Unfazed by weak yields, AirAsia X bets on scale to win

Tue Apr 29, 2014 2:14am EDT
 
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By Yantoultra Ngui

KUALA LUMPUR (Reuters) - AirAsia X Bhd (AIRX.KL: Quote), the long-haul arm of Malaysian budget carrier AirAsia Bhd, is betting its dual strategy of scale and multi-country hubs will make it the region's dominant airline and help it survive the short-term impact of declining yields.

"We are deliberate in our strategy of expanding aggressively, especially in 2014. This is the business where, basically to succeed, you've really got to be number one in your segment," said AirAsia X Chief Executive Azran Osman Rani Azran.

"If you're number three or number four, it is going to be very hard...that's proven around the region, in America and Europe and how AirAsia (AIRA.KL: Quote) continues to survive in Southeast Asia by being more than double the size" of other low-cost carriers, Azran told Reuters in an interview.

Steep price cuts by rival Malaysian Airlines MASM.KL on medium and long-haul routes last year hit passenger yields at AirAsia X, forcing it to discount fares to maintain load factors.

"Naturally there is short-term pressure on yields because typically every new capacity that we add in takes at least 12 months to break even," Azran said. "And so our portfolio is roughly about two-thirds above matured and profitable and one-third of the business is still new," he said.

BIG AMBITIONS

Seven-year-old AirAsia X, which flies from Kuala Lumpur to Saudi Arabia and 18 destinations in the Asia-Pacific region including points in Japan, China and Australia, has been the most ambitious of long-haul budget carriers in expanding its fleet and routes.

It plans to open a Bangkok-based affiliate, Thai AirAsia X, in June, followed by an Indonesian affiliate later this year.   Continued...

 
Azran Osman-Rani, chief executive officer of long-haul carrier AirAsia X, smiles during the launch of the company's prospectus in Kuala Lumpur June 10, 2013. AirAsia X, founded by entrepreneur Tony Fernandes, launched on Monday an up to $370 million initial public offering in Malaysia, seeking to raise funds to repay bank loans and for capital expenditures, according to a term sheet of the deal seen by Reuters. REUTERS/Bazuki Muhammad (MALAYSIA - Tags: TRANSPORT BUSINESS TRAVEL) - RTX10IB9