Sunday, March 18, 2012

AirAsia Scrapping Long-Haul Flights

London, Paris, Mumbai, and New Delhi were the first to go.

Now Asia's biggest budget airline, AirAsia, is scrapping its flights to Christchurch too, in a drastic retreat that shows how deeply high fuel costs and the global economic crisis have crippled the once-thriving sector.

Other airlines in the region are in trouble, too, with India's Air India, Jet Airways, and Kingfisher Airlines all seeking government help. Kingfisher has not paid salaries in months, while Jet Airways had its accounts frozen after failing to pay its taxes.

"It's not just us," said Azran Osman-Rani, chief executive of AirAsia X, the long-haul arm of Malaysia-based AirAsia. "Even the full-service model is not working right now. It's not about the low-cost model."

AirAsia's profit fell 47 per cent to RM 564 million (US$ 185 million) last year, after average fuel prices rose 36 per cent over the year.

Its unit AirAsia X was launched in 2007 with Australia's Gold Coast as its first destination. Analysts said AirAsia may have overestimated the viability of the low-cost model when it comes to long-haul flights.

"Long-haul is a tougher business model," said aviation analyst Ahmad Maghfur Usman from OSK Research. "You don't get as much travel frequency (for planes) as you would with short-haul."

AirAsia X said it is in the midst of adding flights to more profitable routes elsewhere, mostly involving flights not longer than eight hours.

Last week, it announced that it was increasing the number of flights to Taipei and Perth in June, routes which have seen average passenger loads of better than 85 per cent.

Azran said that the long-haul routes work well in markets such as Australia and Greater China, where AirAsia X has multiple destinations.

It will be setting up AirAsia Japan in August this year, with domestic flights within Japan.

"It's not just slashing routes; it's re-definement," Azran told The Straits Times. "We're not shrinking the business. We're growing and redeploying, moving our planes to different routes."

The airline problems in Europe had to do not just with high fuel prices, but were compounded by a drop in demand following the euro zone crisis, as consumers cut luxuries and long-haul leisure travel, he said.

Azran also puts the blame on the higher taxes for passengers in Britain and the rest of Europe.

The British government has been slammed by the Association of Asia Pacific Airlines, which includes Singapore Airlines, for taxing air travel in the form of the Air Passenger Duty, which will be raised by 10 per cent from April 1.

European aviation bosses have also criticized a European Union carbon levy on airlines, which took effect in January, for threatening the industry.

Some observers also wonder if the cutting of European routes may have something to do with avoiding competition with national carrier Malaysia Airlines, which did a share swop with AirAsia last year.

Whatever the case, AirAsia X may simply be going where the passengers are.

UOB Kay Hian Research regional aviation analyst K. Ajith said, "The focus has come back to Asia, primarily because that's where the growth is."

Outbound China travel is also expected to increase as more Chinese holiday abroad, and this will benefit the airline, he added.

In the next two years, as it doubles its fleet, AirAsia X plans to add flights to Japan and open routes to Sydney, Adelaide, Fukuoka, and Busan. In three years, it is looking to fly to South Africa and Turkey.

"Airlines are usually slow and loath to make changes," said Azran. "The reality in today's climate is that we need to make changes."

Source: Jakarta Globe

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