Long-haul low-cost operators have much room to grow in Asia-Pacific since most of the low-cost traffic today falls within the 4h range, says AirAsia X's chief executive Azran Osman-Rani.
"Beyond using narrowbodies, the market is uncontested. People cite that within Asia-Pacific, LCCs' [low-cost carrier] total share of traffic is about 27%, but virtually all of that is narrowbody and domestic. So when you look beyond four hours, LCCs' share of total traffic today is still in the single digit," he adds. "To get to the 50% mark where we think the steady state is, there is a lot of head room."
Although there has been scepticism that low-cost operators who use widebodies are able to manage their costs well, AirAsia X has proven otherwise. The key to success in the long-haul business, Azran says, is to maintain high aircraft utilisation and load factors to bring costs down.
He shared that the airline's unit cost per ASK is 3.7 cents, much lower than the 9 cents that legacy carriers typically operate at. AirAsia X utilises its aircraft for about 16.5h daily, and last year, its load factor stood at 84%.
It is also important to get the carrier's operating model right, and concentrate on penetrating its few chosen markets, rather than "grab as many countries and stretching yourself too thin".
This is why in early 2012, AirAsia X suspended services to Paris, London, Mumbai, New Delhi and Christchurch because of rising fuel costs and to improve operating efficiency. It was also using some of its fuel-hungry Airbus A340s on those long-haul routes, which proved to be inefficient.
"Once you get the right ingredients, it's just like a short-haul LCC. If you have market leadership, it's virtually insurmountable," says Azran.
He adds that the Malaysia-based carrier has yet to experience much of an impact from Scoot's entry because since they are based in different cities, there is a "marginal overlap" on routes. Cebu Pacific's upcoming entrance into the long-haul market will pose "even less overlap" since their niche is in the Philippine worker traffic.
Having completed its listing on Bursa Malaysia, AirAsia X's strategy is to replicate AirAsia's business model and set up joint ventures across the region. It has identified Thailand as its first base outside of Malaysia.