Virgin invests in AirAsia long-haul

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Malaysian low-cost carrier AirAsia's planned long-haul sister airline has received a financial boost ahead of its launch, with the purchase of a 20% stake by the UK's Virgin Group.

The investment agreement was signed in August by Virgin founder Sir Richard Branson and Tony Fernandes, one of the major shareholders in the new long-haul budget operator and group chief executive of short-haul carrier AirAsia. Fernandes is leading a private consortium that owns 60% of the new long-haul operator, while 20% is now owned by Virgin Group and 20% will be owned by publicly-traded AirAsia.

The new airline will use the AirAsia name and it plans to launch late in September or early October with flights from Kuala Lumpur to the Gold Coast in Australia. It also plans to operate in the initial stages to Hangzhou in China.

Fifteen Airbus A330-300s are on firm order with the manufacturer but these will not start arriving until next August. Fernandes says that due to a shortage of aircraft in the leasing market it will be starting with just one leased A330.

The leased A330 will seat 315 passengers, but the purchased aircraft will accommodate nearly 400 passengers in a high-density configuration, which Fernandes says will help keep seat-kilometre costs low and allow for aggressive pricing. These aircraft will be configured with nine seats abreast in economy, compared to the normal eight-abreast configuration in A330s. There will be a small premium economy service at the front offering extra legroom but not a separate service.

Branson says it is not clear exactly what Virgin Group will pay for its stake as this will depend on what the new airline is ultimately capitalised at, although it is expected to be a modest investment of around $7 million.

The Gold Coast was selected as the first destination in part because it is near the home of Australian low-fare carrier Virgin Blue, which is based at the nearby city of Brisbane. Virgin Blue was launched by the Virgin Group, which still has a minority stake. "There's a good linkage with Virgin Blue," says Fernandes.

He also says there may be opportunities to partner in future with Virgin Group subsidiary Virgin Atlantic, although he rules out codesharing given that they have different service and operating models. Fernandes says the new carrier will not even codeshare with AirAsia short haul: "The danger is you start playing around with your schedule if you get into codesharing and I don't want to do that."

Responding to those who say the largely untested long-haul, low-cost model cannot be a success, he responds: "No matter what the sceptics say we are going to prove them wrong. There is a whole new market that we are creating. These are new markets that weren't there before."

Services are also planned in later stages to Melbourne Avalon in Australia, additional points in China, Amritsar and other points in India and London Stansted via a point in the Middle East, such Dubai or other airports in the United Arab Emirates or Bahrain.