Author: By Sarah Arnott
Helped by 5,000 promotional tickets at just £99 each way, AirAsia X has sold 50,000 seats at between £149 and £199 since the five times a week, no frills service went on sale. A meal will add £7 to the price, a film £6.
New routes are a rare commodity in a sector increasingly bedevilled by retrenchment and losses. More than 30 airlines have gone bust in the past 12 months, as rocketing fuel prices, plummeting demand and tight credit play havoc with the wafer-thin margins. But Tony Fernandes, the founder of both AirAsia X and its budget short-haul sister AirAsia, says now is as good a time as any. “There’s never a perfect time to launch anything,” he said. “In boom times the premium airlines have lots of spare cash to throw at fighting you, in bad times the market may be tough. You make your own time.”
Having bought AirAsia for a song, and £4m in debt, just three days before the September 11 US terrorist attacks decimated global aviation, Mr Fernandes is sanguine about the recession. “We’ve been through a fuel crisis, bird flu, Severe Acute Respiratory Syndrome (Sars), the tsunami, the Bali bombings ? you name it, we’ve had it,” he said. “Nothing scares me with the credit crunch.”
AirAsia X is not the first attempt at a budget long-haul service. But none has worked. Freddie Laker’s Skytrain, and Peoplexpress, a US version, both folded decades ago. Oasis and Zoom were on the list of last year’s casualties. AirAsia X is different, according to Mr Fernandes ? because of the draw of onward links with AirAsia’s 122-route short-haul network, as well as the benefit of the established brand and shared infrastructure such as pilot training.
Even the downturn could have upsides. Low-cost airlines across the world are reporting rising passenger numbers as cash-strapped travellers trade down, and fuel prices are depressed by an oil price still languishing around $40 despite Opec’s production cuts.
But even with consumers economising, the competition distracted and the oil price favourable, success is not guaranteed. New long-haul routes take anything up to 18 months to establish with consumers, and logistics deny the cost savings possible on short-haul networks.
Even the AirAsia links may not prove persuasive. Passengers will have to book a separate ticket for onward journeys, and may decide a costlier through- ticket is a price worth paying to ensure a missed connection does not leave them stranded. Gert Zonneveld, at Panmure Gordon, said: “It is tough to build a long-haul route from scratch. It is do-able, but you need very deep pockets.”
AirAsia X launched in 2007 flying to destinations more than four hours from Kuala Lumpur including Australia, China and India. It has grown from one plane to four ? with another 25 on order ? and is forecasting profits of £30m for its first full year. Although a separate entity from AirAsia, the links are close. The short-haul carrier owns 16 per cent. Sir Richard Branson, once Mr Fernandes’ boss at Virgin Records, owns 20 per cent. AirAsia has also grown fast. In 2002, it flew 200,000 passengers; last year there were 19 million; the prediction for 2009 is 24 million.
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