AirAsia chief Tony Fernandes is launching a widebody operation from his Malaysia base, after claiming publicly for years that a long-haul low-cost airline model could not work.

To be called AirAsia X, the new airline will launch in July with two 400-seat leased Airbus A330s or Boeing 777s. An order for up to 20 widebodies will be placed shortly, says the carrier.

Publicly traded AirAsia will licence its name to AirAsia X, which will be privately owned by Fernandes and some partners. The fast-growing short-haul AirAsia Group, in which Fernandes has a major stake and is chief executive, has the option to buy a minority stake.

Fernandes has for years said the long-haul low-cost model could not work, although his original business plan was to launch an Asia-based Boeing 767 operator that would connect in Europe with easyJet or Ryanair. AirAsia co-founder and former Ryanair executive Conor McCarthy "tore it to pieces", says Fernandes, and instead they drafted the short-haul no-frills business plan that McCarthy ended up investing in.

Six years later Fernandes says that despite past comments he never gave up on the long-haul idea and has converted McCarthy, who says: "I'm convinced the time is right. From my point of view there is a gap in the market. The winds are blowing in the right direction."

McCarthy has taken a 5% stake in Fly Asian Xpress (FAX), which was created by Fernandes and two associates last year to operate turboprop routes relinquished by Malaysia Airlines. FAX will operate AirAsia X's widebodies and own the new long-haul carrier, but the turboprops will be "stripped out" and managed by a separate team. That will give AirAsia five operations - three in Malaysia for turboprops, narrowbodies and widebodies, and one for narrowbodies in both Indonesia and Thailand.

Fernandes will not be involved in managing the new long-haul operation and will instead focus on growing the short-haul operation, which will expand from 50 to at least 150 aircraft by 2013.

AirAsia X's initial network will partly depend on which airports give it the best deal. It will serve the UK, probably London Stansted, but Fernandes says "I'd even go to Birmingham if the cost is low enough". If the A330 is selected, the UK service will go via the Middle East, competing with Emirates. It is also eyeing Australia, China and India.

AirAsia X and AirAsia will operate from the same terminal in Kuala Lumpur, but they will not codeshare or interline. Instead they will sell tickets on each other's website and Fernandes hopes cross-selling arrangements can be forged with European low-cost carriers.

"If European carriers want to broaden themselves our website would be a popular one," says Fernandes. However, the idea was instantly shot down by Ryanair chief executive Michael O'Leary. "It's anathema," he says. "I don't want to be linked to a long-haul low-fare airline that won't be around for a long time."

AirAsia X says it will undercut traditional carriers with a no-frills service and a per seat kilometre cost of only 1.9¢. There will be no free food, no in-flight entertainment and no seat assignments, except for a small "super economy" section. Other long-haul low-cost start-ups also have two classes of service.

Fernandes says a £60 ($116) one-way fare will convince passengers they can do without frills and create a group who now holiday in their own regions. "I think there's a market. Nobody has done it the way we'll do it," he says. "It's not about cannibalising a market, it's about creating a new market."

Source: Airline Business