AirAsia X sees profitable year ahead

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