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.
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.
