08-Aug-2018 8:17 PM

Asia LCC widebody fleet: AirAsia X will triple in size in 10 years

Analysis

Asia's LCC widebody fleet is poised to double in size, at least, over the next decade, driven primarily by expansion at AirAsia X. The AirAsia X Group has committed to acquiring 100 A330-900neos for delivery from 4Q2019 to 2028.

AirAsia X already accounts for 34% of the widebody aircraft operated by Asia Pacific LCCs. The 100 aircraft AirAsia X has ordered is a commitment more than three times the size of its current fleet and larger than the current widebody fleet of all Asia Pacific LCCs combined.

AirAsia X will continue to dominate this segment as other Asia Pacific widebody LCCs are pursuing relatively modest expansion. Rather than adding new generation widebody aircraft, several of the region's LCC groups are focusing more on new generation narrowbody aircraft, which offer significantly improved range and density, for their expansion.

Summary

AirAsia X has increased its A330-900neo order from 66 to 100 aircraft and has recommitted to acquiring the type after two years of uncertainty and threats to order 787s instead.
The order ensures AirAsia X will maintain its position as the largest LCC widebody operator in Asia Pacific.
There are currently 12 LCCs in Asia Pacific operating 92 widebody aircraft, including 31 aircraft at three airlines under the AirAsia X Group.
AirAsia X plans to take delivery of its first A330-900neo in 4Q2019 and in the interim is adding used A330-300ceos in a less than ideal lower density configuration.
AirAsia X plans to resume flights to Europe using a new higher gross weight variant of the A330-900neo.

Growth of the Asia-Pacific LCC widebody fleet will be examined at two CAPA summits later this year:
- the inaugural CAPA Long Haul Low Cost Global Summit in Seville on 4/5-Oct-2018; and
- the CAPA Asia Aviation Summit in Singapore on 8/9-Nov-2018.

Asia Pacific LCC widebody fleet approaches 100 aircraft

There are currently 92 widebody aircraft in operation at Asia Pacific-based LCCs, according to the CAPA Fleet Database. The fleet should reach 100 aircraft by early 2019 and 200 aircraft within the next decade.

There are currently 12 LCC widebody operators in Asia Pacific although nine have small fleets with less than 10 aircraft. Malaysia AirAsia X has a leading 22 aircraft and as a group AirAsia X has a fleet of 31 aircraft, accounting for 34% of the total.

Singapore's Scoot is the second largest operator with a widebody fleet of 18 aircraft. When including its Thailand-based joint venture, NokScoot, the Scoot brand has 23 widebody aircraft, accounting for 25% of the total.

Asia Pacific widebody LCC fleet by operator: as of 6-Aug-2018

Rank	Airline	Code	Number of widebody aircraft
1	AirAsia X	D7	22
2	Scoot	TR	18
3	Jetstar Airways	JQ	11
4	Beijing Capital Airlines	JD	8
5	Cebu Pacific	5J	8
6	Thai AirAsia X	XJ	7
7	NokScoot	XW	5
8	Lion Air	JT	4
9	Jin Air	LJ	4
10	Thai Lion Air	SL	3
11	Indonesia AirAsia X	XT	2
12	Lucky Air	8L	1

AirAsia X recommits to the A330neo and increases its order

AirAsia X is eager to retain its market leading position in the medium/long haul low cost segment. On 19-Jul-2018 the group increased its order for A330-900neos from 66 to 100 aircraft.

AirAsia X made an initial commitment for 50 aircraft when the A330neo programme was launched in Jul-2014. It increased the commitment to 56 aircraft by the end of 2014, and to 66 aircraft in 2015, by converting its final 16 A330-300ceo orders to A330-900neos.

AirAsia X had originally planned to take delivery of A330-900neos from 2018 to 2026. However, initial deliveries were postponed over the past two years as the group contemplated waiting for the higher gross weight variant.

Over the past few months AirAsia X has also renegotiated its original deal with Airbus, likely securing a better price and the higher gross weight variant (which was not available when it first placed the order in 2014) for the initial 66 aircraft in exchange for committing to another 34 aircraft. Airbus essentially had to offer its largest A330neo customer a better deal than in 2014 to persuade AirAsia X not to accept a rival offer from Boeing for 787s, which would have been a brutal setback for the struggling A330neo programme.

AirAsia X to take 100 A330neos over a nine-year period

AirAsia X now expects to take delivery of its first A330-900neos in Oct-2019, according to a 20-Jul-2018 stock exchange filing. The last of the now 100 aircraft on order is slated to be delivered in 2H2028.

AirAsia X is planning to phase out its entire A330-300ceo fleet by the time it takes its 100th A330-900neo. This will result in AirAsia X's fleet more than tripling in size from the 31 aircraft the group currently operates.

The AirAsia X Group plans to expand its A330-300ceo fleet to 36 aircraft by the end of 2018 and to 40 aircraft by the time it takes its first A330-900neo in Oct-2019. Assuming no deferrals, the fleet will grow by an average of six to seven aircraft per year over the next decade (from end 2018 to end 2028).

AirAsia X has highly flexible fleet plan

While the new fleet plan is ambitious, AirAsia X has significant flexibility to adjust the delivery schedule depending on market conditions - as it has done previously with A330-300ceos. The group also has the flexibility to adjust the way it allocates the fleet among its three AOCs, depending on conditions in its three home markets - Malaysia, Thailand and Indonesia.

Malaysia AirAsia X currently operates 22 aircraft and is slated to have 25 aircraft by the end of 2018. Thailand AirAsia X currently operates seven aircraft and plans to end the year with nine aircraft. Indonesia AirAsia X has only two aircraft.

The AirAsia Group could potentially launch widebody operations in other markets, such as India and Japan. However, there is also the possibility of ceasing widebody operations in Indonesia. Indonesia AirAsia X has struggled, and the group is not allocating the affiliate more A330s until it stabilises and becomes profitable.

The operations in Malaysia and Thailand are both now profitable. Malaysia AirAsia X turned a net profit of MYR58 million (USD14 million) in 1Q2018, and Thai AirAsia X turned a net profit of USD22 million. Indonesia AirAsia X incurred an operating loss of USD2 million in 1Q2018.

AirAsia X resumes fleet growth

The Malaysian operation grew ASKs by 19% in 2017 and by another 10% in 1Q2018. The higher capacity levels were driven by utilisation improvements, since the group did not add any aircraft in 2017 or 1Q2018.

In 2Q2018 the group added its first aircraft in two years. This aircraft, which is now operating in Thailand, is a 12-year old A330-300ceo aircraft that was previously operated by China Eastern.

All five of the aircraft AirAsia X is committed to adding in 2H2018 and the four A330-300ceos in the tentative fleet plan for 2019 are of a similar vintage. AirAsia X is leasing the six aircraft being added this year for a term of six years. They are expected to be returned in 2024 and replaced with A330-900neos.

Of the 31 A330-300ceos currently in the group's fleet, 24 were delivered as new aircraft. AirAsia X took delivery of its first A330-300 in 2009, or two years after it launched operations using A340s. These aircraft are now between two and nine years old.

AirAsia X Group fleet summary: as of 6-Aug-2018

Aircraft	In service	On order
Airbus A330-300E	24	0
Airbus A330-300X	7	0
Airbus A330-900neo	0	100
Airbus A350-900XWB	0	10
Total:	31	110

The other seven aircraft, including the aircraft that was delivered in 2Q2018, are older aircraft that were manufactured in 2005 and 2006. AirAsia X plans to take nine similar vintage aircraft over the next year for a total of 16, compared to the 24 newer aircraft. Most of AirAsia X's fleet (around 70%) are on operating leases, giving the group the flexibility to return aircraft as A330-900neos are delivered.

Its average fleet age is currently seven years, which will increase over the next year as the secondhand A330-300ceos are added. However, the fleet age will be reduced as the A330-900neos are delivered. At the end of 2028, AirAsia X will again have a very young fleet, with all aircraft less than 10 years old.

AirAsia X no longer has a need for A350s

In addition to the order for 100 A330-900neos, Airbus still has 10 A350-900 orders from AirAsia X on its books. AirAsia X initially ordered these aircraft in 2009, when the aircraft was known as the A350 XWB.

The group has repeatedly delayed its A350 deliveries and has always maintained the option of cancelling the order without penalty. These aircraft will likely now be formally cancelled as AirAsia X intends to use the A330-900neo to resume services from Kuala Lumpur to London and on other long haul routes that are not in range of its existing A330-300ceo fleet. As the A330-900neo is now capable of operating all existing and planned future routes, there is no need to operate a second aircraft type.

Most of the A330-900neo fleet will be used on existing and new routes within Asia Pacific, while a small portion of the fleet will be used for long haul flights to Europe and North America. AirAsia X's longest current route is eight hours.

AirAsia X intends to take all 100 A350-900neos with a maximum takeoff weight (MTOW) of 251 tonnes. The A350-900neo is entering service later this year with an MTOW of 241 tonnes. The upgraded 251-tonne variant is now slated to enter service in 2020.

It is not yet clear if Airbus will be able to accelerate the date of the 251-tonne variant's entry into service to meet AirAsia X's stated objective of first delivery in Oct-2019. If Airbus is unable to accelerate the schedule, AirAsia X will have to delay first delivery until 2020 or compromise and initially take a 241-tonne aircraft. Technically it only needs a 251-tonne aircraft for long haul routes, which AirAsia X is not expecting to launch until at least 2020.

AirAsia X to expand premium cabin on A330-900neo

As CAPA revealed in a Nov-2017 analysis report, AirAsia X has opted for a 389-seat two class configuration for its initial batch of A330-900neos. This report also revealed that AirAsia X was planning to add secondhand A330-300ceos in 2018 in all-economy configuration.

AirAsia X's first A330-900neos aircraft will have a premium cabin consisting of 24 seats (six rows), which is double the size of the current 12-seat (two rows) premium cabin on its A330-300ceos. AirAsia X believes it can sell the larger premium cabin on London and other long haul routes - and potentially some of its existing medium haul routes, where there is strong demand.

AirAsia X is keen to resume Kuala Lumpur-London, which it dropped along with Kuala Lumpur-Paris in 2012. It is also considering destinations in Western Europe and the mainland US. Mainland US destinations would be served one-stop via Japan; AirAsia X already serves Honolulu via Osaka Kansai.

Some of AirAsia X's future A330-900neos could have a smaller premium cabin of 12 seats and some will likely be in all-economy configuration. The A330-900-neo is being certified to carry up to 440 passengers, although such a high density configuration would not be able to operate 14-hour routes.

All-economy A330-900neos would replace the all-economy A330-300ceos, which AirAsia X intends to start operating later this year on routes where there is limited premium demand. These aircraft will be operated for six years in a less than ideal 367-seat all-economy configuration as they are not fitted with the large doors that are required to carry more than 367 passengers.

AirAsia X operates low density A330-300ceos

Currently, the first of the planned all-economy A330-300ceos is temporarily operating in a 300-seat two class configuration. This configuration, which was inherited from China Eastern (the previous operator), consists of 262 economy seats in 2x4x2 configuration and 38 business seats in a 2x2x2 configuration. AirAsia X's A330s are normally configured in the typical LCC 3x3x3 configuration in economy, and its premium seats are in 2x2x2 configuration.

Later this year, AirAsia X is planning to reconfigure this aircraft to an all-economy configuration of 367 economy seats in a 3x3x3 configuration. Thai AirAsia X for the first few months was using this aircraft to operate one of three daily Bangkok Don Mueang-Tokyo Narita flights but shifted this aircraft in early Aug-2018 to the Bangkok Don Mueang-Osaka Kansai route.

AirAsia X is planning to operate an all economy 367-seat A330-300 on one of its two Bangkok-Osaka flights from 1-Dec-2018. It is also planning to use all economy 367-seat A330-300s on one of its three Bangkok-Tokyo flights from 15-Nov-2018 and on the Bangkok-Nagoya route from 1-Feb-2019 (according to the AirAsia booking engine). At least for now these will be the initial three all economy routes from Thailand.

Thai AirAsia X does not currently serve Nagoya. It is launching Bangkok-Nagoya on 30-Oct-2018 and will initially use a not yet delivered 285-seat A330-300 which was previously operated by Singapore Airlines (SIA). This aircraft will be used in the original SIA configuration (255 economy seats in 2x4x2 configuration and 30 angle flat seats in business) for about three months before it is reconfigured.

While Thai AirAsia X will temporarily operate two A330-300s in their original FSC configuration, the other four A330-300s being added later this year by AirAsia X (including the three for Malaysia) will likely be retrofitted prior to entering service. Temporarily operating the two aircraft prior to retrofitting them is hardly ideal given the low density configuration and the FSC seats, which makes it hard from a consumer communication perspective.

AirAsia X will also have to manage product inconsistencies for the next six years because all the A330-300ceos being added this year and next year will have significantly more legroom than the rest of its fleet. These aircraft after they are retrofitted will have 43 rows of economy seats in the typical AirAsia 3x3x3 configuration. In comparison, Cebu Pacific has 52 rows in its all economy A330-300s and Lion Air has 53 rows in its all economy A330-300s (both also have a 3x3x3 configuration).

AirAsia X pursues faster growth than long haul low cost peers

While the average annual rate of fleet growth will be less than 20%, capacity could grow by more than 20% when the use of higher density aircraft is factored in. The rapid growth should easily enable AirAsia X to maintain its position as the largest airline in the medium/long haul segment.

The other nine widebody LCC operators in Asia Pacific combined currently have only 10 widebody aircraft on order, including five at Beijing Capital, three at Lucky and two at Scoot. More widebody orders are likely, and some of these airlines will also add secondhand aircraft.

For example, Lion Air and Thai Lion both plan to add two A330-900neos in 2019, although these commitments have not yet been disclosed by Airbus. As CAPA recently highlighted, the Lion Group will take delivery of its first A330-900neo before AirAsia X and therefore become the first Asian operator of the type.

However, most LCC groups in Asia are generally planning relatively modest widebody expansion. The focus at most of LCC groups is on expanding their narrowbody fleets, including the addition of new long range narrowbody aircraft.

AirAsia is also adding new generation narrrowbody aircraft, including A321neos, but at least for now it intends to continue operating narrowbody aircraft only on routes of four hours or less. Other LCC groups in Asia Pacific are taking a different approach, and intend to use narrowbody aircraft on longer routes.

For example, Jetstar, which in 2006 became the first LCC in Asia Pacific to operate widebody aircraft, plans to use A321neoLRs on some of its existing 787 routes. This will free up 787s for potential new long haul routes and has led Jetstar to decide that it does not have a need to expand its widebody fleet.

Cebu Pacific and Scoot are also planning to use A321neos to operate longer narrowbody routes, reducing the need for widebody expansion.

AirAsia X will therefore easily be able to maintain its position as the largest widebody LCC operator in Asia. Its share of the total widebody Asia Pacific LCC fleet could potentially reach 50% as it expands its fleet to 100 aircraft over the next decade.