Long-haul budget airlines here to stay: AirAsia X chief

SEPANG (Nov 27, 2011): It has been nearly four years since AirAsia X Sdn Bhd launched its first international destination — the Gold Coast, Australia — but CEO Azran Osman-Rani said many remain skeptical about the viability of the long-haul, low-cost business model.

"Many people, by this I mean investors who are already investing in other airline stocks, are still skeptical about the long-haul, low-cost model (because) they don't understand it. We probably have to wait until our initial public offering (IPO) (to convince them) as I am sure a lot of people would want to study our financial numbers," he told SunBiz in an interview.

"As with all things, people who are skeptical and who wait, ultimately are the followers. If you want to lead and to blaze a new trail and be a pioneer, you don't wait until everybody agrees on something because by then, the leaders and the pioneers have already moved ahead. So, we will not let that stop or slow us down," said Azran.

"But our numbers will tell that we can indeed achieve a significantly lower unit cost; we can indeed fill up our planes; our seat load factors are higher than that of full-service airlines and we are still able to deliver a strong on-time performance. "For example, over 90% of our scheduled flights arrived on time between January and June this year compared with Hong Kong's Cathay Pacific Airways' on-time performance of 84%."

The airline has also attracted investors in the likes of Virgin's Richard Branson who holds a 10% stake as well as Japanese leasing firm Orix Corp and Bahrain-based Manara Consortium, which have an 11% stake each. Under the recent Malaysia Airlines (MAS)-AirAsia share-swap deal, Khazanah Nasional Bhd is also expected to take up 10% of the shares in AirAsia X before its listing.

Additionally, the airline has managed to attract financiers for its aircraft despite not having a track record. "All of our bank financing, not a single one has been on the back of any (parent company) AirAsia guarantee. They have all been standalone financing," said Azran. "We have also not received any subsidy from AirAsia which is a public-listed company, and under Malaysian laws they cannot provide financial assistance to another company, especially a related-party company."

Still, news that Singapore Airlines (SIA) will start its new long-haul budget carrier called Scoot next year brings to the fore some of the concerns about the viability of the business model.

On the oncoming competition, Azran said: "The dynamics are going to be similar to how Tiger Airways first entered the short-haul low-cost carrier segment. People then were questioning whether AirAsia was going to survive. Fast forward five years, and AirAsia is even bigger and the market has grown. "The main thing for us is to ensure that we keep growing as well, and we obviously have an advantage in terms of size, experience, a much bigger network, brand new planes and our brand is more established."

He added that SIA's new subsidiary will not be in direct competition with AirAsia X as the former will be based in Singapore which means they are not going to be flying on the same city pairs. Amidst the roadblocks and brick walls, Azran has no plans of giving up.

"Even at the start of AirAsia X, we knew there was so much skepticism. I took this job because I knew the fun was going to be winning people over, sooner rather than later. We never expected to be given a red carpet treatment or to have things given to us," he said. "While we didn't expect that (more obstacles coming from within the local industry rather than international), it has made us stronger. The more difficult people try to make it for us, the more creative we become or more persistent."

-thesundaily.