AirAsia X and Jetstar go head-to-head with long-haul expansion plans

AirAsia X looks to publicly list to expand long-haul fleet

AirAsia X CEO Azran Osman-Rani stated in Dec-2010 that the carrier may sell shares in Europe and Asia as early as 2011 to fund its fleet expansion. According to Mr Osman-Rani, a larger fleet would allow it to expand its route network to under-served markets. The long-haul carrier plans to triple its fleet to 35 over the next six years as it adds more international destinations. It took delivery of its ninth A330-300 aircraft on 22-Nov-2010.

AirAsia X fleet and aircraft on order

Aircraft Manufacturer	Aircraft Type	In Service	Order	Grand Total
Airbus	A330	9	17	26
	A340	2	0	2
	A350	0	10	10
Total		11	27	38

Source: Centre for Asia Pacific Aviation and OAG

The LCC plans to see a public listing in 2H2011. Mr Osman-Rani added that the European listing may be in London, while Asian shares may be sold in Hong Kong, Singapore or Malaysia. The carrier may, however, wait until 2012 for the offering as it has more than USD100 million in cash.

Expanding east and west

AirAsia X covers destinations that are more than four hours flying from Kuala Lumpur, complementing the existing AirAsia network of more than 76 destinations throughout ASEAN, China and India. Over the past month, AirAsia X has announced plans to launch services to Paris Orly and Christchurch in 2011. The LCC will launch four times weekly Kuala Lumpur-Paris Orly service on 14-Feb-2011 and four times weekly Kuala Lumpur-Christchurch service on 01-Apr-2011.

Christchurch is the LCC's 15th international destination. AirAsia Group CEO Tony Fernandes stated the carrier is aiming for a load factor of 85% on the route. Tourism New Zealand welcomed the announcement stating it expects the service to bring in 30,000 new tourists p/a.

The route has certainly been a welcome addition for the LCC, with the first day of sales for the route setting records for for the greatest numbers sold on any launch day for AirAsia X. Some 17,000 seats were sold in six hours and after three days, 43,592 seats had been sold.

Paris will meanwhile be the carrier's second European destination after London Stansted. The route will be serviced by A340 equipment with 327 passenger capacity including 18 premium seats.

The announcement of the Paris route comes after AirAsia X reportedly suspended plans to launch Manchester service, due to the UK Government's increase of its Air Passenger Duty (APD) in Nov-2010. Manchester Airport's Head of Government and Industry Affairs, Brian Conway, stated the carrier had been in talks with the airport for "many months" but chose to launch services to Paris instead due to the government tax being too high.

Also expanding in North Asia and India

AirAsia X has also been expanding into North Asia, launching services from Kuala Lumpur to Tokyo Haneda at the start of Dec-2010 and to Seoul Incheon at the start of Nov-2010. Chairman Kamarudin Meranun stated the new Japan route is crucial to AirAsia's plans to become a major player in the ASEAN region. AirAsia X is also expecting a strong performance from the route, with CEO Mr Osman-Rani stating the carrier anticipates an 80% load factor in the first 12 months of operations. Load factor for Dec-2010 surpassed 90% in late Nov-2010. It also plans to increase frequency on the route to daily in the future and is also seeking approval from the Malaysian Government to launch Kuala Lumpur-Osaka Kansai service.

Mr Osman-Rani told CAPA in Oct-2010 that AirAsia X's Seoul Incheon service is one of the carrier's strongest route launches to date. The CEO added he sees "tremendous opportunity" in the Korean market, supported by strong two-way demand, a solid e-commerce preference, minimal travel restrictions and a limited LCC presence.

See related report: AirAsia X CEO sees strong opportunities in South Korea - Exclusive CAPA interview

AirAsia X route changes: 2010-2011

Origin	Destination	Frequency		Date effective	Aircraft
		New	Total
Kuala Lumpur	Abu Dhabi	-3	0	21-Feb-10	A340
Kuala Lumpur	Hangzhou	1	7	28-Mar-10	A330-300
Kuala Lumpur	Mumbai	4	4	06-May-10	A330
Kuala Lumpur	Perth	7	14	01-Jul-10	n/a
Kuala Lumpur	Melbourne (Tullamarine)	7	14	01-Jul-10	n/a
Kuala Lumpur	Perth	5	7	01-Aug-10	n/a
Kuala Lumpur	Delhi	7	7	04-Aug-10	A330
Kuala Lumpur	Seoul Incheon	7	7	01-Nov-10	A330
Kuala Lumpur	Tokyo Haneda	3	3	09-Dec-10	A330
Kuala Lumpur	Paris Orly	4	4	14-Feb-11	A340
Kuala Lumpur	Christchurch	4	4	01-Apr-11	A330

Source: Centre for Asia Pacific Aviation and sources

Elsewhere, AirAsia X also launched daily Kuala Lumpur-Delhi service in Aug-2010, its second destination in India after Mumbai.

Still no luck in launching Sydney service

The new routes come as AirAsia X continues to fight for its right to launch services to Sydney and Jeddah. Mr Osman-Rani argues the Malaysian Government's moves to block the LCC from launching the routes are only hurting tourism arrival figures for the country. According to the CEO, Southeast Asia hubs Singapore and Bangkok already have four different airlines serving these routes. Sydney Airport has supported the carrier's plans to launch a route to the airport.

But things are looking more positive on this front, with Malaysia's Ministry of Transport (MOT) stating at the end of Oct-2010 that it plans to create a transparent and liberalised air rights allocation to develop the country's tourism and airline industries. The new framework will allow local carriers to plan and launch additional services to priority destinations more efficiently once additional air rights have been awarded. Under the framework, MOT will "identify immediate action steps to enhance connectivity for Malaysia to Sydney and Osaka as well as other priority medium-haul cities namely Shanghai, Beijing, Mumbai, Delhi, Melbourne, Seoul, Tokyo and Taipei, that have already been given approval by the ministry for operations by MAS and AirAsia X". The development of the system will include inputs from local carriers and other stakeholders.

AirAsia X is also considering launching North American services in the future, with an A350 on order to operate such a route.

Jetstar focussing on Pan-Asia strategy

Jetstar is looking a little closer to home to expand its long-haul service. Group CEO Bruce Buchanan has stated the carrier's focus at present is "looking at regional growth opportunities and new services from our growing networks from bases in Singapore, Australia, New Zealand and Vietnam" before it expands into Europe and North America.

Mr Buchanan stated in Nov-2010 that Jetstar's growth in the Asia region has been "particularly strong" but the carrier needs to increase its Asian operations by more than 20% over the next five years to maintain its market share and be a "leasing low-fares carrier in the Southeast Asia region". According to Mr Buchanan, China and Asia will have a "permanent affect on the shape and future of the Australian tourism industry". The CEO stated there is "immense growth potential in Asia", as the region's aviation market is already 15 times the size of the Australian domestic market and growing at a rate of 8% p/a, twice the rate of the rest of the world. Furthermore, LCC market share in Asia is approaching 20%, compared with a stable market share of 50% in more mature markets such as Australia and parts of North America and Europe. LCC market growth rates in Asia are expected to be approximately 20% over the next few years.

However, to gain relative share or position in the segment, Jetstar needs to be growing faster than it is at present. Mr Buchanan concluded: "So the maths is pretty straightforward. We know the challenge, which is now finding the routes and growth opportunities."

The CEO stated there are already 200 cities in China that Jetstar could serve with the burgeoning middle-class boosting travel demand and estimates 1.0 million Chinese tourists will visit Australia p/a by the middle of this decade. It now operates to six destinations in the country. He added it is important Jetstar is an early mover into the market, as a number of China's larger cities, including Shanghai and Guangzhou are already getting quite full and difficult to enter.

Jetstar's growth in the Asian market has been particularly strong, with Jetstar Asia reporting a 31.2% year-on-year improvement in passenger numbers in Oct-2010 to 238,000. Jetstar International passenger numbers were up 4.4% year-on-year for the month to 353,000.

Qantas Group passenger number growth (% change year-on-year): Oct-2009 to Oct-2010

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Source: Centre for Asia Pacific & Qantas Group

In line with this Pan-Asian expansion plan, Jetstar recently launched daily Melbourne-Singapore service on 16-Dec-2010. The carrier stated it sold more than half its 38 business-class seats and almost all economy seats on the first service. Jetstar states its fares on the route are 30% cheaper than lead-in fares from its competitors and has offered its "price-beat guarantee" to beat any competitors fare on the route by 10%.

For the Pan-Asian strategy, the LCC has expanded its two-class A330-200 fleet to eight aircraft. The carrier is basing two A330s and crew in Singapore, despite opposition from Australian pilots. Spokesperson Simon Westaway has stated basing the aircraft and crew in Singapore has been done to keep its services "relevant" to the market in which it operates.

Mr Buchanan stated Jetstar's position as the largest LCC in the region "presents an incredible opportunity". In order to succeed in Asia, he stated the carrier needs to have:

• A locally relevant product and network offering;
• A strong brand;
• A competitive cost position.

Mr Buchanan believes that in order to achieve these aims, the LCC needs to hire staff outside Australia. According to Mr Buchanan, two thirds of the carrier's business now comes from offshore and "you can't have a complete cookie cutter approach because you just won't succeed as you go into different political, religious, legal and different stages of development in each of those markets". He added it is not viable for the carrier to have an Australian cost-base in some Asian markets and "be able to compete effectively with local carriers in that marketplace". Jetstar has been facing opposition from Australian pilot unions over the hiring of pilots outside Australia for its services under cheaper wages, which they claim is simply a move to cut costs.

CCO David Koczkar said in commencing its long-anticipated A330 hub in Singapore, Jetstar will offer even greater scale to its Asian operations and achieve new passenger growth through its commercial partnerships including Qantas from its major Asian hub. It now operates to 22 Asian destinations from the Singapore base through subsidiary Jetstar Asia.

Jetstar stated it would launch more long-haul routes next year once it takes delivery of a further two A330-200s in 2H2011, which it is considering basing in Singapore. New routes will include daily Singapore-Auckland service from 17-Mar-2011, with the LCC also considering services to North Asia and southern Europe.

Jetstar fleet and aircraft on order*

Aircraft Manufacturer	Aircraft Type	In Service	Order	Grand Total
Airbus	A320	43	47	90
	A321	6		6
	A330	8	1	9
Total		57	48	105

Source: Centre for Asia Pacific Aviation and Ascend

Singapore Airlines Spokesperson Nicholas Ionides also welcomed the new competition. SIA is presently running a fare sale on the Singapore-Melbourne route.

Also in Asia, Jetstar has announced plans to launch three times weekly direct Darwin-Manila service on 09-Feb-2011. The route will link to Jetstar's services from Melbourne and Sydney to Darwin. Jetstar already operates twice daily Singapore-Manila service.

Jetstar international destinations: Dec-2010

Source: Jetstar

To further assist the Asian expansion, the LCC reached an agreement wih Japan Airlines at the end of Nov-2010 to expand their codeshare partnership to include services operated by Jetstar on routes linking Japan's two major cities - Tokyo Narita and Osaka Kansai - with the Gold Coast.

JAL has been bilateral partners with Jetstar since May-2007. JAL currently markets services operated by Jetstar that connect Tokyo Narita and Osaka Kansai with Cairns. The carriers also received approval from the International Air Services Commission (IASC) to continue codesharing on Jetstar's Cairns-Tokyo and Cairns-Osaka services for another two years, to 31-Dec-2012.

Also expanding trans-Tasman network

Jetstar has also been working to expand its trans-Tasman route network, launching twice weekly Melbourne-Queenstown service on 16-Dec-2010 and daily Melbourne-Auckland service on 13-Dec-2010, as well as twice weekly Gold Coast-Queenstown service on 17-Dec-2010. The new A320 services represent a boost in Jetstar's trans-Tasman operations by almost 20%, with an additional 3100 seats each week on the route. Jetstar's trans-Tasman network will be further expanded to a total of 10 routes with plans to launch Cairns-Auckland service in Apr-2011.

Melbourne Tullamarine Airport CEO Chris Woodruff welcomed the new Melbourne routes, stating Jetstar continues to be a key driver behind the growth of tourism in Victoria. The new services will double Jetstar's international capacity from the airport, with the carrier now operating direct to six international destinations from Tullamarine.

Jetstar has also announced plans to add two new A320 aircraft to its Queenstown, New Zealand, fleet bringing the total there to eight aircraft in 2011.

In the long to medium term, Jetstar plans to grow its fleet of almost 70 aircraft to 120 over the next five years. The LCC took delivery of its 43rd A320-200 aircraft on 26-Nov-2010. The aircraft is leased from BOC Aviation and powered by V2500 2527-A5 SelectOne engines.

Jetstar aircraft deliveries: 2010*-2016

* remainder of year
Source: Centre for Asia Pacific Aviation and Ascend

The LCC is still awaiting the arrival of the long delayed B787 Dreamliners to further expand its long-haul destinations. It has 15 on order. Jetstar had planned to deploy these aircraft on Europe routes. In Nov-2010, the carrier had expected the aircraft to arrive in mid-2012, but with further delays in production recently announced, this is likely to be pushed back again.

Tiger Airways not planning long-haul

Tiger Airways, also based in Singapore, has stated it has no plans to launch long-haul services or business-class services due to the additional costs associated with such moves. The carrier stated it instead plans to "stick to our successful model of keeping things simple" adding "the most cost-effective way to grow is by replicating profitable short-haul, single-class flights across the fast-growing Asia Pacific region".

More opportunities for long-haul low-cost expansion

There are certainly a number of opportunities for AirAsia X and Jetstar to continue to expand, with multiple destinations and regions yet to be tapped, including North Asia, North America and areas of Europe. But the challenge will be to expand to such destinations while maintaining a low and competitive cost base, while still offering low and competitive fares.

Acquiring aircraft for such operations also appears to be a key challenge for the carriers, with AirAsia X's future aircraft orders depending on the success of plans to list shares on the stock market. The delays to the B787 also pose a challenge for Jetstar, with the carrier possibly having to look at different aircraft for European and North American destinations if it wishes to launch these routes in the near future.