Kepping it in the family makes little sense for AirAsia

AirAsia X A330.jpg

It appears as though a merger between AirAsia and AirAsia X will probably not go ahead and that is a good thing.

It makes sense to keep AirAsia’s highly successful (albeit still not very profitable) short-haul low-cost business separate from AirAsia X’s riskier low-cost long-haul model. Why should AirAsia’s owners and shareholders take on the additional risk and debt, especially at a trying time for the regional long-haul market?

Analysts remain doubtful about a near-term recovery for the segment, and we still do not know if the AirAsia X model can be successful. They need to keep their costs low enough to increase yields, have high enough load factors, and mitigate against rising fuel prices.

Tony Fernandes had something in mind when he mooted the idea, but he has been quiet about it thereafter. He has shown with AirAsia that he can beat the odds, and there is a chance that AirAsia X will do the same. Until that happens, however, a merger is likely to remain a very bad idea for his flagship carrier.

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5 Responses to Kepping it in the family makes little sense for AirAsia

  1. Kinbin 29 July, 2009 at 11:45 am #

    Short-haul LCC is a maturing model. Longer-range LCC is an emergent biz model.

    Air Asia may deliver low yields, but it sure ain’t taking major losses yet as with many legacy carriers, which is highly commendable in these ‘sputtering’ business times. Need to give AAX time to operationally ‘wiggle’ into a comfortable position.

    That said, there is this good tag line that I have come across.

    “If it ain’t broken, polish it but never perform permanent fixes on it”.

  2. Siva Govindasamy 29 July, 2009 at 11:48 am #

    The question must be if the low-cost long-haul model will work. It is an expensive operation, and that is why it has higher costs. Without proper business class, which accounts for much of the long-haul revenues in the legacy carriers, it will be tougher for AirAsia X.

  3. Kinbin 29 July, 2009 at 7:23 pm #

    Well, on long haul, there are several observations:-

    1. An increasing proportion of economy travellers, and over-sale of economy seats (sales exceed capacity), resulting in either an auto-upgrade for the frequent flyer either with or without miles. There goes the yield.

    2. A model operating purely on business or economy premium seats remains half-baked too. SQ cancelling their direct SIN-LAX route, and the demise of EOS / Silverjet for the LHR-JFK route.

    That leaves only LCC long-haul model. As to the expenses, the fuel, aircraft lease and crew account for more than 75% of the total. If PAX pay for the hedged fuel, leases, and crew, the direct costs are in. Maybe the introduction of a small proportion of premium economy might bring about some yields.

    That said, any positive yield, if present, is expected to be extremely low.

  4. John Counsel 3 August, 2009 at 5:46 pm #

    As a relatively new traveller on both AirAsiaX and AirAsia, I’ve had only good experiences with the long haul carrier (apart from non-delivery of a pre-paid comfort kit — no big deal) and only frustrating experiences with the domestic (Malaysia) carrier.

    Like most low-cost carriers, to be fair, it seems that getting an aircraft off the ground on time seems an impossibility (shortest delay 45 minutes; longest delay 2.5 hours).

    But add to that being re-booked to a non-existent flight, then being directed to an aircraft going to a totally different destination and almost missing the right flight, and patience begins to wear thin. Still, ground staff were very gracious and helpful and were at pains to minimize inconvenience.

  5. Siva Govindasamy 3 August, 2009 at 5:53 pm #

    Haha, I sure hope you gave their customer service hell! AirAsia are supposed to have improved their customer service, not sure how much better they are.

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