AirAsia X falls Flat in the Middle East: What Went Wrong?

There were probably a number of factors that led to AirAsia X temporarily suspending flights from Kuala Lumpur to Abu Dhabi this week - the airline group's first Middle Eastern route.

Launched in November with a sale fare of AED99 ($27) and six-times weekly flights on an A340-300, the new service was up against Etihad's eight-times weekly operations using larger A320-200s. It is plausible that AirAsia X's A340-300 was not the right aircraft type for the medium-haul route, due to its lower seat capacity and higher operating costs.

AirAsia X has suggested returning to the Middle East using A330-300 aircraft, which may suit the market better. Abu Dhabi has strong market potential for the carrier and it will, potentially, re-emerge with retro-fitted aircraft.

The Capacity Challenge

A key challenge for AirAsia X was Etihad's codeshare operations with Malaysia Airlines on routes from Kuala Lumpur. This has amassed to a lot of capacity in the market and given passengers an extensive network and a connecting product that that AirAsia could not offer

Etihad and Malaysia Airlines' stranglehold is also supported by the connectivity behind Abu Dhabi from Europe with the following seat capacity from Europe offered on a weekly basis from its twelve European destinations. (Data 1-7 Feb 2010)

Malaysia Airlines also offers significant feed for Etihad's passengers arriving in Kuala Lumpur to 44 destinations in the Far East and Southeast Asia.

Plus, the Middle East market to Kuala Lumpur is a popular holiday market for Arabs, which only serves to strengthen Etihad's leading market position for the possibilities for onward travel on Malaysia Airlines.

For AirAsia X its low cost structure and product on this route also proved a major challenge. Over 12% of Etihad's traffic on this routing is made up of premium traffic and these passengers clearly chose the Etihad and MAS option.

The Recession Factor

The inauguration of the Abu Dhabi flight in November coincided with the recession hitting the Middle East, which has in turn affected the VFR market, as well as ethnic traffic.

Factoring all of this in, it is therefore understandable why the AirAsia group is now focusing on its core Asian market (particularly India), which is performing very well.

A closer look at AirAsia's schedule by destination (from Kuala Lumpur) this week (February 1-7) sheds light on its strong presence in Asia:

Where's the Next Growth Spell?

The carrier's announcement last week that it will serve six additional Indian routes this year (from Kuala Lumpur to Chennai, Bangalore, Hyderabad, Mumbai, and New Delhi and from Penang to Chennai) is perhaps the clearest sign of the AirAsia Group's diversion away from the Middle East.

However AirAsia X A340 will not be heading for India, the likelihood is that the A340 will be identified as the aircraft required for a new sector either in Australia or Northern Asia. (Watch this space).

While there are question marks over the viability of Abu Dhabi as a future virtual hub for further expansion (particularly where the Middle Eastern carriers are competing for transfer traffic), the long-haul low-cost model has worked well for the carrier in other markets, such as the Gold Coast, Melbourne, and Hangzhou where we have seen high passenger traffic growth and increasing frequencies offered by the carrier.