AirAsia stays ahead of competition with increased ancillary businesses

12 August 2009

KUALA LUMPUR: With the aviation sector still riding turbulent skies, carriers are looking at new ways to stay ahead of the competition.

Budget carrier AirAsia is spreading its wings, after a new share issue worth over US$172 million attracted strong investor interest.

It is pumping up its ancillary services to extract maximum value from its assets.

Tony Fernandes, CEO of AirAsia, said: "Ancillary businesses is really monetising the data base that we have and looking at assets in totality and seeing what businesses we can extract from our assets.

"So it's selling more insurance, it's selling more goods, its maybe selling duty-free online to our guests. And I think it's a very good buffer for oil price.

"You know, we generate 29 ringgit per passenger on ancillary. That's equivalent to 30 dollars of oil. My target is 60 dollars of ancillary. And hence if oil goes up to 100, I can keep my prices where they are."

As part of the effort, AirAsia has launched an express Redbox courier service.

Overall though, there are concerns that its new low-cost terminal in Kuala Lumpur may not be ready by 2011, thereby clipping its wings.

AirAsia has already deferred the delivery of eight A320 aircraft by four years to 2014 because of constraints at its current terminal.

Fernandes said there is a strong possibility there may be more such deferments. Its 2011 aircraft deliveries may also be deferred, with a final decision to be made in a few months.

Meanwhile, its long-haul carrier AirAsia X is setting up a virtual hub in Abu Dhabi to tap into the European and Middle Eastern markets.

The Centre for Asia Pacific Aviation views this as an important move if the carrier is to have a cost advantage over its rivals as high aircraft utilisation rates are crucial to the viability of the long-haul LCC's business model.

There has been talk of merging the two carriers for greater synergies.

Fernandes said: "An airline is about having more passengers and growing profits from airline operations and I think sooner rather than later would make sense. Maybe we'll look at it again at the end of the year."

The budget carrier's business in Asia has grown exponentially in recent years. It now has a 16 per cent market share, with some industry experts predicting this will hit 20 per cent in the next two years.