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AirAsia nears 50 million annual passenger/200 aircraft milestones, having transformed Asian aviation

AirAsia ended 2014 having carried about 50 million annual passengers and with a fleet of nearly 200 aircraft across its portfolio of eight airlines. Nearly 280 million passengers have flown on AirAsia since its launch at the end of 2001.

AirAsia has had perhaps the most remarkable run by any airline in history and almost single-handedly shaken up Asia’s aviation industry. The LCC penetration rate within Southeast Asia is now nearly 60% compared to near zero in 2001.

AirAsia becomes the first airline brand in Asia outside China to carry 50 million passengers in a year. As a yardstick of its global scale, only 10 airline brands globally are currently in the 50 million passenger club.

2014 was one of AirAsia’s most difficult years yet

But 2014 was one of AirAsia’s most challenging years. Total passenger traffic across all AirAsia branded carriers increased by about 9% in 2014, the smallest growth figure in its history.

Competition has been intense and conditions across AirAsia’s three main markets of Malaysia, Indonesia and Thailand have been unfavourable. Profits at its largest carrier, Malaysia AirAsia, have slipped while all the other carriers in the short-haul AirAsia Group and medium/long-haul AirAsia X Group have been in the red.

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In the first nine months of the year the combined fleet grew by 15% from 170 aircraft to 195 aircraft. But passenger traffic and seat capacity growth did not keep up. Average aircraft utilisation rates slipped significantly as AirAsia had to idle several A320s and adjust capacity levels in response to the challenging market conditions.

The year was to end on an upbeat note with the planned 26-Dec-2014 launch of the ninth AirAsia-branded carrier, Indonesia AirAsia X (IAAX). But IAAX was unable to commence operations and 2014 instead ended on a sombre note with the 28-Dec-2014 crash of an Indonesia AirAsia (IAA) A320 as it was en route from Surabaya to Singapore. It was the first major incident for AirAsia, which had previously transported nearly 280 million passengers across all affiliates without a single fatality.

AirAsia nears the 50 million annual passengers milestone

For the 12 months ending 30-Sep-2014, AirAsia-branded carriers flew 49.5 million passengers, including 45.3 million across the short-haul network and 4.2 million at AirAsia X. CAPA estimates that for calendar year 2014 AirAsia transported approximately 50 million passengers across all eight of the airlines that operate under the AirAsia brand, including about 45.6 million passengers across the six short-haul carriers and between 4.4 million and 4.5 million across the two widebody operators.

In Nov-2014 the AirAsia Group reported passenger traffic for 3Q2014 of 10.7 million while the AirAsia X Group reported passenger traffic of slightly over 1 million. For the nine months ending 30-Sep-2014 total passenger traffic was slightly over 36.7 million, including about 33.5 million across the six AirAsia-branded A320 operators and about 3.2 million across the two widebody operators.

That brought the total number of passengers carried on AirAsia-branded carriers since the launch of operations at the end of 2001 to about 265 million passengers (see chart below).

AirAsia passenger (in millions): 2002 to 2014

  AirAsia AirAsia X Total AirAsia
2002 1.041    1.041
2003 2.094    2.094
2004 4.868    4.868
2005 7.370    7.370
2006 12.107    12.107
2007 15.335  0.015  15.350
2008 18.349  0.270  18.619
2009 22.703  1.034  23.737
2010 25,681  1.921  27.602
2011 29.860  2.526  32.386
2012 34.138  2.581  36.719
2013 42.614  3.161  45.775
9M2014 33.509  3.235  36.744
TOTAL at 30-Sep-2014
(excl. AirAsia Japan*)
249.669  14.743  264.412
TOTAL (incl. Japan) 250.619  14.743 265.362
Estimate for 4Q2014 12.1   1.2 13.3

Estimated TOTAL

as of 31-Dec-2014

262.7  15.9 278.7

Official passenger figures for 4Q2014 will not be released until Feb-2015. The AirAsia Group reports quarterly traffic figures that include all six existing AirAsia-branded short-haul carriers:

AirAsia X also reports traffic figures quarterly but for now only includes Malaysia AirAsia X in its reports. AirAsia X reported 3.143 million passengers for 9M2014 while TAAX, which launched on 17-Jun-2014, flew about 9,000 passengers in 2Q2014 and 83,400 passengers in 3Q2014. The TAAX figure has been added to the AirAsia X 9M2013 figure in the above chart and TAAX is included in the 4Q2014 estimate. TAAX carried about 200,000 passengers in 2014.

(Note: AirAsia and AirAsia X reported passenger figures for 2014 in Feb-2015, about one month after this report was first published. The 50 million mark milestone was achieved as a total of 50.06 million passengers were carried by AirAsia-branded carriers.)

There are currently only 10 airline brands worldwide which carry 50 million passengers annually

If AirAsia fell slightly short of the 50 million mark in 2014 it will certainly be reached in 2015. There are currently only 10 airline brands in the 50 million club, including four in the US (American, Delta, Southwest and United), three in China (Air China, China Eastern and China Southern) and three in Europe (easyJet, Lufthansa and Ryanair).

Along with AirAsia, Emirates Airline, Turkish Airlines and All Nippon Airways (ANA) are also closing in on 50 million passengers. Emirates announced on 29-Dec-2014 that it will end calendar 2014 with 45 million passengers, which should bring it to the 50 million milestone in 2015.

It could be a couple of years before ANA reaches the milestone given its relatively slow growth. The ANA Group carried 46 million passengers in the fiscal year ending 31-Mar-2014 but it will fall short of the 50 million mark in its current fiscal year because it has only been growing passenger numbers this year at a 1% to 2% clip. As ANA is not quite at 50 million annual passengers, AirAsia will become the first Asian airline brand to reach the milestone outside the main Chinese market.

As a group Turkish exceeded the 50 million mark for the first time in 2014 with 54.7 million passengers transported. But this figure include its budget brand AnadoluJet. The Turkish Airlines brand alone is likely another year away from reaching 50 million annual passengers. (Turkish does not report separate figures for AnadoluJet as the LCC operates as a unit under Turkish rather than as a subsidiary. The AnadoluJet fleet currently consists of 26 aircraft, according to the AnadoluJet website.)

Based on group figures, Air France-KLM, HNA, IAG and LATAM are also now in the 50 million annual passenger club. But none of their individual brands (or airline subsidiaries) is at 50 million.

AirAsia has reached 50 million annual passengers faster than Southwest, Ryanair or easyJet

Based on a pure group definition, AirAsia is not yet at 50 million annual passengers because technically it is two groups (AirAsia and AirAsia X) with separate ownership structures and stock listings, although there are some common shareholders, along with the similar branding. From a marketing, commercial and branding standpoint it is widely recognised as linked, with the brand leverage being conspicuous. For example there is a single website. This is a purely marketing feature, while for all operational activities each of the airlines is separate.

Most significantly AirAsia will be only the fourth LCC brand in the 50 million club, joining easyJet, Ryanair and Southwest. AirAsia has been the LCC pioneer in Asia, just as Southwest was the pioneer in the US while Ryanair and later easyJet were the pioneers in Europe.

AirAsia, along with the Lion Group and a handful of smaller LCCs, has brought low fares to Southeast Asia, stimulating demand in an emerging market with a fast-growing middle class. AirAsia and Lion each now account for about 15% of total seat capacity in Southeast Asia - an unthinkable figure a decade ago. 

AirAsia reaches the 50 million annual passenger mark much faster than its LCC peers in other regions. Southwest launched in 1971 and carried 50 million passengers for the first time in 1997, when it ended the calendar year with 50.4 million passengers and 261 aircraft. Ryanair launched in 1985 and carried 50 million passengers for the first time in 2008, when it ended the fiscal year with 50.9 million passengers and a fleet of 163 aircraft. easyJet launched in 1995 and surpassed the 50 million mark only in 2011, when it carried 55.5 million passengers for the calendar year. (Sources: swamedia.com, ryanair.com and easyjet.com)

The current iteration of AirAsia launched 13 years ago after Tony Fernandes purchased the failing airline on 8-Dec-2001 for a token 1 Malaysian Ringgit and converted it into an LCC. It reached 10 million annual passengers after only five years, in 2006. Passenger traffic has more than doubled over the last five years. Back in 2009 there were 23.8 million passengers carried across all AirAsia-branded carriers.

AirAsia's multiple jurisdiction JV operations involve a multi-layered regulatory overview

AirAsia's growth profile is made more remarkable as such a large proportion of the group's activity - nearly 60% - is in international markets. This achievement is unique to Asia. Unlike its predecessors - Southwest in the protected US domestic market and easyJet and Ryanair within the open market of the EU - AirAsia has had to confront the vagaries and protectionism of the international bilateral system in order to expand beyond its home market.

To enable this expansion has meant establishing group members in other countries, with joint venture enterprises, in some ways similar to franchising the brand. Each national group member must have majority local ownership; there are two aspects to this - (i) to comply with the local ownership rules so it can operate domestically there and (ii) to conform with bilateral national ownership and control provisions, so that it can legally fly internationally to and from that country.

Each airline is registered and operates under the operating licence of the particular country. In these conditions each of the airline JVs has had to deal with the often-conflicting licensing and operating regimes of each national regulatory authority.

In this respect AirAsia was very quickly motivated to introduce steps to convince each government to standardise and rationalise their national variances. Inevitably this is a continuing process and one which helps add transparency and, in turn, enhance safety levels across the region.

This also highlights an important feature about this new breed of trans-border joint venture airlines - including, in Asia, the Tigerair, Jetstar, Scoot, Lion, Spring and VietJet groups. More are in the making. These airlines have one key thing in common: they are designed to be pan-Asian brands.

That is, as a group they are not confined to a national jurisdiction like the traditional "flag carrier". Any airline branded in this way, no matter which national jurisdiction it operates in, carries with it the weight of all entities. This helps explain for example why it is AirAsia Group CEO Tony Fernandes who is fronting the response to relatives and friends and to media - not the majority Indonesian owners. Logically too, this creates a significant pressure on the central brand to ensure its standards are as similar - and as high - as possible across each airline.

In addition to this there is the impact of being subject to multiple regulatory jurisdictions. It is a regulatory feature which is often overlooked and which has been raised for example in the Norwegian Air debate between the US and the EU.

Part of the US argument there is that Norwegian cannot/should not be able to establish an Irish subsidiary to operate to the US. Fuelled mainly by pilot union opposition, the underlying cause is simply protectionist, to prevent a lower cost operator entering the North Atlantic market. One argument raised - albeit largely discredited now - was that by registering "Norwegian International" in Ireland the airline would avoid adequate safety and related regulatory oversight. The Irish authorities, one of the more diligent and competent in the world (as well as being the responsible regulator for Europe's largest airline, Ryanair), strongly disagreed - as did Norwegian's other oversight body, the Norwegian Civil Aviation Authority.

Because they are required to operate with local Air Operators Certificates and associated licenses in more than one jurisdiction, Asia's cross border JV airlines are arguably more stringently regulated than any others in the region - in AirAsia's case, initially by the Malaysian authorities, but also by every other jurisdiction in which its JVs operate. This can only be a positive development, both ensuring multiple oversight and, in the process, helping standardise the variable, and usually unnecessarily different, rules applied in neighbouring countries.

The AirAsia brand now includes eight airlines

Mr Fernandes started with two 737s operating in the Malaysian domestic market at the end of 2001.The second AirAsia-branded airline, Thai AirAsia was launched in 2003. Indonesia AirAsia followed in 2005 and AirAsia X in 2007.

After nearly five years of no start-up activity, Philippines AirAsia was launched in 2012. Another Philippine carrier, Zest Airways, was acquired in 2013 and was rebranded Zest AirAsia. AirAsia India and the first affiliate under the AirAsia X Group, Thai AirAsia X, launched in Jun-2014.

The eight carriers have a total of 17 bases across five countries. Two of these bases (three once IAAX launches) have both narrowbody and widebody aircraft - Kuala Lumpur and Bangkok. Bali will become the third base with both narrowbody and widebody aircraft once IAAX launches.

IAAX secured an air operator's certificate from Indonesian authorities in Sep-2014 and began ticket sales in late Oct-2014 for five weekly flights from Bali to Melbourne commencing 26-Dec-2014. As reported by Australian media on 27-Dec-2014, IAAX is still waiting on Australian approvals and in the meantime AirAsia has been re-routing passengers that were ticketed on the new Bali-Melbourne non-stops via Kuala Lumpur. IAA, which serves Darwin and Perth in Australia, and IAAX are separate carriers but have the same Indonesian owners.

The six AirAsia-branded short-haul carriers ended 3Q2014 with a combined fleet of 171 A320s while the three medium/long-haul carriers ended 3Q2014 with 24 Airbus widebody aircraft. The combined fleet reached the 100-aircraft milestone in 2010.

AirAsia aircraft numbers: 2002 to 2014

  AirAsia* AirAsia X Total AirAsia
30-Jun-2002    3    3
30-Jun-2003 7    7
30-Jun-2004 17    17
30-Jun-2005 27    27
30-Jun-2006 42    42
30-Jun-2007 54    54
31-Dec-2008 75 3  78
31-Dec-2009 84  92
31-Dec-2010 90 11   101
31-Dec-2011 96 11   107
31-Dec-2012 115  124
31-Dec-2013 154 16   170
30-Sep-2014 171 24   195
31-Dec-2014^ 168 26 194

AirAsia ends 2014 with 194 aircraft

The AirAsia X Group ended 2014 with 26 aircraft, including 23 A330-300s, one A330-200 and two A340-300s.

As of Nov-2014, AirAsia had been planning to end 2014 with a fleet of 169 A320s. This is two less than its end 3Q2014 figure of 171 aircraft and three less than its Nov-2014 figure of 172 aircraft because of aircraft disposals.

AirAsia A320 fleet by base: as of Nov-2014

Due to the tragic 28-Dec-2014 incident the group ended the year with one less aircraft, or 168 A320s. This aircraft was one of 30 A320s operated by Indonesia AirAsia and was one of five A320s based in Surabaya.

According to the CAPA Fleet Database, there are currently 168 A320s in service across all the AirAsia affiliates including 81 in Malaysia, 41 in Thailand, 29 in Indonesia, 14 in the Philippines and three in India. The size of the Malaysia fleet has come down slightly over the last few months but this was expected as Malaysia AirAsia previously had several idle aircraft. Some of the idle aircraft have been sold and some have been reactivated in recent months, resulting in an increase in the number of aircraft used although the size of the fleet has been reduced.

As CAPA previously outlined, AirAsia has deferred 20 of the 29 A320s originally slated for delivery in 2015 and has also sold four of its purchase slots. As a result it now plans to add only five A320s in 2015. It is expected to be another year of relatively modest traffic growth compared to normal AirAsia standards. But there will be opportunities to add some capacity by increasing utilisation rates because the group in 2014 significantly reduced aircraft utilisation as it adjusted capacity to the challenging market conditions.

AirAsia X meanwhile plans to take six A330-300s in 2015 but the fleet will only grow by three aircraft as the two A340-300s and one A330-200 are returned. The additional aircraft will be used to expand the new operations in Indonesia and Thailand.

AirAsia's fleet is poised to surpass 200 aircraft in 2015

The combined AirAsia fleet should reach the 200 aircraft milestone in 2015. Based on the current fleet plans for the AirAsia and AirAsia X groups, 2015 will end with 202 aircraft, including 173 at AirAsia and 29 at AirAsia X. This should be achievable given the fleet is already at 194 aircraft and AirAsia has already deferred most of its A320 deliveries. More deferrals would be difficult to negotiate at this late stage and unlikely anyway given the current expansion plan for 2015 is already very conservative.

Reaching 200 aircraft will be another milestone achievement for AirAsia as only about 15 passenger airline groups currently operate over 200 aircraft. AirAsia will again be the first Asian airline brand in this club outside China.

AirAsia has had a remarkable 13 years, becoming one of Asia’s most recognised brands and expanding at an unprecedented rate. 2014 may go down as its sourest year yet but AirAsia will certainly persist.

In changing the way people fly in Asia, it has become an institution and a market leader in the region. With an order book of over 400 aircraft and a leading position in one of the world’s fastest growing regions, the future remains bright.

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