London calling again

AAX also plans to scale the Hawaiian skies and fly to Honolulu via Osaka,
a destination no low-cost carrier from Asia has flown to.

AirAsia X to fly to London and new destinations in Japan, Mideast

After a three-year hiatus, London is back again on AirAsia X Bhd’s (AAX) radar, as is a new destination in Japan and another in the Middle East.

AAX also plans to scale the Hawaiian skies and fly into Honolulu via Osaka, a destination no low-cost carrier from Asia has flown to, although premium-carrier Philippine Airlines does fly there from Manila.

Its acting chief executive officer (CEO) Benyamin Ismail - who just returned from a trip to Washington to find out what it takes to fly into Honolulu - says it’s a proposition that will work, even though aviation experts believe they will have to rely on Japanese and Hawaiian traffic to operate the route and getting travellers from South-East Asia to fly into Hawaii will be a bonus.

“It is a big opportunity for us in Asia. There is demand, and from Osaka, it is a high-season route as getting a seat can be difficult. Airfares from Honolulu to Japan are good and that will give us (enough room) to price our fares (appropriately),’’ Benyamin says.

AAX plans to begin flying to Hawaii via Osaka this year, and since it has fifth freedom rights into the US, it can pick up passengers from Osaka.

“We have identified three new routes this year, everything else we maintain,’’ he adds.

Benyamin believes growth will be modest this year, and out of the eight aircraft AAX is taking delivery of, only two are meant for the Malaysian operations. “So, that is why growth will be moderate this year, but next year, it will be more aggressive,’’ he says.

He adds that AAX will also move away from wet aircraft leases and focus on scheduled routes.

All this is being done as AAX restructures itself after having reported RM519mil in net losses for full-year 2014 and having changed its top management team.

Benyamin took over in February, while AAX’s co-founder Datuk Kamarudin Meranun is the AAX group CEO. The team is furiously working to get AAX back on its feet.

The airline’s biggest setback has been its over-expansion in the past two years amid rising fuel prices and fare-dumping by premium airlines that has forced it to follow suit at the expense of yields. This led to huge losses last year, and aviation experts believe the first quarter of the present financial year is not as rosy as it would appear to be either.

AAX has cut its bleeding routes, mainly Nagoya and Adelaide, and cut down on frequencies to Australia.

“We are looking at routes where there was competition that led to irrational pricing. At some stops, we had triple daily flights such as Melbourne and Sydney. So, we will not sacrifice our P&L for them, we have to maintain yields,’’ Benyamin says.

He says he is looking at the A to Z of things at AAX, making sure every deal or contract is reasonably priced.

“I am renegotiating all contracts, even going to our fuel suppliers to renegotiate.

“We are also reducing the headcount, as we have quite a large cabin crew and ground services team. We are merging some functions with our sister company AirAsia. The review on our network and revenue management is continuing,’’ he says.

The challenge for those driving AAX is really to prove that this long-haul, low-cost model can work amidst competition in the wake of the failure of Sir Freddie Laker’s Skytrain and Hong Kong’s Oasis airline.

“No amount of convincing is going to work, only sustained profitability is needed,’’ says an aviation expert.

AAX co-founder Tan Sri Tony Fernandes adds that “we have been severely tested before and have come through. Benyamin and Kamarudin are doing a lot of things. We are rationalising capacity and adding the right routes at the right places and are optimistic of a turnaround”.

He adds that while AAX has been under severe pressure due to competition, he still believes the airline’s long-haul, low-cost carrier model works. He says the recent completed rights issue was also proof that the original shareholders still believe in AAX’s business model.

“That should be the best guide of our confidence. We are putting our money where our mouths are,” he says.

Fare-dumping is a common feature on most of its routes where it competes with Malaysia Airlines (MAS), and over the past two years, AAX has dropped fares to fight MAS on several routes, at the expense of yields, however.

Fernandes hopes MAS, under the stewardship of Christoph Mueller, will sell fares that enable it to make money so that everything will sort itself out, as he believes there is enough demand in Malaysia for all the players to co-exist.

“If with our cost structure, we are selling it at RM400 and a full-service airline sells it at RM350 with triple the cost structure, how can you compete?

“So, this is the issue, but it appears to be getting better,” says Fernandes.

Benyamin adds that overall loads for the airline have picked up to a high of 70% and it is the same for the Australian sector. He adds that yields are also looking better than last year and that the airline will not compromise on yields.

London in 2016

In 2007, AAX first announced its plans to fly to London by dangling one-way fares for a mere RM9.90.

Since then, it had flown hundreds of thousands of passengers into London, some of whom were flying there for the very first time.

However, in February 2012, it pulled the plug on the route, leaving many feeling disappointed.

What has changed from then for it to now rethink about flying into London, especially when it had made huge losses on that route previously?

Can this route be profitable again?

“If it isn’t going to be (profitable), we would not do it (fly into London). When we first flew to London, the AirAsia group was a smaller airline, but over the years, we have grown bigger and AAX is now a different animal. Most importantly, we will have the right aircraft type for the London route now,” Fernandes says.

“The difference then was that we used a four-engine aircraft with fewer seats. Now when we go to London, we will have a two-engine aircraft with many more seats,’’ he adds.

There were several factors that had forced AAX to suspend its European routes, namely, London and Paris.

Besides the wrong aircraft type, the fuel cost also rose, as did passenger air charges.

Further, it had to dump fares over a period of time at the expense of yields due to competition.

AAX will use the A330 high gross weight version for the London connectivity next year.

Benyamin is scheduled to meet Airbus officials next week to swap some plane orders with the A330 high gross weight version and he expects them to be delivered by the middle of next year.

That is about the time the London route will take off, although AAX is exploring the possibility of leasing two aircraft from the Middle East to begin the flight to London sooner.

If it happens this year, there will be a stop in the Middle East. Some, however, do not think this is a viable proposition. It could be a stop in Istanbul, Sharjah or even Abu Dhabi, but certainly not Dubai, as competing with Emirates will be tough.

“We are looking to stop over somewhere in the Middle East, but we have to look at the bilateral arrangements. If we can, we will plan something for this year, or else next year is definite, but in the second quarter,’’ Benyamin says.

While Fernandes acknowledges that KL-London is a very competitive route, especially with the many Middle-Eastern airlines offering flights, AAX will offer direct flights and its extensive network in Asia gives it an edge over many other carriers.

“Having a wide network was not our idea. The idea came from Emirates, as once I was at an airport and saw that Emirates had so huge a network and so we decided we should have that too.

“Today, we have 19 points in China, many more in India, Indonesia and so many other places.

“This is the biggest selling point for us. Within one stop, you can go anywhere in Asia.

“Say you are coming from London and want to go to Bandung, you cannot go through on Emirates (to the end stop). But we would be able to give you the London-KL-Bandung connection, as we have the frequency.

“We also have the connectivity and frequencies that were not there before and the links into Australia,’’ Fernandes adds.

Airfare pricing will be a major factor, and as it is, the return airfare to London is between RM2,400 and RM2,900, depending on the season and the carrier.

In May, British Airways (BA) will join in to compete on the KL-London-KL route, adding to the already competitive sector.

Many believe BA will keep its fares high as it caters for the corporates, but that remains to be seen.

Beyond London, Fernandes is looking at a code-share arrangement with a low-cost airline in Europe for traffic and connectivity, but it has to be one of the big cities for connectivity.

Benyamin says they are exploring with two partners, but declines to name them.

It could be any one of the many European players such as Ryanair, easyJet, Norwegian, Air Berlin, airBaltic, Aer Lingus, Air One, Germanwings, Helvetic Airways, Jet2 or even XL Airways and Transavia.

“We have to find something that will help stimulate market demand and build on it and offer connections to, say, Milan, Nice, Almaty, Mongolia ... some of these destinations are untapped.

“Code share is not our bread and butter, but we are not shy about talking to some of the players. If our cost structure and systems can match, why not? We are still exploring, but they must have a regional presence in Europe,’’ he adds.

-thestar online.