AirAsia X: ending the low-cost carrier era

It used to be simple. Low-cost carriers stuck to short-haul point-to-point routes, offered no frills and refused to forge alliances with other carriers. Network carriers offered frills and operated from hubs a mix of short-haul and long-haul routes with multiple partners.

The creation of AirAsia X just throws all that out the window. Tony Fernandes’ empire now includes a five-year-old pure low-cost short-haul operation, a five-month-old regional turboprop operation and soon a long-haul supposedly low-cost operation. It seems Fernandes (pictured below), a flamboyant former music industry executive, is trying to become another Richard Branson, not another Herb Kelleher.

Tony.JPG

Fernandes looked briefly at the long-haul low-cost sector before launching Malaysia-based AirAsia in late 2001 but quickly determined it would not work. Long-haul, low-cost is an oxymoron and simply too complicated. Low-cost carriers are about keeping things simple – one type of aircraft, quick turnarounds, no frills and no interlines or alliances.

Fernandes first muddied the model last March, when he agreed to take on thin regional routes in order to complete a watershed deal with the Malaysian government. Fernandes so desperately wanted Malaysia Airlines’ (MAS) subsidised domestic operation off his back he agreed to assume responsibility for MAS’ loss-making turboprop operation in rural eastern Malaysia in exchange for MAS relinquishing 99 of its 118 domestic routes. AirAsia first said it would subcontract the turboprop operation to a totally independent third-party, thus keeping true to its pure low-cost model. But in the end the third-party, Fly Asian Xpress (FAX), turned out to be owned by Fernandes and some of his closest business partners.

Now FAX will be used to back the new long-haul operation, AirAsia X, and as part of the deal publicly listed AirAsia will take a 20% stake in FAX. So now we have a low-cost carrier parent company – with a majority stake in Malaysia-based AirAsia as well as 49% stakes in affiliates in Indonesia and Thailand – owning part of a regional carrier. And the same regional carrier from July will operate widebodies – most likely Airbus A330s – in a two-class configuration on routes to the UK and China. What is low-cost about that?

FAX will undoubtedly call its new AirAsia X operation low-cost but nothing about FAX follows the traditional low-cost model. FAX will have at least three types of aircraft, a second class on the long-haul flights with almost flat-bed seats and possibly even an alliance. Fernandes is talking to Virgin Atlantic and easyJet about a potential tie-up with AirAsia X.

Of course the differences between low-cost and network have been fading for some time. Network carriers all over the world have been gradually taking on more low-cost characteristics while some low-cost carriers such as India’s Kingfisher now look more like network carriers. Further proving the blending of the once distinct models, AirAsia X will be the world’s fourth so-called long-haul low-cost carrier, following Australia’s Jetstar International, Oasis Hong Kong Airlines and Viva Macau. These three, all of which launched late in 2006, all have two classes with some frills.

Congratulations Herb, Southwest Airlines was the first and perhaps soon will again be the world’s only true low-cost carrier.

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