AirAsia

Airlines in transition: Hybrid and low-cost carriers push for better airline-airport relationships

Alex Cruz, CEO of Spanish LCC Vueling, spoke passionately at a recent conference of his need to see partnerships between airports and airlines that are deep and long-lasting. Mr Cruz referred specifically to co-operation that permits both partners to benefit from alternative revenue generation. Ahead of the forthcoming CAPA Airlines in Transition conference in Istanbul – which will feature some 30 airline CEOs addressing this and related issues – we consider how these parties have collaborated in the past and how it is shaping up now.

Vueling Airlines has become one of the innovators of the hybrid/low-cost business model that has become more prevalent and is found in other airlines such as easyJet (progressively) and Flybe (one of the originators of the model).

The fast changing airline industry makes life difficult for airport planners – just as change also offers opportunities.

After launching Sydney, AirAsia X focuses on higher frequencies and more intra-Asia services

It took low-cost long-haul carrier AirAsia X four years to secure the right to serve Sydney, and the carrier is now putting the matter behind it following its confirmation it will serve the Australian city from Kuala Lumpur with a daily service from 01-Apr-2012, with the likelihood of a double daily to follow. Another Australian city will later be added, to reach its goal of serving five Australian cities by the end of 2013. Also on the carrier's expansion list is increased services to its existing Asian destinations, many of which are not served daily.

While the Sydney route progressed in likelihood following restrictions being lifted in Jun-2011, the route became a certainty after start-up competitor Scoot said it would make Sydney its first destination from the middle of this year. The possibility of Malaysia letting a competitor based in Singapore, its fierce rival, serve Sydney before a Malaysian low-cost carrier was simply unacceptable.

AirAsia X route changes spotlight ownership complexity post MAS deal, but also growth opportunities

Doomsayers will be quick to look at a series of route cancellations from Malaysia-based AirAsia X and proclaim the demise of the modern low-cost long-haul model AirAsia X pioneers. The context for the changes – ending service to London Gatwick, Mumbai, New Delhi and Paris Orly – expands beyond fuel costs, rising taxes in Europe and new visa restrictions in Malaysia. AirAsia X was already struggling in Europe and particularly in India. The recent cross-ownership deal between Malaysia Airlines (MAS) and the AirAsia Group was also clearly a big factor.

That is not to suggest AirAsia X's changes are simply a matter of submission to MAS. The biggest advantage, besides brand awareness, of the high profile London and Paris routes was their ability to put passengers on multiple AirAsia short-haul flights as they travelled around southeast Asia. MAS' deployment of the A380 later this year will lower unit costs to London, narrowing the gap with AirAsia X, currently using more fuel-thirsty A340s. With the AirAsia-MAS partnership, and plans for the two to facilitate passenger transfers, the AirAsia group can still gain feed on its short-haul network while AirAsia X will benefit from redeploying capacity in Asia Pacific and, notably, China.

MAS will achieve its targeted 12% capacity reduction by February, to the delight of Gulf carriers

Gulf carriers and AirAsia will likely emerge as the main beneficiaries of the network restructuring at Malaysia Airlines (MAS). The Malaysian flag carrier has selected several routes to discontinue by early next month, resulting in a 12% reduction in system-wide capacity as it begins implementing its new business plan.

Peach to launch Japan's LCC sector with two-tier fare structure and basic ancillary options

2012 will see the rapid entrance of the low-cost model in Japan, a market whose high focus on service had been used as an excuse for why a la carte LCCs could not gain a standing in the country. The country's first LCC to come to market, Peach Aviation, has released its launch fare structure that offer discounts upwards of 58%. Despite fares significantly lower from full-service competitors, its ancillary options are so far basic, leaving room for improvement from established LCC brands AirAsia and Jetstar, who will enter the market in 2012 with their AirAsia Japan and Jetstar Japan subsidiaries.

While Peach's offerings may be underwhelming for those versed in LCC commercial strategy, they will still come as a shock to the Japanese, who have broadly not experienced a home-grown LCC. While Peach will have the first mover advantage in the market, it will also be the first to help the market adjust to LCC pricing strategies, which AirAsia and Jetstar will build on. Peach too can also be expected to expand its offering.

Malaysia Airlines new business plan targets premium sector, following strategies of Cathay and SIA

Malaysia Airlines (MAS) has unveiled a new business plan aiming to restore profitability by significantly cutting capacity and increasing focus on the premium sector, which includes the launch of a new regional premium carrier in 1H2012. Several business units including maintenance, cargo and ground handling are to be spun-off, most likely in 2012, as part of a bid to free up capital required to fund rapid fleet renewal and the reinvigoration of MAS’ core business. MAS will swiftly phase out its B747-400 and A330-200 fleets over the next year, leading to a 12% reduction in total capacity.

The decision to draft yet another new business plan at MAS, which has made multiple turnaround attempts over the years, hardly comes as a surprise following the landmark partnership agreement forged in Aug-2011 with long-time rival AirAsia. The agreement, which included an equity swap and the appointment of AirAsia Group CEO Tony Fernandes to the MAS board, inevitably required MAS to downsize and abandon its attempt to compete with AirAsia at the low end of the market.