Joint venture airlines to form part of AirAsia X strategy after IPO: CEO

Kuala Lumpur
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Having completed its listing on Bursa Malaysia, AirAsia X's strategy is to replicate the AirAsia business model and set up joint venture airlines across the region.

For a start, the long-haul low-cost operator has identified Thailand as its first base outside of Malaysia, and secured Thai partners who has applied to the country's civil aviation regulator for an air operator's certificate (AOC).

"Our Thai partners have taken the lead and applied for an AOC. The government is evaluating it and we hope to hear from them positively soon," its chief executive Azran Osman-Rani told Flightglobal Pro in an interview at its Kuala Lumpur office recently.

He would not give a gauge on when the new joint venture carrier would likely start operations, but said that it is "absolutely ready to go" once it gets approval, with two Airbus A330s to be based there as a start.

Thailand is ideal for AirAsia X's new hub because AirAsia already has a short-haul affiliate carrier that would be able to feed a long-haul service, says Azran.

"One of the core tenets of long-haul LCC [low-cost carrier], which we think is a core ingredient of why it's successful when previous attempts hadn't, is the short-haul feeder network. Last year alone, 40% of our passengers are connecting, so if you don't have a good feeder network, this doesn't work," says Azran.

"Thailand and Indonesia, they have the most advanced of these [networks]. They're eight to nine years old, 20-30 planes, lots of good domestic and short-haul feeds. That lends itself the right characteristics for us to co-invest in similar joint venture structures to set up and base planes in those similar hubs."

This means that the "natural choice" after Thailand is to set up another joint venture in Indonesia, because the operations in the Philippines is still relatively young, while AirAsia's Indian venture has not even received its AOC.

Although having a long-haul operation based in a new hub like Thailand means that AirAsia X could possibly fly further to destinations in places such as eastern Europe, the new joint ventures will still concentrate on building its scale - instead of "going for breadth" - on a number of core markets, before starting new ones.

"What we've learnt is that rather than go for breadth, you go for depth first. Breadth comes incrementally because in this business scale matters," says Azran. "What you don't want is to be flying on routes where you have less than half the capacity of the market leader. So therefore we concentrate on a few markets and build scale and leadership before going into new markets. If you're small here and there, that's a recipe for disaster."

With the initial public offering - in which the carrier raised approximately M$741 million ($230 million) - AirAsia X now "shifts into a higher gear". The proceeds raised will go into supporting a major growth phase, where the airline will take delivery of seven aircraft each in 2013 and 2014, and an additional five in 2015.

"We think the key ingredient is to be the first mover, market leader, because these are the main drivers of long term profitability. So we want to make sure we really roll out our fleet and network far ahead of those new entrants that are coming into this space," says Azran. "By the time other entrants realise this is how you make it work, we should hopefully be more than double their size."

"AirAsia X today is where AirAsia Malaysia was six, seven years ago. Where AirAsia is today, in a few years you should logically see us follow," he adds.