AirAsia X; the long route to profitability

By Bjorn Fehrm

March 1, 2017, ©. Leeham Co: AirAsia X, the long haul sister of Tony Fernandes’ AirAsia, finally turned a profit during 2016. The airline, which started operation in 2007, had a bumpy ride from the start.

Initial operations were when fuel prices was at the highest, and the aircraft chosen, the Airbus A330-200 and A340-300, weren’t the most economical.

After scaling back operations in 2012 and focusing the fleet on the more economical A330-300, the business gradually turned. The low fuel prices of 2015-2016 finally brought the airline profitability for the last fiscal year.

AirAsia X

AirAsia X started in 2007 as a sister company to the AirAsia LCC. Its charter was long-haul LLC. First operations were between Kuala Lumpur and Australia’s Gold Coast. The initial network was a mixture of medium range destinations to Southeast Asia, Australia and faraway destinations like London, Paris and Christchurch, New Zealand.

The long range missions were flown with Airbus A330-200 and A340-300. This was too ambitious and caused losses. During 2012 and 2013, the loss making long-range destinations were cut (London, Paris, Christchurch, Abu Dhabi) and gradually the A340-300 and A330-200 left the fleet.

AirAsia X focused on higher demand destinations in the Southeast Asian realm. As fuel prices declined, losses decreased and the 2016 operation was the first which was profitable on a Fiscal year basis, Figure 2. (to get to US Dollars, divide by three).

Figure 2. AirAsia X operational financials 2015 and 2016. Source: AirAsia X.

The profits were the results of lower fuel prices, but also of increased demand with a moderated capacity increase. For the first time, load factors climbed close to 80%, Figure 3. This is still a low figure for an LCC operation.

Figure 3. AirAsia X’s operational data 2015 and 2016. Source: AirAsia.

A CASK (Cost per Available Seat Kilometer) ex-fuel of US cents 2.20 is very competitive for an LCC. The RASK (Revenue per Available Seat Kilometer) of US Cents 3.30 is less so. To reach the low CASK, AirAsia X, which operates as an independent airline, shares administrative systems, staffing management and reservation systems with the larger AirAsia.

AirAsia X, like all airlines, is working to increase the ancillary revenues, Figure 4.

Figure 4. Ancillary revenue for AirAsia X. Source: AirAsia

Figure 5 shows the 2016 networks typical long-range destinations. Focus was still on Asian destinations. This was a function of the market and the aircraft which AirAsia X operates, A330-300. It has a practical maximum range of 5,000nm, whereas European destinations are at close to 6,000nm.

Figure 5. Longest range destinations for 2016. Source: Great Circle mapper.

With more fuel efficient and longer range aircraft on the way, Figure 6, the time has come to reopen destinations like London/Gatwick, possibly Frankfurt and add Honolulu/Hawaii.

Figure 6. Fleet plan for AirAsia X. Source: AirAsia.

AirAsia X recently announced they will lease three Boeing 777-300ERs to reopen London during 2017. With the A330-900 arriving late 2018, the stopgap became essential. The long-haul LCC market is booming and AirAsia X wanted to put the pin on the chart now.

The long-range destinations which will open with these aircraft during 2017 will be London and Honolulu, Figure 7

Figure 7. Longest range destinations for 2017. Source: Great Circle mapper.

AirAsia X has a historical order from 2009 for 10 A350-900. Airbus still lists the order, but there are no signs of AirAsia X taking the aircraft. Should the company want to open destinations on the US West Coast, an aircraft like the A350-900/777-300ER will be needed.

Aircraft acquisitions are a load on the balance sheet, if the aircraft are introduced as own aircraft or with a financial lease. AirAsia X’s balance sheet, Figure 8, is reasonably strong, with equity 24% of sheet balance.

Figure 8. AirAsia X balance sheet. Source: AirAsia.

Summary

AirAsia X turned the corner after a long struggle to get the long-haul LCC concept to function. The short-haul AisAsia network is an important feed for AirAsia X. The latter is now expanding to cover strategic destinations, as the long-haul LCC market gets going.

39 Comments on “AirAsia X; the long route to profitability

  1. Its service in Australia was pretty shocking with multiple incidents which reflected on its culture .
    a descent below minimum safe altitude at Gold Coast Airport on September 11.
    AirAsia X aircraft began taxiing before the pushback tug and engine moved clear;
    a “loss of separation” involving and AirAsia X A330 and a Jetstar plane over the Gold Coast
    AirAsia X plane turned the wrong way [during climb] on departure from Sydney Airport after incorrect coordinates were entered into the flight computer. Flight crew were unable to correct the error and the A330 had to divert to Melbourne !
    news.com.au

  2. It has to be noted that one of the reasons for the low cost per available seat kilometer is that Air Asia X is using 3-4-3 seating in their A330s.

    • That would be horrible but AirAsiaX ordered 3-3-3 seating still is painful.
      Some airlines ordered A350 with 3-4-3 seating.

      • I meant 3-3-3, just can’t edit the comment anymore because I don’t have an account.

        3-3-3 on an A330 makes even 3-3-3 on a 787 or 3-4-3 on a 777 seem comfortable. It definitely passes the line where I think even people that are very conscious about what they are paying would take a step back. Air Asia has voiced multiple times that their goal is to expand into markets outside Asia, but I don’t think anyone such a narrow seat could work anywhere but the Asian market.

        • I wouldn’t be too surprised if this high density model was replicated in other continents in the next decade or so.

        • I was recently on a Philippine Airlines A330 flying MNL-HKG in a 3-3-3 configuration. While this might be sort of ok for a small Asian, it is definitely not to recommend for a tall western guy (I’m 6’2″).

          Especially when trying to eat a meal, the width becomes terribly small and moving your hand to your mouth with no space for your elbows is almost funny as you have to find complete new arm-movements.

          For a less than 2 hour hop it was acceptable, but for anything longer I’d happily avoid anything like this!

        • Never flew A330/340 9 abreast, must be ver uncomfortable. Asians are on average signifinicant narrower then Westerners.

        • Though the difference is that here the 3-3-3 is solely a Low Cost arrangement ( and the majority use is 8across.)
          while on the 787 and 777 a very slightly less tight arrangement is the dominant seating arrangement including main line “Full Cost” offers.
          8 across resp 9 across today is a “luxury fringe”

  3. Bjorn,
    Airasia X has never used the A330-200 on its scheduled services. The A330-200s were used for wet lease and charter operations.

    Apart from the two A340-300s deployed on the London and Paris routes, all their scheduled services were operated using A330-300s configured with 12 angled lie flat seats and 365 economy seats in 3-3-3 layout.

    • Thanks, thought the 340 was the main reason it skipped the long flights.

  4. Just curious why a 777-200LR would not be a choice.

    The A350-900 in the Singapore LR configuration only caries 177 passengers (granted those are luxury passengers)

    If you war going to be that limited a 777-200 would seem to make sense.

    Anything to do with Air Asia I am skeptical of .

    I see them bumping order down the road, has to be annoying to Airbus.

    As its a spin off from the owners other interests, it seems more an ego thing and what happens when he retires?

  5. Some typos going on. But nobody has ordered 3-4-3 seating on the A350, at present. Indeed nobody is using the the two class 325 seating arrangement at present, all are less, even though it is spacious by 777/787 standards

  6. From the article:

    “To reach the low CASK, AirAsia X, which operates as an independent airline, shares administrative systems, staffing management and reservation systems with the larger AirAsia.”

    I wonder what would happen to CASK (ie.-how much would it increase) if AirAsia X needed to have all of their systems, management, etc. separately since it does operate as an independent airline. I wonder if it would be enough to bring AirAsia X again back into a loss.

    • You mean other airlines have never ever done this?

      Why are ya’ll pilling on this guys? Because they order Airbuses?

      As for 3 4 3… you all are white guys, never lived in really crammed areas… you accumulate pounds and pounds… milk got ya’ll too tall :-)…sure that’s uncomfortable. For you.

      Try living as a Chinese is a 20M people Chinese cities. Or the metro in Tokyo every day (or living in Lagos). That will teach you about density & comfort 😉

      • I do agree … intra-Asia, 10 abreast may well be acceptable. Asian people are, on average, smaller than caucasians. (With 10-abreast, shoulders are the critical part.)

      • Sorry, realistically, from westernized eyes, this is “slave galley” (note “politically correct” term–thinking of Roman galleys) class! And don’t be giving Delta, United, and American ideas! (We’ve already just seen Basic Economy–“Crapola Class”–fully added by these turkeys recently.) Lastly, what an evolution; never mind Southwest, Spirit is going to be the new global model. Race to the bottom, anyone? LOL The airline industry should be proud!

    • AirAsia X is heavly dependent on AirAsia, not only to share costs and infrastructure but also for feeding their network It would not manage alone (and it was not the intention).

  7. The A330NEO was practically built for Air Asia, and it does seem like a good choice for their routes but I wouldn’t be surprised if there was a change at the top, NEO orders canned and 789’s ordered instead. Cant see them’ orderng 777-200’s. Ma be A333’s though.

    • Huh?

      My take is that if they are still doing eratic, they will shift the A330NEO to the A350 and kick the orders down the runway

      Change at the top and go with Boeing? Doesn’t make any sense, am I missing something

      • Fernandes always been the proponent of the A330 NEO and may have been a part of the decision to build it. He was applying pressure for it even after the A350 EIS. When an airline takes control of a significant bulk of early orders, they oflten get more clout in the configuration. I cant cite this but its known that the 777x is really built for the gulf carriers. Not exclusively but primarily. Asia X is by far the biggest orderer of the A330 NEO and if their orders dont stick, it could be a complete flop. Hawaiian wanted the A358 which was canned and settled for A338’s.

        I’ll go further and state that if their is change in top brass at Asia X, and if the the NEO orders arent converted, the Hawaiian orders and possible Avalon and others will also be canned. The logical replacement in a like for like would be the 787-9 in the case of Asia X and – 787-8 for Hawaiian. Older A332’s and A333’s would be another option.

        Air Asia X could use the 772’s in a 3-4-3 config but thats a lot more pax than they use on their existing A333’s. What youre talking about there is a big change in strategy.

        • Ok, got most of it.

          I do disagree on Hawaiian. Hawaiian never wanted the A350 let alone the 800. That was a force fit.

          They wanted what they now have ordered which is the A330-800 (I do wish they would change their number system)

          Now they have it but it does not look to be produced with that tiny a clientell.

          I know Asia was the other big proponent for the A330NEO.

          I just see them shuffling the orders once again. Not a credible airline in my opinion. When its existing dependent on the whim of someone who has far larger and other interested that is a bad thing.

          Stay tuned.

          • I think you are right that the A338’s are a better choice for Hawaiian but Airbus may not build that variant and instead sell them derated A339’s at discount. Air Asia could really screw things up if they dont firm up these orders. But I think Airbus and RR will deliver a good enough plane to convert some or even all these orders. I forgot about TAP – the launch customer, Garuda Indonesia, and others. We’ll see when the RR Trent 7000’s performance is weighed.

            Anyway, Im looking forward to the A330 NEO. Stay tuned indeed.

    • Replace A339 with B789??? Two points to consider:

      1. When D7 placed its A339 order in 2014, oil was over $100/bbl. Now it’s $50/bbl. Whatever small operating cost advantage the 789 had then is even smaller today.

      2. They are specing their A339s at 3-3-3. I don’t know that the 789 has *any* CASM advantage over the A339 at 3-3-3; if anything it’s the reverse. So the 789 won’t be remotely attractive for them unless they can pack it at 3-4-3 (and even then it probably won’t be attractive at today’s oil prices).

      • Well Air Asia does pack them in.

        I suspect when Air Asia whoever goes under (or is no longer a fun toy) , no one will want it, buy the assets cheap and its a goner.

  8. We need not speak only about AirAsia-X – most airlines with 787 and 3-3-3 seating are offering almost the same as this seating in A330. Just my recent experience with BA 788 and 3-3-3 seating it was quite bad; 3-3 in A320 or 738 was MUCH better !

    • BA are converting B789 orders to B788s, can t find enough economy pax for B787 aircraft??

  9. @ Keesje

    Because the title says that BA converted 3 dash 9s to 3 dash 8s. The last portion that you referenced was just highlighting the original options total which were 16 for the dash 9 and then it was changed and as of right now, it’s back to 16 options for the dash 9.

  10. An AirAsiaX anecdote – it’s NOT just the seat-width.

    I took the 330 (3-3-3) Syd-KUL.

    My (Caucasian) shoulders are wide enough such that I always book an aisle seat; usually works fine.

    But this night flight (very unfortunately) showed te to it than that.
    The aisle is VERY narrow.

    The elegant, slim AAX girls bumped my shoulder EVERY SINGLE TIME, ALL NIGHT as they attempted to pass me.

    It just was not possible for them to not bump me, despite their efforts and their slim figures. Just no room, no room at all.

    The (remaining) aisle width is a sick joke.

    I can only smile at the Airbus boosters who continally bag the 787 at 3-3-3 and the 777 at 3-4-3.

    You really have no idea.

    Billy

    • “The elegant, slim AAX girls bumped my shoulder EVERY SINGLE TIME, ALL NIGHT as they attempted to pass me.”

      You poor SOB! LOL

      Regardless I’m sure that extra half inch of armrest made all the difference in the world!

    • Feel your hurt but ..
      ROFL.
      Deep analysis from an anecdotal sample of .. one. 🙂

      AirAsia X, is a long-haul budget airline and a sister to the largest Asian LCC carrier. Your hurt was compensated for by price. A conscious choice on your side.

      compare to 787 9 across seating that is marginally wider but dominates all market segments except the very few luxury Y offers like ANA’s a across.

      • All ANA’s 789’s are 9 across and one version of their 788’s. I’d imagine when it comes to seat refurbishment time those 8 across turn intos 9s as well.

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