View: This is big news! Barely a year after launching flights into Paris, the darling of Asian low cost carriers - AirAsia has decided to suspend services in its long haul segment. Reasons of higher taxes (airport and regulatory) and fuel cost while deteriorating economic conditions in Europe were reasons given by the CEO.
In the end, I suspect this is due to the MAS-AirAsia partnership, which AirAsia had to step back in order to allow MAS a surviving chance to return to profitability.
Here are my reasons: for the instance of Europe. Although the economic conditions in Europe are depressing consumer demand, but we should not forget the growing affluence of Asian travellers seeking holiday destinations in Europe. There is definitely a demand in this segment. If Air Asia has to back off due to reasons provided by Mr Osman-Rani, then wouldn't the situation be even worse for MAS??
India, which like China is a potential huge market for air travel, Air Asia shouldn't let go their routes. Giving up will be surrendering lucrative business to other carriers.
here's the news:
FOR IMMEDIATE RELEASE
AIRASIA X RE-ALIGNS NETWORK TO FOCUS ON CORE MARKETS
Developments in Global Economy, Soaring Taxes and Higher Jet Fuel Prices leads long haul low-cost carrier to increase focus on core markets
KUALA LUMPUR, 12 January 2012- AirAsia X, the long haul, low fare affiliate of AirAsia, today announced a realignment of its network with a focus on its core markets.
The move will see AirAsia X withdrawing services to India (Mumbai and Delhi) and Europe (Paris, London) from its Kuala Lumpur hub as follows:
· Mumbai- Four weekly services will be suspended with the last flight on 31 January, 2012
· New Delhi- Daily services will be suspended with the last flight on 22 March, 2012. Flights in March will be reduced to four weekly services.
· London- Six weekly services will be suspended with the last flight on 31 March, 2012
· Paris- Four weekly services will be suspended with the last flight on 30 March, 2012
AirAsia X will offer guests who hold bookings after these dates an alternative travel option at no additional cost to mitigate the inconvenience caused as a result of these route withdrawals.
All affected guests will receive an e-mail stating options that are available to them, including a full refund, a reroute to another AirAsia X destination (e.g, in Australia and North Asia), or a move to an alternative carrier where available.
These changes will improve operating cost efficiencies and consolidate its network to focus on markets where it can build a leadership position in 2012.
Azran Osman-Rani, CEO of AirAsia X said “AirAsia X remains focused on maintaining its global leadership position in the low cost, long-haul segment. We intend to concentrate capacity in our core markets of Australasia, China, Taiwan, Japan, and Korea where we have built up stable, profitable routes within an infrastructure that supports low cost services. We intend to open up new routes within these markets, as well as add frequencies on existing routes. Announcements of our future expansion plans will be made soon.”
“The continued high jet fuel prices and the weakening demand for air travel from Europe, brought about by the current economic situation together with exorbitant government taxes, have placed cost pressures on operating long-haul low cost flights between Asia and Europe, compromising our ability to offer the low fares AirAsia X is known for.”
He adds, “The implementation of the Emissions Trading Scheme and the escalating Air Passenger Duty taxes in UK, which will rise yet again in April 2012 has forced our decision to withdraw our services to Europe.”
“As for Delhi and Mumbai, the continued visa restrictions for travel between India and Malaysia, and the increase in airport and handling charges have resulted in a structure not conducive to the low cost model.”
Azran concluded that, “The airline is hopeful in reinstating services to India once these structural issues can be resolved.”
Further details on AirAsia X’s withdrawal of Europe and India destinations:
Europe (London and Paris)
AirAsia X started flights to London in March 2009. At that time, oil prices were less than US$40/barrel, and have since tripled. With the Arab Spring unrest of 2011 spilling over to the unrests in Syria and Iranian oil embargo this year, oil prices are expected to remain high and crippling the economics of long-haul flights, where fuel represents over 50% of operating cost.
Moreover, the European situation is also compounded by a very weak economy and depressed consumer demand, which has resulted in a reduction in the number of passengers from Europe on the flights over the past several months. Flights to Europe have also been burdened by exorbitant government taxes such as the UK Air Passenger Duty which will be increased to £92 per departing economy passenger and £184 per departing Premium passenger from 1 April 2012. From 1 January 2012, the European Governments have also imposed an additional carbon tax under their Emissions Trading Scheme, which further adds to an already high cost.
The confluence of macro-factors, including high fuel prices, depressed European economy and exorbitant taxes have made it economically impossible to sustain these flights, despite AirAsia X recording load factors of over 80% for its London and Paris flights in 2011. Attempts to increase fares to reflect the higher operating cost recently have shown the price elasticity of travel, with demand falling down adversely.
India (Mumbai and New Delhi)
AirAsia X launched flights to Mumbai and Delhi in 2010. Structural issues in the Indian aviation market have made it difficult to operate economically viable flights. The airport and handling costs in New Delhi and Mumbai are already more expensive than even airports in Australia, and the authorities have just approved a massive 280% increase in airport fees effective April 2012.
The Indian routes have also been under-pressure when the Malaysian Government removed Visa-on-Arrival facilities in August 2010, soon after the routes were launched. This places Malaysia at a significant disadvantage versus Thailand and Singapore who offer Indian tourists convenient Visa-on-Arrival facilities.
About AirAsia and AirAsia X
AirAsia, the leading and largest low-cost carrier in Asia, services the most extensive network with over 165 routes covering destinations in Asia, Australia and Europe. Within 10 years of operations, AirAsia has carried over 130 million guests and grown its fleet from just two aircraft to 107. The airline today is proud to be a truly Asean (Association of Southeast Asian Nations) airline with established operations based in Malaysia, Indonesia and Thailand, servicing a network stretching across all Asean countries, China, India, Bangladesh, Sri Lanka and Australia. This is further complemented by AirAsia X, its low-fare long-haul affiliate carrier that currently flies to destinations in China, India, Europe, Australia, Taiwan, Iran, Korea, Japan, and New Zealand. AirAsia is the regional carrier with the largest destination network and highest flight frequencies. AirAsia was named the 2011 World’s Best Low Cost Airline in the annual World Airline Survey by Skytrax for three consecutive years.
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