Sunday, August 30, 2009

Banking on a perfect flight plan

28 August 2009
Rani says AirAsia X is one of the most efficiently run airline.

When AirAsia X, the world's definitive long-haul, low-cost airline, announced the launch of a Middle East operation last week it caught everyone by surprise – the region, the industry… and even its CEO.

The carrier, a dominant player in Southeast Asia with roots in Malaysia and international connections to Australia, China and the UK, brought forward the launch of its Abu Dhabi service, which was initially planned for late 2010-early 2011, CEO Azran Osman Rani told Emirates Business.

"We didn't think we would reach this stage so fast," he said. "But the Abu Dhabi Airports Company (ADAC) team has been very persistent. They kept meeting us in Kuala Lumpur and bringing us here to showcase this as a destination. And once you come here and think about what is going to happen to Abu Dhabi over the next few years it is mind blowing."

AirAsia X postponed the launch of services to the Indian cities of Amritsar, Delhi and Mumbai so it could start flying between Abu Dhabi and Kuala Lumpur before the end of the year.

The airline spent a considerable amount of time mulling over Bahrain "very seriously", Sharjah "very, very seriously" and Dubai as its regional hub before zeroing in on Abu Dhabi. It was ADAC's dedication to the low-cost model that sealed the deal.

"It came down to the commitment of the airport to work with us to create new markets and encourage other low-cast carriers to fly into the market," added 38-year-old Rani. "So we're very keen to see more Jazeeras and Bahrain Airs flying in. Hopefully we'll get to see a 'flyabudhabi' providing more regional connectivity – that's what we're banking on."

Regional connectivity is crucial to AirAsia X's viability. It is what sets it apart in a world that has longed to make long-haul flights – above four hours' travel time – easily affordable to the mass market. Only the legendary Sir Freddie Laker pulled it off in the 1970s with his famous Skytrain service between London and New York. That was until British Airways and Pan Am priced Laker Airways into oblivion.

Later attempts by the likes of Canadian Zoom Airlines and Oasis Hong Kong Airlines were defeated by volatile fuel prices and huge operational losses. Well aware of these dangers, AirAsia X's dynamic young team – drawn from a multitude of other sectors – responded with a razor-sharp business model that forced the aviation industry to sit up and take notice.

A gigantic saving of $50 (Dh183) per passenger on its food and beverage service and an unprecedented cost per available seat mile of just 2.4 cents, achieved through optimised aircraft utilisation and online operations, were the obvious achievements.

But this motley crew of media, finance, customer relations and aviation honchos also unearthed the much sought-after answer to the segment's most fundamental problem – the need for onward connections. Cheap transcontinental flights are inevitably flooded with travellers eager to explore the terrain beyond the initial destinations.

"One of the most important and compelling insights we've been able to derive over the past two years is that when you fly long haul you have to use these big, wide-bodied jets," said Rani. "So it means to fill up those planes every day you cannot just rely on point-to-point traffic, you have to rely on the connection feed.

"And what we've realised is that you don't need all these sophisticated code-sharing, inter-aligning alliances, getting computer systems to talk to each other and payment settlement systems that just add so much complexity and cost.

"We realised that people today can buy two tickets on the internet. They can buy separate tickets from Germany to Stansted in the UK and from Stansted to Kuala Lampur very easily and still connect."

While traditional carriers remained focused on conveniently timed optimal connections through a hub-and-spoke model that kept planes waiting for long, Rani's team rewrote the book.

"They probably use their plane 13 or 14 hours a day. We use our planes close to 18 hours a day by not adhering to these age-old norms. So you're buying the same plane but extracting 30 to 35 per cent more use from it.

"Even if your fares are lower you still get the same revenue. You also have more seats on your plane because you don't have the big first class, big toilets, big galleys for big trolleys. And more seats for more hours means you can lower your prices and still earn money."

The decision to do away with first, business and economy class segregation led to the addition of 80 more seats on the airline's A330s, with only nine cabin crew as opposed to the 14 other airlines employ. Paid-for, pre-selected meals removed the need for a free trolley service – and the resulting wastage.

"When you add the extra number of cabin crew, the working hours, the overnight stays and divide the wastage and all the other extra costs the saving comes to $50 per person on food and beverages alone. We scrubbed through every single line item to figure out what it is that you really need to deliver to your passengers."

The Abu Dhabi route is due to become operational in November with fares starting at Dh99, and Rani has his eyes set on connections from the capital to Spain, North Africa and Scandinavia.

Another development brewing in the Air Asia X camp is a rapid expansion of its budget express courier service, Redbox.

"You have to keep finding new ways of earning money, new ancillary revenue opportunities. Redbox is an express courier service to take on the UPSs and DHLs of the world with a low-cost model. We have practically unused capacity on our planes so we can offer 50 per cent lower express rates.

"It's a new way of earning money with the same aircraft and it will be a $100 million business for us over the next few years."

In addition, the airline has "gone big" on online sales of merchandise, event and concert tickets, ground transportation, hotels and tourist attractions.

At a time when traditional carriers are struggling to mitigate the effects of the global recession, AirAsia X has unabashedly reported growth, expansion and aircraft orders with much fanfare. At this year's Paris Air Show it joined Qatar Airways as one of just two carriers to place aircraft orders – for 10 A350s at a list price of $200 million each, to be delivered in 2016.

In the seven years leading up to the arrival of these new-generation aircraft from Airbus the carrier will add 23 A330s to its existing five-plane fleet – three A330s and two A340s. And it plans to expand services to its core markets of Australia, China, India, Japan, Korea and the Middle East. The US and Europe will play much smaller roles.


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