My Late Discussion About Air Asia X Pulling Out of Europe

This isn’t exactly breaking news, but it is something that I’ve been meaning to cover since it was announced back in January. Air Asia X, the long haul arm of successful low cost carrier Air Asia, has cut its European and Indian services to focus more on regional operations. This move is telling in many ways.

First, let’s get acquainted with Air Asia X. You probably have heard of the wildly successful Air Asia. It has been growing its ultra low cost carrier operation throughout Southeast Asia using a fleet of Airbus narrowbodies. It also is working on a joint venture in Japan to start an operation there, and it recently announced its start-up plans for its subsidiary in the Philippines. The focus is generally on shorter haul flights within the region, using a model similar to what Ryanair has done so well in Europe.

But a few years ago, Air Asia decided to start Air Asia X, an airline that would use A330s to fly longer distances. Long haul, low cost airlines have been far from successful. In fact, excluding what may have been the original low cost carrier, Icelandair, there have been just about no successes in this arena.

Air Asia X, however, thought it could make things work, and it has grown rapidly. Here’s a route map I put together using the always awesome Great Circle Mapper.

Air Asia X Routes

As you can see, most routes focus on the Asia/Pacific region. I realize that’s a large region, but as Qantas will tell you, the fortunes of Asia and Australia are all tied together. Meanwhile, everything to the west except for that one flight to Tehran is going away.

I think we’re looking at two different reasons for what’s occurring here. The Indian market is a complete disaster right now. There’s too much capacity, too many unhealthy airlines, and a simply brutal competitive environment as a result. I don’t care how low your costs are – that is not a place you want to participate at the moment. On top of that, the CEO cited rising airport costs and visa restrictions on Malaysians (it was served from Kuala Lumpur) as another strike against the market.

It’s no surprise that Air Asia X walked away from those cities, but I would bet that we’ll end up seeing them back in that market eventually. It’s just too big, and it will again be a healthy market, even if it takes a decade.

Then there’s Europe. Europe is not an easy place for any long haul airline to survive. Taxes are high (yes, I’m especially looking at you, United Kingdom), and they’re getting higher with the introduction of the carbon trading system this year.

In addition, Europe is further away than most other spots on the Air Asia X map. That means fuel costs are high and climbing. With costs high, the only way to make a living is to keep revenues even higher. But there is a lot of service between Europe and Asia already, so the competitive environment has already suppressed fares, similar to what we see over the North Atlantic in non-summer months.

A roundtrip from Kuala Lumpur to London on random dates in September starts at $1100 in coach on a full service airline going nonstop. Meanwhile, it’s 1,000 miles less from Kuala Lumpur to Christchurch, no other airline flies it nonstop, and the prices start around $1250 on a full service airline with a connection. That’s the kind of market that’s much easier to stimulate and still get a good fare to cover costs.

Even a market like Taipei is better. That market has nonstops from three airlines with Malaysia starting at $500. But EVA and China Airlines publish fares over $1,000 and it’s less than a third the distance of going from Kuala Lumpur to London. That’s also not a terrible market for stimulation.

Europe is just tough for long haul, and I think Air Asia X shows real guts for simply pulling out. Many other airlines would just keep flying the route for pride reasons. There shouldn’t be any place for that, and Air Asia X gets it.

So we’ll continue to see Air Asia X grow with medium haul routes in the region, but I wouldn’t expect to see any successful efforts to go truly long haul at any time in the near future.


17 Responses to My Late Discussion About Air Asia X Pulling Out of Europe

  1. Jason H says:

    Given this move it makes me wonder even more about their Oakland Raiders plane. They said it was a commitment to excellence, but if so why did they pick the Raiders and why a US market? It just seems odd.

    • CF says:

      That Raiders plane is very strange. It was painted years ago and seems highly aspirational. I don’t even know how they’d get an A330 all the way to Oakland anyway.

  2. My Early Discussion about the Recent Announcements of 3 of the 4 Legacy beyond-perimeter DCA routes:

    So far we know of AA to LAX (minus one DFW), UA to SFO (minus one ORD) and DL to SLC (minus one LGA). These were my predictions, the first two were no-brainers but I thought DL might do LAX. Clearly they want to bulk up SLC (currently only 1x) and not get into a three way battle for LAX, despite their most recent attempt at LAX expansion. I wonder if the DL codeshare on the AS LAX flight will continue, especially since most are assuming AA and AS will each codeshare the other’s flight?

    US is on the clock. They are the real wildcard here. They already have 3x to PHX and 1x to LAS (thanks to senator mccain from the AWA days). Do they do another SFO run at opposite times as the UA flights so both airlines could codeshare both flights? Or do they do a large unserved market? SAN is the largest but compelling arguments could probably be made for SAT, AUS and others, especially since the increasing cost of fuel might make a Texas destination more appealing than a x-con. I predict 60% chance of SFO / 30% SAN / 10% the field.

    Of course, we’ll have to wait even longer for the four new entrant slot announcements. Those will be much more suspenseful! Thread hijack over… apologies CF!

  3. You have to give credit to an airline who knows when to pull out of an area before that area pulls them down. To many airlines want to control the world and do everything the other guy is doing no mater how much it hurts their wallet.

    It’s better to stay small and try and grow again later then to go belly up from loosing a ton of money.

  4. Dan says:

    Brett,

    With regard to Air Asia X, an analysis of premium cabin fares could have been useful. Given that “everybody knows” international flights make their money up front, how much does it matter what they charge for the back seat?

    TBH, what interests me about flying Air Asia X isn’t flying Ryan Air-style for 10 hours, but flying in a premium cabin for cheaper. But this also brings up an interesting discussion, because no airline has been able to sustain discounted premium-cabin-only service on long haul routes (EOS, MaxJet come to mind… even Open Skies ditched their IAD-ORY route for the winter.)

    So, even though “the masses” think the airlines gouge for J and F seats, are those fares actually necessary to sustain a profit?

    • Dan, I think AAX has always been very competitive on their J class fares, but at some level they realize that they aren’t going to fill them up. When they changed their layouts on the A330s a couple of years back, the J seat count dropped from 12 to 8. I think they did the maths and worked out that they could make more revenue from having more Y seats available than the yield premium in their premium seats. Those seats are great, but you don’t get the full experience as you would on MH or SQ, and I think that they hold onto it to have the option available to make a few more shekels, but it’s hardly the end of the market they want to focus in. Much more lucrative to give the Y class seats away and collect $100 in ancillaries instead

    • CF says:

      The premium cabin for Air Asia X doesn’t add up to much. It only has 12 biz seats onboard, so it’s a tiny fraction for the airline. But for most long haul airlines, you’re right. Premium cabin matters a lot, but it is a delicate balance. Over the Atlantic, airlines can make money in the summer off coach but they need the premium cabin the rest of the year to carry the weight. Air Asia X doesn’t really have that kind of option. It has to work on coach seating all year around with a little bit of gravy from the front cabin.

  5. Rory says:

    Of course, it’s completely coincidental that cutting Paris and London restores Malasia Airlines’ monopoly on these routes shortly after they entered into amajor cross-shareholding agreement with Air Asia…

    • Spot on. I’m not sure how Cranky missed the Malaysia Airlines-Air Asia “alliance” especially with MH A380s coming online, the capacity to London is about to increase significantly.

    • Does the EU have an antitrust like law that they could investigate them under?

    • Bingo. I think this had to do more with their new “alliance” with Malaysia Airlines than anything else. Not to mention MH is adding A380 service to Europe which will significantly increased capacity to Europe.

  6. While the joint actions of Malaysian and Air Asia might breach EU law, it is probably not serious enough for the EU to take major action. The resources of law enforcement officials to investigate cartel like behaviour is limited – there are plenty of other cases which are much more serious and have a greater impact.
    In any case, there are plenty of other airlines offering 1-stop connections between London / Paris and Kuala Lumpur – think CX, TG, SQ, CZ, MS, EK, EY, QR, GF, KL, LH for a start

    If anyone is going to investigate collusion between Malaysian Airlines and Air Asia, it’s probably best left to the Malaysian Govt – or if there’s corruption in Govt then it’s for the Malaysian press to make some noise about it.

    • Jim says:

      Malaysian Airlines is owned by the Malaysian government, so I don’t think they’d be affected by antitrust issues.

  7. This is a big blow for all of us living in Thailand, I was able to get flights from Chiang Rai to London for as low as $180 on a good day.

  8. Axelsarkis says:

    Hold on… Air Asia X flew to IKA? What in the hell for?

  9. Pingback: A Dark Future for Europe’s Legacy Airlines - >> The Cranky Flier

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