AirAsia X rationalizes routes, grand strategy, says Frost

Posted by- Neelam Mathews

Jan 19, 2012

The recent decision of AirAsia X  to stop  flying to Mumbai and London raised many eyebrows about the sustainability of long haul low cost services. Though the immediate concerns  point  towards high jet fuel prices, immigration concerns as well as  high  airport  taxes  have  also impacted the overall grand strategy to increase  yields,  rationalization and allocation of aircraft fleet to more profitable routes, says consultancy Frost & Sullivan.

“These routes (Delhi and Mumbai and Paris and London) were  bleeding  on  a  low cost model and with the MAS-AirAsia collaboration, cutting off duplicate capacities makes sense,” says Amartya De, Frost & Sullivan Senior Consultant for Aerospace & Defense.

“Part of the  network rationalisation process is also to bring passengers from European destinations on MAS up to Kuala Lumpur and then giving them a choice  to  scout  South  East Asia and move further to Australia either on Qantas  or on a low cost model. Key to the rationalisation and optimisation is  improving how the airlines interface at their Kuala Lumpur hub. MAS and
AirAsia  might  develop a transfer program, with the construction of KLIA 2,” he said.

With  AirAsia’s  Sydney  route  soon  to  be  opened, there are significant advantages  to  Malaysia  as a hub. Giving direct competition to Singapore, with  a  parallel  low  cost link connecting Melbourne, Perth, Darwin, Gold Coast  and  Sydney, AirAsia offers pan-Asian connections to fuel the routes
for South East Asia regional connections spanning as far as India.

Another parallel route which is likely to emerge and coexist is the British Airways-MAS partnership. “The opportunity is tremendous in order to maximise the  network  potential  that a combination of AirAsia, AirAsia X, Malaysia Airlines  and  IAG could bring along with Qantas. The tie-up with MAS could become a component of Qantas’ new international strategy,” says De.

“This   new  development,  along  with  the  SIA-Virgin  partnership, will intensify the Kuala Lumpur-Singapore rivalry. A similar pattern is emerging at Changi with Jetstar having started flights between Singapore and Beijing while  SIA  added  another  daily  frequency  only  to be passed onto Scoot
later,” said De.

Scoot  aims  to  help SIA re-capture the growth the group has lost over the past decade. Scoot is geared to enable SIA to capture the growth at the low end  of  the  market  but  it  will also allow the group to catch up in the premium  economy  segment.  SIA-Sydney  arrival  and  departure  times  are
expected  to occur during off-peak hours for Scoot, which might be the same case  for  AirAsia  X  so  that they do not overlap with MAS-Qantas flights timed to serve the premium market.

“The  overall  grand strategy sets up parallel routes from Europe and South Asia  through  Singapore and Kuala Lumpur reaching the far end of the world terminating  in  Australia  and New Zealand each serving its own market and earmarked segment of passengers and each giving an opportunity to switch to a low cost network,” said Frost.

“As for  the immediate issue at hand, AirAsia X will surely be able to  sustain  its long haul low cost services to Australia much better than what ensued on its London route.”