ROUTES ASIA: AirAsia X to Develop Virtual Hubs to Grow Network

Kuala Lumpur-based AirAsia X has been one of the pioneers of the low-cost, long-haul airline model but its chief executive officer, Azran Osman-Rani highlighted during his keynote address at this year’s Routes Asia Strategy Summit in Kuching, Sarawak, Malaysia that despite six years of operations, the business remains a work in progress. “We are constantly tinkering with the model and changing as we go forward, adapting to the market,” he explained.

A key aspect of the carrier’s latest business focus is to enhance its activities across its core markets in Asia and Australasia. “We have grown from one aircraft to 18 and one route to 19 destinations since our launch but there remains a massive potential within Asia,” said Osman-Rani. “An equilibrium of a 50/50 balance between full-service and low-cost operators exists in mature markets but although we have a strong presence in our home Malaysian market the low-cost, long-haul penetration on routes of between four and nine hours is marginal across the region.”

AirAsia X’s operations from Kuala Lumpur International Airport means the penetration is much higher in Malaysia at around 35 per cent and Osman-Rani anticipated that this would rise to 50 per cent in the next few years. “The next step is for us to spread this into other markets like Thailand and Indonesia,” he said.

The airline has recently secured an Air Operator’s Certificate from the Department of Civil Aviation of Thailand for its new associate company, Thai AirAsia X Co Ltd. This has subsequently allowed the start-up carrier to proceed with its application for operating permits and slots to its intended international routes. The launch date for commercial operations is expected to be announced once the operating permits and slots are obtained. A similar venture in Indonesia is also on the cards.

“Thai AirAsia X is expected to offer connecting fly-thru services with Thai AirAsia’s short-haul domestic and regional network, offering greater connectivity options from hubs in Kuala Lumpur and Bangkok. The establishment of our Thai hub will see the beginning of AirAsia X’s strategic multi hub plan turn into reality,” said Osman-Rani.

This new affiliate supports AirAsia X’s ambitious strategy to triple growth in a short three-year timeframe without opening a new country market through the establishment of virtual hubs. “We have really seen the power of adding frequency across out network and how it unleashes additional traffic. By growing frequency to our existing destinations and flying to these from multiple points across our network we can grow the business,” explained Osman-Rani.

This likely will start with the airline’s strongest markets in Australia, particularly Melbourne and Sydney. "We are certainly interested in flying from markets like Sydney and Melbourne to other locations across South East Asia. We are currently ruthlessly prioritising and looking to grow size and scale in a few key markets,” he added.

AirAsia X will leverage upon the activities of its short-haul affiliates within the Air Asia Group. It is already seeing a significant growth in connecting traffic, growing from 25 per cent in 2011 to 38 per cent in 2012 and 43 per cent last year. Osman-Rani predicted that this could grow to 46 per cent this year as the number of ‘Fly-Thru’ route pair weekly frequencies increases from 4,614 last year to 5,883 in 2014.

Although the share of connections between AirAsia X flights more than doubled from four per cent in 2012 to nine per cent in 2013 (it is forecasted to rise to 16 per cent this year), it is connections between the short-haul affiliates and long-haul airline that dominate these figures.

You can find out more about AirAsia X’s plans in our EXCLUSIVE Routes Asia interview with Azran Osman-Rani, below. He highlights more about the development of virtual hubs to grow the network, discusses the challenges of infrastructure on its activities and reveals that when its new Airbus A350s arrive they could be used to return to Europe, launch flights to Africa or even to debut transpacific routes.

Azran Osman-Rani, chief executive officer, AirAsia X at Routes Asia 2014