Wednesday, April 15, 2009

Qantas announces profit downgrade and severe cutbacks, while AirAsia expands and shares rise

14 April 2009

AirAsia up, Qantas down. The conventional wisdom is that LCCs prosper in difficult times and network airlines suffer.

So it is perhaps no surprise that, in these troubled economic conditions, there could be no starker contrast between the outlook of AirAsia and of one of the region’s previously most profitable airlines, Qantas.

Qantas shares were not traded on Friday 10-Apr-09 or yesterday (13-Apr-09), but today’s announcement of severe cutbacks in the carrier’s operations and a profit downgrade – with perhaps more to come – will shake the market. In early trading today, the stock was down nearly 10%. But this may recover, as investors realise that losses may be reduced as capacity is steeply cut back.

Meanwhile, AirAsia shares, after a solid rise on Friday, gained another 6.4% yesterday. This is on the back of (as yet informal) media reports that the carrier increased its passenger uplift by 21% in 1Q09, in line with capacity. Load factors would therefore have been steady, although inevitably there must have been some yield dilution.

Against the dire predictions from Qantas, the contrast is stark. Instead of expanding, Qantas is cutting back severely – on both profits and on capacity.

Against a full year profit forecast of AUD500 million, made as recently as three months ago, the expectation is now for “between AUD100 million and AUD200 million.” Moreover, “The profit forecast range is subject to no further changes in market conditions, fuel prices, and volatility in hedge accounting results.”

Any such changes are unlikely to mean a revision upwards.

The carrier is effectively informing the market that it will make a substantial operating loss in the first six months of 2009 (2H09 for Qantas’ financial year), after having reported a net profit of AUD216 million in the first half of the financial year.

Asia Pacific airlines daily share price movements (% change): 13-Apr-09

AirAsia releases information for flights to/from Bangkok

14 April 2009

AirAsia flights in and out of Bangkok are operating as usual despite the state of emergency declared by the Thai government. We do not expect any interruptions or cancellations at this moment.

However, we are monitoring the situation closely and will provide regular updates for your convenience. Guests are advised to check our every four hours for updates. We will also send out SMS alerts and e-mails if the situation changes so as to keep you fully informed.

AirAsia shares the concerns of our guests regarding the current situation in Bangkok. We have, thus, decided to provide the following options for our guests should they wish to defer their flights to Bangkok:

Option 1: For flights from 13-Apr (Monday) to 19-Apr (Sunday), we offer a credit shell, valid for 3 months, if guests cancel their flights to and from Bangkok during the valid dates. The credit shell can be used by guests to book flights to other destinations.

Option 2: If guests decide not to travel to Bangkok but change their destination, they can do so without penalty during the valid dates above. They will, however, have to pay any fare difference for travel to their new destination.

AirAsia flies high on a small budget

13 April 2009

Kathleen Tan (second left) and flight attendants whose images are painted on the bodies of AirAsia planes.

AirAsia has all the hallmarks of a no-frills airline: smaller seats, less legroom, and charges for drinks and meals. But it is not just low costs that have created Asia's most successful and largest budget airline.

Kathleen Tan had much to do with it.

A former recording industry executive, the fortyish Tan is regarded as the marketing fuel behind the success of the seven-year-old Malaysia-based airline.

"Our fares are cheap but nothing else about us needs to be cheap," said Tan, executive vice-president of AirAsia.

Despite soaring oil prices and a deepening global economic downturn, AirAsia last year launched six new routes to southern China, the most aggressive expansion by a foreign carrier in the country. The airline began to fly to Tianjin at the beginning of April in a bid to expand its network to northern China. It also plans to fly to the country's southwest city of Chengdu next year.

Branding has been key to AirAsia's fast growth. Last year, the airline unveiled the world's first commercial A320 airplane painted like a Formula 1 racecar. In 2007, AirAsia signed a three-year partnership with the world's leading Formula 1 team, AT&T Williams, as its official airline. The airline is now in talks with Manchester United about becoming the football club's fourth sponsor, following Sharp, Vodafone and AIG.

"Saving costs is the most important target for budget airlines. But you cannot cut costs on everything. It is worthwhile to invest in brand-building," said Tan.

Sports sponsorship is an important part of Tan's strategies to strengthen AirAsia's brand globally. The sports sponsorships create a direct connection with the airline's core population of passengers who are largely male, Tan said.

Before joining AirAsia in 2004, Tan was managing director of Warner Music Singapore for seven years, and chairwoman of the Recording Industry Association of Singapore.

Tan considers her biggest advantage in operating the airline's marketing to be "thinking outside the box and breaking the conventions".

An AirAsia jet displaying sponsor logos.

"Promoting a new air route is somewhat like promoting a new music CD. Also, pilots and music stars have one similarity: they both have very strong egos. You should be careful when working with them," she added.

Tan went one step further than sports sponsorship for image building. The airline has painted the pictures of their flight attendants on the aircraft bodies.

"We want to present an image of 'youth and energy'," Tan said. "Everybody at AirAsia should be an ambassador. Our stewardesses are pretty and friendly. Why can't we promote that on our own aircraft?" she said.

If sports and beauty are not enough to attract passengers to AirAsia, the airline's annual 1 million-free-air-ticket promotion has definitely attracted attention in China.

"This annual free-ticket campaign has been very effective in driving the traffic on our website," Tan said. "Many young people regularly visit our website. They may not necessarily come to book a ticket. They just want to know if AirAsia is dishing out new promotions. That is just what I want to achieve. "

AirAsia has been the hottest topic on the Internet backpack travelers bulletin board system in recent years for such promotional activities.

"We often exchange tips on how to get best deals at AirAsia," said 33 year-old Qin Siyi, who has traveled to Southeast Asia on the budget airline at least once a year since 2007.

Qin was one of the lucky travelers in a recent AirAsia promotion. He got a free roundtrip ticket between Hangzhou and Kuala Lumpur and only paid 460 yuan in taxes.

"The whole trip will only cost 460 yuan. It is even cheaper than flying from Hangzhou to Beijing," said Qin, who runs a consulting company for overseas study in Nantong, Jiangsu province.

But, said Qin, such promotions are not suitable for everybody.

"The free-ticket campaign officially kicked off at AirAsia's website on February 10. I started booking right after midnight and tried several times before I finally got one," Qin said.

"Another issue is that you have to plan your trip way ahead of time," Qin added. The travel date on Qin's ticket is October 12.

Compared to full-service carriers, low cost airlines may not have the most optimal time schedules, especially for catching connecting flights, Qin said. You may arrive at midnight or have to rush to catch the next flight.

"But backpack travelers like me don't care so much about that. The low price is the most important thing," said Qin.

A rising number of business travelers have been using AirAsia, as corporate travel budgets shrink due to the global economic downturn.

"Business travelers now account for nearly 30 percent of our passengers," Tan said.

Asian businesses could reduce their travel spending by as much as 20 percent this year to cut costs amid the global economic slowdown, according to a recent report by Carlson Wagonlit Travel, a business travel management company.

"The prevailing global economic uncertainty is exerting negative pressure on the industry. But there is a silver lining. We continue to enjoy sustained traffic growth as more passengers switch from the legacy carriers to our low cost services," said Tan. The airline is expecting a 15-20 percent passenger growth in 2009.

Despite that, AirAsia has not been immune to economic challenges, such as last year's volatile crude oil prices. AirAsia's revenues grew by 37 percent year-over-year in 2008, but it still encountered losses of $129 million.

The competition is another challenge. Guangzhou-based China Southern Airlines was the first to fight back against AirAsia's low price campaign at the beginning of March. The State-owned carrier slashed its round-trip fare between Guangzhou and Southeast Asia to 199 yuan per person as opposed to AirAsia's 308 yuan.

As one of the fastest growing airlines in Asia, AirAsia operates a fleet of 72 aircraft and has over 400 flights daily from hubs located in Malaysia, Thailand and Indonesia. The ambitious airline has placed a huge order for 175 Airbus A320 jets and 25 A330 wide-bodied aircraft.

From limousine to bus

Kathleen Tan was brought into AirAsia by the airline's CEO Tony Fernandes, who was Tan's former boss and Warner Music Group's Southeast Asia regional vice-president. Fernandes did not respond to China Daily's request for an interview about Tan.

"I was tired of working in the music recording industry. I wanted something new," Tan recalled. "Young people seldom buy CDs. They are all downloading music from the Internet. It would be very hard to do this business in the near future."

To shorten her transition into the new job, Tan bought books on the success stories of low cost carriers such as Southwest Airlines and JetBlue Airways from the United States and Ryanair from Ireland. "Those books helped me get a grip on how the low cost airline industry works," said Tan, who loves reading and cooking in her spare time.

Getting used to the culture shock at a cost-conscious carrier was not easy at the beginning for a businesswoman used to limousines and exclusive golf club memberships in her previous jobs.

"I take the shuttle bus from downtown to the airport instead," she said.

When she wanted to quit after the first few weeks, Fernandes assigned her to head AirAsia's expansion in China, the world's fastest growing commercial aviation market.

She stayed.

"China is one of the most exciting markets for anybody. You can't resist the temptation," Tan said.

China is still an open field for low-cost airlines. Spring Airlines, a private Chinese start-up carrier based in Shanghai, is the only budget airline in the country and only operates domestic flights. AirAsia's smaller rivals, Tiger Airways from Singapore and Cebu Pacific from the Philippines, are the other two international low-cost airlines operating in China.

When traveling around China, Tan always gives speeches in Chinese.

"You will have a better connection to the local people by using their own language," said Tan, who was born in Singapore. "I really feel grateful to (former Prime Minister) Mr Lee Kuan Yew, who was a strong advocate of teaching mandarin at school."

Tan began her career in the advertising industry in agencies such as Leo Burnett.

She later spent six years with fashion retailer F J Benjamin Group Singapore where she oversaw marketing communications for Guess, Gucci, Coach and many other labels.

"She has a lot of passion for her work and the people around her," said Bingo Wang, supervisor of public relations for China market, AirAsia. "She is also very good in providing direction and the type of boss who wants her staff to excel in their work."

Recession an opportunity for budget airlines: AirAsia chief

10 April 2009

AirAsia X’s A340 is given a ceremonial water canon welcome at the Stansted Airport, the UK. The crisis is actually an opportunity for low-cost carriers or any low-fare model of business, the chief executive of AirAsia said

Budget airlines need access to more countries while airports in Southeast Asia have to understand the “volume game,” Tony Fernandes, founder and chief executive of AirAsia, said.

“To be a truly low-cost carrier, we need to have access,” he told Thanh Nien Daily in Singapore last week.

The Malaysian knows a thing or two about getting access to destinations from governments – after all, it took him seven years to get a license to set up operations in Singapore while a proposal to set up a joint venture with Vietnamese state-owned Vietnam Shipbuilding Industry Group was shot down in 2007.

But he told Thanh Nien Daily the bigger challenge for no-frills carriers is paying airport charges.

“Our airfares are sometimes less than the airport taxes.”

The region’s airports have to understand low-cost flying is a “volume game.”

“If I build an airport I have fixed costs. If I can put another two million [passengers] through there by only charging 30 percent [of the fare], it’s better than not having the two million.

“Airports in this part of the world are used to premium legacy airliners -they don’t understand the ‘volume game’ yet – that’s the big challenge.

“If I have that then we reach the optimal stage.”

And by “optimal stage” he means cheaper, more approachable no-frills airlines so that, as AirAsia’s slogan says, “Now Everyone Can Fly.”

The glass is half-full

AirAsia’s load factor remains strong despite the global economic slowdown and Fernandes has no plans to slow the pace of its route expansion.

As the recession gains traction, many passengers, instead of canceling trips, would look for cheaper tickets, he said.

“People won’t stop their holidays. It’s about life.

“To cut costs you may go closer or maybe for fewer days but people have a routine of having a holiday.

“So I think we’re in a good position to benefit.”

The crisis is actually an opportunity for low-cost carriers or any low-fare model of business, he said.

“If you look at America which is in a very bad situation, Best-Buy is doing very well, Wal-Mart is also doing very well.

"We are obviously seizing this opportunity when some of the other premium airlines are cutting back on their growth and people are transferring their business from legacy airlines to low-cost carriers.”

Advance bookings at AirAsia for the second and third quarters are actually higher than in the same period last year, Fernandes said without giving numbers.

This, however, includes 80,000 bookings on four new routes – from Singapore to Bandung, Jakarta, Bali and Yogyakarta in Indonesia – launched last month.

AFP quoted the Center for Asia Pacific Aviation (CAPA) forecasting earlier this year that as the global downturn bites, low-cost carriers would outpace traditional airlines “in terms of traffic growth and earnings in 2009.”

Qantas Airways Ltd., Australia’s largest airline, has eliminated 1,500 positions globally. Air France-KLM Group, Europe’s biggest airline, plans to cut 2,000 jobs, joining Ryanair Holdings Plc and SAS Group in shedding staff, Bloomberg reported.

Hong Kong’s Cathay Pacific Airline registered a loss of US$1 billion in the second half of last year, while Singapore Airlines’ passenger numbers slumped 20 percent to 1.18 million, the biggest decline since June 2003, according to Bloomberg.

But Fernandes does not think low-cost carriers would replace traditional full-service airlines, saying instead a market segregation is likely in the future.

“The low-cost airlines are looking after the back end of the plane and airlines such as Vietnam [Airlines] and Thai [Airways] and Singapore [Airlines] focus on first class and business class and they may have something called premium economy.

“Airlines try to do too much themselves and that’s why they’ll run into problems.

“To look after first-class passengers and economy passengers is very different. We need a focused product.

“I think, eventually, [we’ll see] low- cost model taking economy and full-service the higher classes.”

Headstrong and successful

Fernandes recently won the Laureate Award for Commercial Air Transports given by the US-based Aviation Week magazine for successfully keeping “the airline’s low-fare model intact while substantially growing the fleet and promoting employee empowerment.”

Launched in December 2001 with just two aircraft, AirAsia has since grown to become the region’s leading no-frills airline with a network covering more than 122 routes and a fleet of 75 planes.

The carrier last week scooped this year’s “World’s Best Low-Cost Airline” award by Skytrax, a UK-based consultancy that rates commercial airlines.

The 45-year-old attributes the carrier’s success mainly to his single-mindedness.

“I think persistence is the thing. One of my mottoes is ‘never take No.’ Persistence is the difference between us and other low-cost carriers. Never give up.”

He spent seven years trying to break into the Singapore market and now the carrier has 10 routes out of Singapore. It expects to carry a total of two million guests to and from Singapore this year, Fernandes said.

The CEO looked ahead to that time with a sense of contentment.

“I said to the then Minister of Transport in Singapore ‘I’ll still be here when you retire and I’ll get my right.’ And he retired and I got my right.”

Fernandes said his determination comes from an awareness that he’s helping connect ASEAN countries and boost their tourism and popularity.

“Ultimately I know I’m doing something good. We need to promote an ASEAN brand and that’s what AirAsia is contributing to.”

AirAsia’s slogan for new routes in Singapore is “A New Girl Has Arrived in Town. She’s Half the Price but Twice the Fun.”

“The airline industry is a high-pressure industry,” Fernandes said to explain the risque slogan.

“We had SARS, we had tsunami and terrorism and life is too short. I think people will enjoy a taste of fun. Some might not but the majority will,” he said.

Yearning for Vietnam

Despite AirAsia’s failed attempt to strengthen its position in Vietnam, Fernandes is hopeful it will manage to grab a larger slice of the market in future.

“I’d love to be in Vietnam. Vietnam is an amazing country and the people are so bloody nice.

“I think Vietnam will benefit from AirAsia’s flights and vice versa because there is so much culture, so much potential.”

But AirAsia has no plans now to launch a direct flight from Vietnam to Singapore.

“We don’t have a license to fly directly to Singapore from Vietnam. Right now we can’t do that,” he told a press briefing in Singapore recently.

Vietnamese customers must transit in Kuala Lumpur to fly to Singapore.

But AirAsia is training a crew of 20 Vietnamese and Fernandes is bullish that one day the Vietnamese government will allow the airline in.

“Believe me, if I have the license, I’d be there tomorrow.”

CIMB targets 150,000 new online savings account holders

09 April 2009

CIMB Bank has targeted to net 150,000 account holders, with savings of more than RM300 million, before the year's end for its newly-launched online savings account.

CIMB Bank head of retail banking Peter England said the new CIMB Bank AirAsia Savers Account was a partnership between the bank, AirAsia Bhd and Tune Money Sdn Bhd.

As a paperless account, customers do not require a passbook and enjoy the convenience of viewing their account statements online, anytime and anywhere, he said at the launching of the account here today.

England said the CIMB Bank AirAsia Savers Account offers an interest rate of up to two per cent per annum with a cash-back incentive of RM5 for those maintaining a monthly balance of RM5,000.

He said account holders are also entitled to a complementary Tune Money Prepaid Visa Card to better manage expenses during their travel.
To open an account, customers need to deposit a minimum of RM50 only and account holders with savings of RM3,000 at the end of each quarter are entitled to one bid for AirAsia's free flights to any destination of their choice, AirAsia e-gift vouchers or AirAsia's Hot Seats.

All bids are placed at CIMB Clicks -- CIMB Bank's online banking portal.

CIMB Bank AirAsia Savers account holders also enjoy surprise birthday treats, promotional fares and priority bookings for all AirAsia destinations.

Datuk Seri Nazir Razak (left) and AirAsia Bhd group CEO Datuk Seri Tony Fernandes jointly launching the CIMB Bank AirAsia Savers Account o Thursday.

Why terminal was built at KLIA

09 April 2009

THE move to build the new Low Cost Carrier Terminal (LCCT) at the Kuala Lumpur International Airport (KLIA) was based on several reasons, said Deputy Transport Minister Datuk Seri Panglima Lajim Ukim.

In reply to a question by Senator Datuk Yip Kum Fook, he said the reasons were:

- The need for low-cost carriers to achieve a 20-minute turnaround, which would be difficult to do at the main KLIA terminal;

- LCCT operation does not require full-service carrier facilities such as aero-bridges and airline lounges that are provided at the KLIA main terminals;

- To overcome overcrowding at the KLIA main terminal check-in counters, departure lounge and parking areas, particularly in the mornings; and,
- Increasing number of low-cost flights since AirAsia began operations and the number of such flights will continue to increase.

Lajim said apart from AirAsia, other low-cost airlines operating from the LCCT include AirAsia X, AirAsia Thailand, AirAsia Indonesia, Cebu Pacific and Tiger Airways.

New Thai tour package combines events, airfare and accommodation

07 April 2009

Budget carrier AirAsia, BEC-Tero Entertainment and Holiday Inn have joined forces for the first time to offer an entertainment tour package named “Bangkok Calling.”

The package consists of fares on AirAsia, accommodation at Holiday Inn Bangkok, and tickets for world class events brought to Bangkok by BEC-Tero Entertainment and Scenario, officials said at a press conference on Thursday.

The events will kick-start with South Korean comedy show Nanta Cooking in July, followed by smash hit musical Mamma Mia! in August and the Thailand Open tennis tournament in September.

“This is the very, very first time that AirAsia has joined such a package,” said Tassapon Bijleveld, CEO of Thai AirAsia. “We always position ourselves as a fun airline and we always do something around entertainment: concert, plays, or whatever.”

“This is really ‘Bangkok Calling’,” he said.

Commenting on the partnership, Tabatha Ramsay, Area Director of Sales and Marketing – Thailand InterContinental Hotels Group, said, “Holiday Inn Bangkok is very pleased to be part of the ‘Bangkok Calling’ campaign as we see this is an extremely practical way of promoting tourism in Bangkok and Thailand.”

The campaign is expected to draw in people of all age groups including families in Thailand and across the region. Booking is available through

The AirAsia Group, headquartered in Malaysia, has been expanding rapidly since 2001 to become the leading low cost carrier in the region.

It has a fleet of more than 70 aircraft that fly more than 122 domestic and international routes.

Holiday Inn Bangkok, located in the heart of the bustling business and commercial districts, features two towers with 379 guest rooms, and a range of dining and entertainment venues. BEC-Tero Entertainment Company conducts its business in seven major divisions, including television programs, film, concerts and events.