View Full Version : Long Haul Low Cost Airline: A Viable Business Model?
June 26th, 2007, 12:38 PM
For economy class fares, Asian legacy airlines (e.g. SIA, MAS) generally charge between 4-5 US cents per km (before fees/taxes) and for business class, a whopping 25 US cents per km (before fees/taxes)!
A business class passenger occupies around 3 times gross floor space compared to an economy class passenger. However, business class fare is generally 5-6 times more than economy class. Even after considering the additional frills provided, business class yields higher return to a legacy airline than economy class.
For various competitive reasons, legacy airlines sometimes offer economy class fares at below cost (C/ASK) thus economy class fares of 2-3 US cents per km is not unheard of. By offering economy class seats at sub C/ASK, high yielding business class is effectively subsidizing the economy class passengers (for Asian legacy airlines, the C/ASK for economy class is around 4 US cents and 14 US cents for business class).
SCEPTICS OF AIRASIAX:
After considering the above facts, some airline commentators questioned the viability of AirasiaX’s low cost, long-haul model. They reasoned that the legacy carriers can charge very competitive economy fares because of the higher yield from their business class seats (i.e. business class cross subsidizes economy class).
PROPONENTS OF AIRASIAX:
The buzzword is cost, cost, cost. With C/ASK of 2 US cents, AirasiaX can on daily basis price its economy class seats at between 2-3 US cents per km without incurring losses (promotional prices can even go much lower than 2-3 cents per km). In addition, AirasiaX’s downplayed and so-called “premium seats” are in actuality each a full-sized (and possibly best-of-breed) business class seat and its C/ASK is only 7 US cents, minus the frills. Hence don’t forget this: the “premium seats” are AirasiaX’s secret weapons to strike back at the very heart of its legacy competitors.
article by cassava (malaysianwings)
June 28th, 2007, 04:55 AM
Due to its lean cost structure as reflected by low C/ASK, Airasia X can consistently offer 50% cheaper fares than other legacy airlines.
Hitherto yield structure of a typical legacy airline is as follow: Economy (low yield), Business (high yield). In future, Airasia X shall bring stiff competition not only to Economy class but most importantly to the currently fat yielding Business class. Hence expect legacy airlines high yielding Business class to face downward price pressure going forward.
my 2 cents
June 28th, 2007, 08:45 AM
thanks for sharing the chart.
June 29th, 2007, 09:27 PM
Low-cost carriers 'can succeed in long-haul mart'
June 29 2007
BANGKOK: Despite scepticisms regarding the viability of low-cost carriers (LCC) in long-haul intercontinental markets, industry players should not rule them out, according to the World Tourism Organisation.
Its secretary-general Francesco Frangialli said yesterday that few people saw the relatively long-haul Asia and Pacific markets as LCC territory.
Frangialli said the industry consensus just a few years ago was that the evolution of LCCs would be limited to North America and Europe because other markets "weren't big enough or rich enough, or they required too long a haul".
"But now a few risk-taking and visionary entrepreneurs have proved them wrong. LCCs have found an important niche in both domestic and international markets in Asia, to the extent that specialised airport terminals are being built to meet their special needs," he told the "Asia Forum 2007: The Future of Aviation" here.
Frangialli said in the past, critics had said that it was not possible for long haul across the North Atlantic or between Asia and Europe, particularly due to the main advantage of the LCCs coming from quick turnarounds and high aircraft utilisation.
"However, as some of these entrepreneurs might say, just watch this space," he said.
Malaysia's AirAsia X, a subsidiary of Asia's leading LCC, AirAsia, is set to launch its low budget venture into Europe and other destinations in China and India beginning September.
"LCCs have already helped to create new tourism markets in Asia as elsewhere, and make no mistake, they are here to stay," Frangialli said.
He also raised the concern over consumer protection, saying there was a need to establish an economic regulatory regime which provides the optimum overall benefits for the national or regional economy, not just for a national carrier and its LCC competitors.
On the impact of tourism in aviation industry, Frangialli said over 40 per cent of the 840 million international tourists worldwide in 2006 arrived at their destinations by air, adding that in many countries the proportion was much higher, reaching over 90 per cent for some long-haul island or landlocked destinations.
He said international tourism receipts reached US$735 billion (US$1 = RM3.47) in 2006, including air tickets.
Frangialli said all parts of the world made gains in international tourism arrivals last year, including the poorest region Africa which registered the strongest growth of 9.4 per cent, and Asia-Pacific with 7.8 per cent, above the world average increase of 4.9 per cent.
Experts have forecast 1.1 billion international arrivals in 2010 and almost 1.6 billion in 2020, with China becoming the world's leading tourist destination as about 100 million Chinese will be travelling abroad each year, he noted.
According to him, the greatest demographic and sociological impact will come from Asia, where China and India are preparing to follow the path taken by Japan and the newly industrialised countries of Malaysia, South Korea and Singapore. - Bernama
July 23rd, 2007, 12:37 PM
Monday July 23, 2007
Virgin Group to take stake in Fly Asian Xpress
KUALA LUMPUR: Richard Branson's Virgin Group will sign an agreement next month to take a 20 percent stake in Fly Asian Xpress Sdn. Bhd., the new long-haul budget airline owned by the main shareholders of Malaysia's AirAsia, executives familiar with the plan said Monday.
Branson's Virgin Group Ltd. is scheduled to sign an agreement Aug. 10 to take the stake in FAX for about 24 million ringgit (US$6.9 million; euro5.0 million), pending approval from the Malaysia's Foreign Investment Committee, which oversees all foreign investments, one of the executives told Dow Jones Newswires.
AirAsia, the region's most prominent low-cost carrier, will exercise an option to buy just under 20 percent of FAX as well, the executive said on condition of anonymity because of the sensitive nature of the negotiations.
FAX is presently 100 percent owned by AirAsia's founders, including its chief executive Tony Fernandes and deputy chief executive Kamarudin Meranun.
The fundraising will allow FAX to partially finance its operational expenses and buy new aircraft, another executive said.
On completion of the stake sale, FAX will have a paid-up capital of 120 million ringgit (US$34 million; euro25 million) and will mull an option to sell more shares to further strengthen its balance sheet, the executive said.
FAX, which plans to launch low-cost flights from Malaysia to India, China and Europe later this year, recently agreed to buy 15 wide-body A330-300 aircraft from Airbus, with the first new A330 to be delivered in the third-quarter of next year.
The airline has a 30-year license to use the AirAsia brand and facilities.
The airline is seen as a test of whether the highly successful low-cost airline model can be profitable on long-haul flights, which are dominated by full-service airlines. - AP
July 27th, 2007, 09:25 AM
photo from malaysiawings.com
AIRASIA X (Airbus A330-300)
July 27th, 2007, 01:46 PM
photo from malaysiawings.com
AIRASIA X (Airbus A330-300)
Wow ! Finally Air Asia A330 is there ! :cheers: btw..where will be Air Asia X first flight to ?
August 7th, 2007, 02:50 AM
Branson tipped to invest in AirAsia X
Virgin Group boss to take up 20% stake in FAX
By B.K. SIDHU
TheStarBiz 7 August 2007
PETALING JAYA: This Friday will mark a major milestone for Malaysia’s first long haul low-cost carrier, AirAsia X, with the entry of a big foreign investor.
This could forever change its fortunes and bring foreign direct investment into Malaysia.
The name of Sir Richard Branson has been bandied about as being the big investor and as last minute arrangements are being worked out in London, Branson is expected to attend the Friday event.
It is learnt that Branson, via the Virgin Group, would take up a 20% stake in the airline’s operator, Fly Asian Xpress Sdn Bhd (FAX).
The selling of the 20% stake in FAX is the first round of funding required by the airline to kick-start operations and partly pay for the 15 aircraft that FAX has ordered. It is learnt that with the sale, FAX should be capitalised at US$30mil.
Second Finance Minister Tan Sri Nor Mohamed Yakcop is expected to be the guest of honour at the event, scheduled to be held in Putrajaya.
The completion of the signing ceremony would be a major coup not only for FAX but also Malaysia, as Branson is a global investor who has helped shape the global aviation sector.
There would certainly be a lot of synergies as the Virgin group is not just an airline owner and operator but is also involved in mobile telephony, financial services, retailing, music, Internet services, beverages, rail services, hotels and the leisure business. It has about 200 companies in over 30 countries.
Certainly, some form of synergy can be derived from the full-fledged trans-Atlantic airline Virgin Atlantic and Virgin Blue, a low-cost carrier in Australia, among others.
AirAsia X is every traveller’s dream as the airline promises fares that are 30% to 40% cheaper than the lowest prices offered by full-fledged carriers. Some of its fares could be as low as RM9.90 for one-way trips to destinations in Australia, London and Amritsar.
Sources said plans are also in place for the September take-off and the first destination still being speculated could be either Avalon in Melbourne or Brisbane.
This would depend on how fast AirAsia X can get the necessary approvals from the local authorities, especially that of naming AirAsia X as the designated carrier for Malaysia.
Talks are under way and pending the arrival on time of its first leased aircraft, AirAsia X still plans to take to the skies by Sept 8. This will be a day ahead of rival Australia’s Jetstar, which will fly into Kuala Lumpur from Sydney on Sept 9. Other destinations on AirAsia X’s radar screen are Hangzhou in China, Amritsar in India and London via Stansted.
With Branson taking up a 20% equity interest in FAX and another 20% expected to be sold to sister company, AirAsia Bhd, the remaining 60% in FAX would be held by a group of investors comprising AirAsia CEO Datuk Tony Fernandes, deputy group CEO Datuk Kamarudin Meranun, Raja Azmi Raja Razali, Datuk Seri Kalimullah Hassan, Lim Kian Onn and some senior FAX employees, including its CEO Azran Osman-Rani.
A second funding exercise to raise US$50mil to US$60mil via a share sale and borrowings would be initiated by year-end, pending completion of the first round. As for the 20% stake to be taken up by AirAsia, the proposal would have to obtain shareholders’ approval at an EGM to be convened later.
August 11th, 2007, 09:49 AM
Fly from Australia to Malaysia for $A31
Channel 9 Australia and NineMSN Australia
Saturday Aug 11 16:00 AEST
Australians will be offered return fares as low as 90 Ringgits ($A31) to fly to Malaysia, after the new budget airline AirAsia X secured rights to fly to the Gold Coast.
Air Asia X - an offshoot of Asia's biggest low cost carrier Air Asia - announced the Gold Coast would likely be its first destination from its Kuala Lumpur-base, with flights potentially from next month.
Flights to Avalon, near Melbourne, could begin around March next year, and to Stansted in London late next year after AirAsia X was today granted the rights to fly there.
"The Gold Coast would be the first destination," AirAsia X founder Tony Fernandes said.
"Fares would range from as low as 90 ringgit to an average fare which would be in the 1900 ringgit ($A647) mark return."
The new long-distance budget airline has previously flagged standard fares 30 to 50 per cent cheaper than its competitors, from Australia to the Malaysian capital, and then a host of far flung places, including the UK, Middle East, India and China.
It will have close ties with Australian carrier Virgin Blue, with colourful billionaire founder Sir Richard Branson taking a 20 per cent stake in the venture.
Branson's Virgin Group has a 26 per cent stake in Australia's Virgin Blue, which is based at the Gold Coast.
Sir Richard said there would "almost definitely" be formal links between the two airlines, Virgin Blue and AirAsia X, in the future.
"We'll talk about a codesharing frequent flier program, almost definitely," Sir Richard told AAP.
Fernandes said Virgin Blue wasn't a factor in the decision to pick the Gold Coast, but also raised the potential for link .
"Who knows - its certainly something that's ... going through my mind more and more," Fernandes said.
"I would find it odd to do something without Virgin now in Australia.
"It can be very simple marketing links."
He also flagged further potential destinations in Australia, such as Adelaide and Newcastle, which had been tipped as possible destinations following negotiations in those cities.
"No one's's missed out. We will be there," Fernandes said.
"Avalon was actually the favourite but they've got to build their airport for international standards and they are doing that right now.
"In terms of Newcastle, they've got to do some adjustments to their airport as well.
"Adelaide, we've had some issues with the airport down there, plus we haven't got the rights yet ... but we'll be there. "
Fernandes - who has been described as Asia's version of Sir Richard - said he wasn't worried about his Australian competitors.
"Jetstar doesn't worry us at all," he said.
"There is plenty of space for all of us.
"We are creating a whole new market that wasn't there before."
Meanwhile, Sir Richard said Virgin Blue was sticking with its own Victorian destination Tullamarine, but would look into a switch to Avalon.
August 11th, 2007, 09:51 AM
Good news indeed!!! Gold Coast!
Not very far from me but I guess more people gonna bypass brisbane... which is sad.
Note: Someone please post today's super long coverage of AirAsia X and Richard Branson in StarBizWeek.
August 12th, 2007, 01:44 AM
patchay...u can see the interview in video at The Star's website..
August 12th, 2007, 04:01 PM
Please please Air Asia X...come to Adelaide.:banana: