Saturday, November 15, 2008
The Airbus SAS aircraft are due to arrive over the next two years, chief executive officer Datuk Seri Tony Fernandes said in an e- mailed response to Bloomberg questions late yesterday.
He didn’t provide details on the Sepang, Malaysia-based carrier’s funding arrangements.
The funding may allay fears that AirAsia would be forced to slow its expansion because of a lack of financing. Analysts including K & N Kenanga Holdings Bhd’s Yeonzon Yeoh have said
that the carrier may struggle to raise funds because of the global credit crunch.
A daily said yesterday that AirAsia was close to signing a loan agreement valued at almost RM3.5 billion (US$974 million) to fund aircraft purchases. Barclays Capital and BNP Paribas were given the mandate for the financing, which will be backed by European credit agencies, the newspaper said, citing deputy chief executive officer Datuk Kamarudin Meranun.
The airline has 123 outstanding orders for Airbus A320s, according to the planemaker’s website. The carrier has already received 52 of the single-aisle planes.
Australia--HAVING launched into its third Australian market with a new A330, AirAsiaX is now hunting for its fourth destination. The Kuala Lumpur-based airline started four-weekly services to Melbourne on Wednesday after recently starting services to Perth.
It already operates to the Gold Coast and Sydney is its next obvious target.
AirAsiaX chief executive Azran Osman-Rani said the airline would be looking at a fourth Australian destination "pretty soon", but declined to specify.
Noting that the airline wanted to fly to all the major cities, he agreed Sydney was a possibility if the airline could make a service work "with the limitations of the airport".
AirAsiaX also announced this week that it was axing all fuel surcharges on its fares to Kuala Lumpur.
Mr Osman-Rani said the move, like the airline's sales fares, was designed to encourage people to travel.
"We do want people to keep travelling, even in these more challenging economic times, and we've always believed that lower fares will get people to travel when they would not normally think of travelling," he said.
Mr Osman-Rani agreed the financial crisis was starting to feed through to the real economy, but said he expected the impact on AirAsiaX to be neutral.
He said the outlook for the next three or four months was "quite robust".
"There will be segments of passengers who may have travelled with us but during this time would be cutting back," he said.
"Then there also people who would have travelled with full-service carriers but are perhaps more price conscious, so they are gravitating to us. And that's why we're seeing more people at our low-cost terminal in KL."
The airline hopes to upgrade its Melbourne services to daily for the peak Christmas season and launch permanent daily flights to the Victorian capital from March.
It also plans to start services the Britain in March and still hopes to offer sub-$1000 return fares to and from Australia. Mr Osman-Rani said this would boost volumes on the Australian routes.
Thursday, November 13, 2008
TOULOUSE, Nov 13 - Long-haul budget carrier AirAsia X Sdn Bhd, which has well over RM300 million cash in hand, is set to turn in profits next year, says its chief executive officer Azran Osman-Rani.
"Probably within three to four months from operating our new planes, we will be profitable. With new planes, more passengers will fly," Azran said.
"Most important is cash flow and this is how we convince our financiers. We have been cash positive since April 2008," he said on board AirAsia X's brand new Airbus A330 aircraft on its ferry flight from Toulouse to Kuala Lumpur recently.
AirAsia X took delivery of its first A330-300, costing US$200 million (RM704 million), on Oct 31. These planes are for its long-haul operations, linking Kuala Lumpur with destinations in Australia, North Asia, the Middle East and Europe, complementing the existing AirAsia network.
Launched in January 2007, the affiliate of low-cost AirAsia Bhd had earlier this year placed an order for 25 Airbus A330 aircraft. Powered by Rolls Royce Trent 700 engines, the carrier's new A330 can accommodate 383 passengers in a two-class layout, with 355 seats in economy and 28 in the airline's new XL premium class. It is also equipped with the latest in-flight entertainment systems by Thales of UK.
Azran said the airline was also looking at local and foreign funds to finance the purchase of its 25 A330 planes, estimated at RM17.6 billion. So far, financing for the first few planes has been secured.
In addition to its positive cash flow, he said AirAsia's branding helped the long-haul airline to seek funds in markets which were badly hit by the credit crunch.
"When we made our presentation to financial institutions in August, we were very fortunate because financiers in Europe had confidence in our brand. We had AirAsia," he said.
"October 2008 will always be remembered as when the market crashed. The timing couldn't have been worse. Nobody was supposed to lend. Nature of banks is such that they only make money when they lend at higher rates. If banks don't lend, you don't make money."
Despite reports of a global decline in passenger traffic, he said the carrier was still experiencing a strong forward bookings from November to March.
Azran said the second A330 will be delivered in mid-December, followed by three each in 2009 and 2010. The remaining planes are slotted for delivery up to 2013.
"With three planes next year, we can add five new destinations. We hope to fly to Japan, Korea, China, India and at least one more country," he said.
Azran said the carrier was on track to start its flights to London in March and is in talks with three airports - Stansted, Manchester and East Midlands.
"We have made all the applications and everything looks positive. We hope to announce our sales launch in a month's time.
"UK will be exciting as so many people are waiting for it... students, families, friends. To me, what's exciting is not just UK, I am interested in getting new markets," he said.
On its marketing efforts, Azran said unlike traditional airlines which had to wait for passengers to plan their holiday destinations, the low-cost long-haul carrier had to go the extra mile to woo people to travel to places
they had never dreamt of going.
"It involves a lot of pull marketing. You've got to pull passengers in. For instance, we have to collaborate more with tourism bodies, concert or sports organisers. We have to do a lot more marketing. Have to scratch our heads to find reasons for people to travel. We cannot wait for people to come to us. That's why we use the media, celebrities to promote our airline.
"We have to keep finding new ways. I am particularly excited about our in-flight entertainment, a collaboration with Virgin Group of UK," he said.
AirAsia X is 48 per cent-owned by Aero Ventures (a venture of Datuk Tony Fernandes and several of his business associates), followed by 16 per cent by Virgin Group and 16 per cent by AirAsia.
Bahrain-based Manara Consortium and Japan-based Orix Corp have taken the remaining 20 per cent stake in the long-haul low-cost carrier.
A key principle of the AirAsia X business model is high frequency, point-to-point medium to long-haul services.
Covering destinations between four and eight hours in flight duration from Kuala Lumpur, AirAsia X complements AirAsia's current extensive route network.
Applying the point-to-point network, it says, also kept its operations simple and costs low.
"Code sharing with another airline involves massive amount of capex (capital expenditure), costs are high. Traditional legacy airlines invest hundreds of millions on computer systems, baggage clearing systems and payment systems. But you still lose your bags," Azran said.
"That system (code sharing) is not perfect. People are more price-sensitive and Internet-savvy. They can build their own itinerary. They can buy three different tickets for example, Sydney-Gold Coast, they can fly Virgin;
Gold Coast to KL they can fly AirAsia X and KL to Macau they can take AirAsia," he said.
"They can check in and out. Most people think Internet penetration in Asia is still low. But the reality is when you offer a good fare, people will find their own connection. If you don't have Internet connection, you can still book
online.They buy their own, check in and out themselves, our operating costs are significantly lower. That's a huge advantage."
The first A330 was used in AirAsia X's inaugural flight between Kuala Lumpur and Perth on Nov 2.
Since launching its commercial services in November last year, AirAsia X has operated its long-haul services to Hangzhou, China and Gold Coast, Australia, with one leased A330.
The airline has since experienced surging passenger demand, recording sales of over 345,000 seats after almost a year in operation.
AirAsia X, which has flown over 200,000 people across Asia and Australia, now serves the Kuala Lumpur-Perth route with six direct return flights per week. It plans to upgrade this schedule to a daily service by mid-December.The long-haul budget carrier will also commence services between Kuala Lumpur and Melbourne on Nov 12 - Bernama
AIRASIA X could soon be flying in and out of the Gold Coast daily.
The long-haul, low-cost airline will trial daily flights over the Christmas period which, if successful, could become a permanent fixture.
AirAsia X currently flies direct between Coolangatta and Kuala Lumpur four times a week, with connecting flights to 56 destinations including China, Laos, Thailand and Vietnam.
"From December 18 to January 15 we're going to be running daily services,"Australia AirAsia X general manager Darren Wright told The Bulletin.
"It's really a bit of test, obliviously the demand is there for us to do it over the busy Christmas period but if it proves to be successful we'll look at if it can continue," he said.
PETALING JAYA: As airlines globally struggle to get financing for future aircraft deliveries, AirAsia Bhd says it is close to finalising a deal worth close to RM3.5bil to fund the purchase of 37 new aircraft over the next two years.
Deputy group chief executive officer Datuk Kamarudin Meranun told StarBiz yesterday the airline had given Barclays Capital and BNP Paribas the mandate for the financing.
“It is an ECA-backed (export credit agencies) financing that would fund the next 37 aircraft for which delivery will begin on Dec 19,’’ he said.
“So far discussions have been held with ECA in Paris and we are now going through the documentation process. We hope to sign the financing agreement before the first delivery,’’ he added.
Asked about the borrowing rates, he said they “are very attractive.’’
AirAsia has ordered 175 aircraft with 50 under option. This year the low-cost carrier will take delivery of four more aircraft, followed by 14 next year and 23 in 2010.
AirAsia had debts of RM4.3bil as at end-June and cash reserves of RM1.1bil. The carrier’s net gearing is 1.9 times and analysts expect its gearing ratio to rise with the additional borrowings for the new deliveries.
The airline, which abolished its fuel surcharges on Tuesday, hopes to rev up revenue by selling more seats.
Market talk is that AirAsia, since abolishing its fuel levy, has raised its administrative fees by RM30 to RM70 one-way. This was denied by AirAsia group CEO Datuk Tony Fernandes.
“No, we have not increased our administration fees. It is still the same,’’ Fernandes said.
MELBOURNE: AirAsia X’s inaugural flight from Kuala Lumpur to Victoria, Australia, touched down at Melbourne Airport today - launching what the carrier describes as "a new era of international air travel" between the two destinations.
The inaugural flight used a new wide-bodied Airbus A330-300, which provides passengers with a level of service AirAsia X says passengers do not normally expect from low-cost airlines.
AirAsia X will service the route between Melbourne and Kuala Lumpur initially with four return flights per week. The airline has announced plans to upgrade this schedule to daily return flights during the peak season from 18 December to 16 January. Daily return flights will then commence from March 2009.
AirAsia X now actively services three Australian destinations - Melbourne, Perth (six weekly return flights) and the Gold Coast (four weekly return flights). The airline also operates five return flights each week between Kuala Lumpur and Hangzhou (Shanghai) in China.
AirAsia X CEO Azran Osman-Rani was accompanied on today’s historical flight by a number of AirAsia X board members, VIPs, as well as Malaysian Secretary General, Ministry of Transport, Dato’ Zakaria Bahari, and AirAsia X Chairman Dato’ Seri Kalimullah bin Masheerul Hassan.
Osman-Rani said the airline was thrilled to have successfully expanded its growing network to Victoria.
“After months of planning it is very exciting to see our well known red and white logo out on the tarmac,” Osman-Rani said. “We’re expecting this route to perform strongly as it is one of the most requested Australian destinations from our Malaysian guests and we know Melbourne travellers are keen to have regular, affordable travel options to Malaysia.
“Since commencing sales in September 2007 we have sold over 400,000 Air Asia X seats to date on our route network and over 60,000 between Melbourne – KL, which is the highest performing new route.
“Kuala Lumpur - Melbourne is an under-served route and one which is plagued by exorbitant fuel surcharges imposed by full service carriers. There is definitely a huge gap in this particular market for affordable travel. An increasing number of passengers need to use this route on a regular basis for leisure, education and family travel purposes and it’s great to know we can meet their needs with a service that offers value and reliability.”
Osman-Rani said that the arrival of AirAsia X in Melbourne was the culmination of a collaborative effort between the airline, the Victorian Government, Melbourne Airport and industry and was pleased with the endeavour shown to make the introduction of the service a success.
The success of AirAsia X rides on the back of affiliate AirAsia’s leading regional network in Southeast Asia and China. AirAsia has over 105 routes to 60 destinations and the highest daily frequencies to most Asian cities.
Passengers travelling with AirAsia X will enjoy latest technology fixed-backshell seats with sleek black leather upholstery, in-flight entertainment featuring innovative content and applications and Wi-Fi access.
Last week the airline celebrated its first birthday since commencing flight operations to the Gold Coast on November 4, 2007. In late October it was the recipient of the Centre for Asia Pacific Aviation (CAPA) Best New Airline of the Year Award 2008 bestowed at the CAPA Aviation Awards for Excellence held in Singapore.
AirAsia X showed it is at the forefront of the aviation industry this year by being the first airline in the Asia-Pacific region to sign up with ecommerce company PayPal for purchases of airfares and gift vouchers.
Wednesday, November 12, 2008
Air Asia X commercial adviser Tim Claydon confimed it was pressing on with plans to launch a Stansted-Kuala Lumpur service next year, as well as investigating routes to the Middle East using new aircraft.
Claydon said the 81% of passengers flying into Kuala Lumpur from the Gold Coast then transferred to its parent low-cost carrier Air Asia to fly to destinations such as Bangkok. This, he said, showed they were prepared to book multi-sector journeys on no-frills airlines.He said the failure of previous long-haul no-frills airlines Zoom and Oasis Hong Kong Airlines were not comparable with Air Asia X because they flew only point-to-point destinations and did not have the benefit of Air Asia’s hub in Kuala Lumpur.
Air Asia announced today that is abolishing fuel surcharges on all its flights from today and will give away 500,000 free tickets from midnight to encourage people to travel.It said it planned to cover the fuel surcharge by maintaining its high load factor, increasing capacity and increasing its profile through sponsorship.
AirAsia Chief Executive Tony Fernandes said the region's biggest budget carrier will offer 500,000 free seats for travel between June 22 and Oct 24, 2009, on all its domestic and international destinations.
'It will be completely free. Passengers will only have to pay airport tax,' Mr Fernandes told a news conference.
He said the recent steep drop in fuel prices has allowed AirAsia to adopt the bold strategy, adding that the loss of revenue should be offset by higher ticket sales, which will also be bolstered by new marketing strategies.
Mr Fernandes said AirAsia is the first carrier in the world to abolish fuel surcharges, which became a standard industry practice a few years ago as oil prices rose on their way to peaking at nearly US$150 (S$225) a barrel in mid-July. But since then, crude prices have tumbled because expectations that slower global growth will mean less demand.
'We want to do is get rid of these surcharges', Mr Fernandes said. 'The best way to do it is aggressive marketing and low fares.'
Eliminating the surcharges is expected to cost AirAsia about 940 million ringgit (S$392 million) a year.
Mr Fernandes said the move will boost Malaysia's economy as well as domestic and regional tourism by encouraging travel.
When AirAsia started in December 2001, it focused on flying within Malaysia. It has since expanded to Southeast Asia and China, and is scheduled to launch flights to India next month.
Malaysian Domestic Trade and Consumer Affairs Minister Shahrir Samad praised the decision.
'Anything that reduces costs to consumers and keeps money in their pocket gets my support', he told reporters after the announcement. 'What we need now is optimism instead of grumbling and quarreling.'
Mr Fernandes added that he could not guarantee that the removal of fuel surcharges would not hit AirAsia's profits, but said the company does not anticipate that would happen. He refused to say what the possible losses might be.
He noted AirAsia does not hedge its fuel purchases like other airlines do. To protect against the possibility of prices going up, some carriers make advance orders at current prices.
Mr Fernandes said AirAsia will not implement a corresponding increase in base ticket prices with the removal of fuel surcharges, but said he could not guarantee that the surcharge would not be re-imposed if oil prices surge again.
'It would be foolish of me to say that fuel surcharges will not be imposed again but we will resist it for as long as possible', Mr Fernandes said. -- AP
Air Asia, will begin its communication in South India. Carat India will handle the media buying and planning responsibilities in India, while Posterscope will handle the OOH duties and the Isobar network will provide digital inputs where required.
Ashish Bhasin, chairperson, India, and chief executive officer, Southeast Asia, Aegis Media, says, "We are delighted that Air Asia, our client in Malaysia, has entrusted Carat India their entire media responsibilities. All Aegis Media companies in India, that is, Carat, Posterscope and Isobar, will work together to ensure that we provide the best possible integrated media solutions to Air Asia."Air Asia, which is headquartered in Malaysia, started its operations in 2001 and has daily flights from hubs located in Malaysia, Thailand and Indonesia.
Monday, November 10, 2008
"The thing is in the next six months is to see if the demand holds up and how bad the crisis gets and whether it starts affecting demand in low cost airlines," group chief executive of Air Asia and Air Asia X founder, Tony Fernandes, says.
"I believe that we will be the last to be hit, I believe that premium airlines will be hit first."
Set up with its own operating license and raised capital of RM375 million ($A156 million), Air Asia X is the low cost, long haul affiliate of Malaysian low cost short haul carrier Air Asia, based out of Kuala Lumpur's Low Cost Carrier Terminal (LLCT)
The venture is 49 per cent controlled by Aero Ventures, which is owned by Tony Fernandes and associates, 16 per cent by the Virgin Group, along with Japanese leasing firm Orix Corporation and Bahrain based Manara Consortium each holding a 10 per cent stake.
Parent company Air Asia, the region's leading budget airline flying to 75 destinations, has a 16 per cent holding.
Fernandes has placed his faith in a strong business model and brand building to position Air Asia X as the region's leading budget long haul carrier flying to destinations over four hours from KL.
By 2013 the business plan aims for a fleet of 25 new Airbus A320s, A330s and A340s flying to over 25 destinations in Australia, China, India, Japan, Korea and the Middle East by 2013, while the brand has already expanded to include no frills accommodation and a financial service.
On the eve of taking delivery of a new Airbus A330, Fernandes is sounding surprisingly modest when he says, "I don't do it very often, this is the first A330 and my minister is going, so I said why not?"
The aircraft is slotted to service the new Air Asia X Perth-KL route that opened on November 2 this year, to be followed shortly by Melbourne.
These two routes have been added on the back of the success of the Gold Coast route that opened in November, 2007.
"Perth and Melbourne look fantastic and the Gold Coast has been a huge surprise to us," an upbeat Fernandes says.
This is just the first part of a business plan that will see Air Asia X over five years expand to 25 destinations across Australia.
"I am also keen on Adelaide and even Darwin," Fernandes adds.
But don't hold your breath for an Air Asia X Sydney service in the near future.
"The rights are an issue and we can sort that out, but Kingsford Smith is an expensive airport, very, very expensive," he said.
"For us to really make this work we need potentially low fares and that doesn't mean necessarily low fares to the present competition, but low fares in terms of affordability.
"I have to say I am exploring Newcastle as a potential ahead of Sydney."
In order to succeed, Fernandes is adamant that the airline must stay true to its original plans.
"I think the low cost airline model can only work if you stick very religiously to the model," he says.
"Yes, you can add bits and pieces, maybe assigned seating, but the principal has to be 25 minutes turnaround, high density seating.
"We can give you a suite of services so you get a better product, but you pay for it."
That is not to say that Air Asia X and other low cost carriers are not facing an uphill battle to stay ahead of the many facets of the crisis currently facing the airline business, such as high fuel costs, softer consumer demand and industry consolidation.
"I don't believe in consolidation, I believe that organic growth is the
only way," Fernandes says.
"I think you are going to get a premium airline that focuses on business class and low cost airlines will take over the back end of the market."
But even as the new kid in the skies Fernandes pays his respects to some of the old carriers.
"Qantas is one of the most successful airlines in the world, as is Singapore Airlines," he says.
"They have come out of a legacy government, they have a lot of protection and they had a lot of initial cash.
"For me, I founded Air Asia with RM1 million (about $A416,000) and I have to use the power of my people to ensure that we survive."
With most of their financing already in place, by 2009 Air Asia X will have six A330-300s and one, possibly two A340-300s for its planned KL-London route.
The recent instability in the oil market has seen many airlines shave millions off their profit forecasts or add to their red column woes.
Fuel hedging of up to two years or more into the future is a common practice amongst airlines, but a bold gamble seems to have paid off for Air Asia X.
"We didn't hedge anything. I have taken a very negative view on oil and we had some hedges at $US77, which I bought out," Fernandes says.
"I have been consistently saying that there is so much speculation in the market that the bubble will burst and the bubble has burst."
For the future, both Air Asia and Air Asia X are looking at hedging options for 2009 and 2010 but have not made commitments yet.
By basing local fares on the ringgit fare, Air Asia X has also sheltered itself from the falling Australian dollar.
"We are not charging a premium to people coming over to Malaysia from Australia so the falling dollar does not make a major difference to us,"
"A falling Australian dollar means lower costs for us in terms of turnaround fees and passenger charges."
With affiliate Air Asia operating with one of the world's lowest unit costs of 23 US cents a passenger kilometre and a break-even load of 52 per cent, Fernandes believes that as Air Asia X grows he has to be constantly vigilant that operating costs are reigned in.
"Oil aside, I think we can go another 10-15 per cent in slashing our operating costs in bureaucracy, airport charges, communication plans and overall office expenses and overheads."
Air Asia X franchises its brand from Air Asia, uses a common online ticketing site, livery and uniforms, and even produces its own promotional material and in-flight magazine.
"We have got new planes now so engineering costs will be coming down in about two years time," he adds.
Fernandes is also keen that Air Asia X maintains as flat a structure as possible.
"I would say my biggest job is managing employees, of which I have 6,500, and I would spend more than 50 per cent of my time with," he says.
"We have no unions, we are family orientated and have a low staff turnover and I think we are a genuinely happy company and I think that adds a couple of points on the bottom line," says Fernandes, who has an open Facebook page and gives his mobile number to staff.
The business model, the success of the parent company and the new training facilities at LLCT, and high forward bookings for the next quarter, are all good markers, but as Australians we are used to seeing low cost airlines fail.
Just think Freedom Air, Air Paradise, Impulse and Compass and Ozjet, all still littering websites but long gone.
Fernandes replies strongly when he says he runs a company that has already weathered many problems, some of which have caused other, less well prepared airlines to fail.
"Success is never guaranteed," he says.
"We have survived SARS to bird flu to protectionism to moving airports, earthquakes, tsunami, terrorism, so we are pretty stress tested.
"We are young (Air Asia), in terms of being only seven years old, but we are an old warhorse."