating profits in 1H2014 compared to 12 in 1H2013.
Among the nearly 50 airlines based in Southeast Asia, excluding small regional and charter operators, approximately 80% were not profitable in 1H2014. Losses are likely to continue through at least 3Q2014 but there are indications market conditions will start to improve by 4Q2014 or 1H2015.
Several Southeast Asian airlines have responded to overcapacity by and cutting capacity or slowing their expansion. Markets that have seen political and economic instability are also starting to stabilise.
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.