The Asian ULCC Invasion of the US Begins

There have been many attempts at low cost carrier flying over the Atlantic over the decades, but the Pacific has never seen quite the same level of interest. Part of it is certainly because of the longer distance, but there’s also the fact that low cost carriers developed far later in Asia than elsewhere. Either way, it’s starting to change now, and the US is just beginning to receive the first of what will likely be many flights to come.

AirAsia X claims that it is now the first Asian low-cost carrier to receive approval to begin flying scheduled service to the US. While that’s really not true (Jin Air has been flying from Incheon to Honolulu for over a year), it is significant. See, Jin Air is trying to serve cheap South Korean travelers who want a beach vacation in Hawai’i and nothing more. AirAsia has much grander plans.

AirAsia X is the long-haul division of the wildly-successful AirAsia. Note that while AirAsia has been wildly successful, AirAsia X has not had the same luck. It originally started flying with fuel-guzzling A340s on long routes as far as Europe. That was a massive failure and the airline pulled out quickly. It has failed, in fact, on many longer-haul routes, instead finding its sweet spot on medium-haul flying primarily between Southeast Asia and both North Asia and Australia with a couple Middle Eastern routes thrown in for good measure.

The airline has since traded in those A340s for more efficient A330s, and it has packed them full of seats. Its 30 A330-300 aircraft have 12 angled flat beds in premium class and a whopping 365 coach seats. (Above image via AirAsia X.) For comparison, American has 28 flat beds in business and a mere 263 seats on the same airplane. It’s not even that AirAsia X has cut legroom much. The larger issue is that it crams in 9 seats across in coach whereas most wouldn’t do more than 8. (The seats are 16.5 inches wide.) Starting next year, AirAsia X will take 66 A330-900neos and 10 A350-900s to further build its empire. It’s ready to grow A LOT.

When I met AirAsia Group CEO Tony Fernandes a couple years ago, he was very clear that the US was on the roadmap. Hawai’i would be first but the airline had designs on much more. So it wasn’t a surprise when the airline said it was going to begin service. In fact, the press release saying that AirAsia X had been approved to fly to the US noted that “AirAsia X is currently considering flights to several US states including Hawaii as part of its route expansion plans.”

To start, AirAsia X is being cautious. Today it flies from Kuala Lumpur to Osaka/Kansai one or two times a day. The airplanes go to Osaka and then turn back around. Now, AirAsia X is going to send one of those airplanes on to Honolulu 4 days a week. The schedule looks like this (starting June 28)

AirAsia X 1 Lv Kuala Lumpur 2:00pm Arr Osaka/Kansai 9:25pm
AirAsia X 1 Lv Osaka/Kansai 11:25pm Arr Honolulu 12:30pm

AirAsia X 2 Lv Honolulu 4:00pm Arr Osaka/Kansai 8:25pm (next day)
AirAsia X 2 Lv Osaka/Kansai 10:00pm Arr Kuala Lumpur 4:00am (next day)

That’s some good aircraft utilization (though it’s an awful arrival time back in Kuala Lumpur). This arrangement allows AirAsia to enter a tried-and-true market with a ton of demand: Japan to Hawai’i. Osaka itself already sees 2 flights a day on Japan Airlines, 1 on Hawaiian, and 1 on Delta to Honolulu.

Of course, AirAsia’s plan is to be a price leader. Fares are starting at a little over $100 each way, and even those angled beds in the premium cabin are cheap at around $700 one way for now. This is already a leisure market, so fares can be low today, but not quite this low. I think what AirAsia is doing here is fairly smart. It’s sticking with its medium-haul strategy and it’s entering a market with a ton of demand. It’s doing it efficiently by jacking up aircraft utilization. Not a bad way to dip your toes in.

All that being said, there will be fierce competition in this market, and it’s unclear how the other carriers in the market today will react. With so many seats on those airplanes, AirAsiaX should have a tremendous cost advantage that will help it to make money with low fares. But it still has almost 400 seats per flight it needs to fill. That’s a lot of butts in seats.

While this is an interesting test case, this particular route isn’t what really interests me. (If it was, I would have been all over the Jin Air Honolulu launch.) It’s AirAsia X’s future aspirations that have me pondering what’s next. Those A330-900neos should have the legs to reach the West Coast of the US from Asia, even with a crushing number of seats onboard. When that inevitably happens, it’s going to bring fares down and spark a fare war similar to what we’re seeing over the Atlantic with Norwegian today.

It’s still not clear that AirAsia X can make any money on those truly long-haul routes. But with this new generation of airplanes coming in the door, it’s going to get interesting. Now that AirAsia X is beginning US service, it will be much easier to add cities on the mainland. It’s just a matter of time.

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