first time posting a news article and would be willing to edit if i had breached any copyright/ referencing procedure.
SYDNEY, Nov 9 - As the current global economic crisis seems hell-bent on taking out a few airlines, one Malaysian low cost carrier appears to be bucking the trend.
"The thing is in the next six months is to see if the demand holds up and how bad the crisis gets and whether it starts affecting demand in low cost airlines," group chief executive of Air Asia and Air Asia X founder, Tony Fernandes, says.
"I believe that we will be the last to be hit, I believe that premium airlines will be hit first."
Set up with its own operating license and raised capital of RM375 million ($A156 million), Air Asia X is the low cost, long haul affiliate of Malaysian low cost short haul carrier Air Asia, based out of Kuala Lumpur's Low Cost Carrier Terminal (LLCT)
The venture is 49 per cent controlled by Aero Ventures, which is owned by Tony Fernandes and associates, 16 per cent by the Virgin Group, along with Japanese leasing firm Orix Corporation and Bahrain based Manara Consortium each holding a 10 per cent stake.
Parent company Air Asia, the region's leading budget airline flying to 75 destinations, has a 16 per cent holding.
Fernandes has placed his faith in a strong business model and brand building to position Air Asia X as the region's leading budget long haul carrier flying to destinations over four hours from KL.
By 2013 the business plan aims for a fleet of 25 new Airbus A320s, A330s and A340s flying to over 25 destinations in Australia, China, India, Japan, Korea and the Middle East by 2013, while the brand has already expanded to include no frills accommodation and a financial service.
On the eve of taking delivery of a new Airbus A330, Fernandes is sounding surprisingly modest when he says, "I don't do it very often, this is the first A330 and my minister is going, so I said why not?"
The aircraft is slotted to service the new Air Asia X Perth-KL route that opened on November 2 this year, to be followed shortly by Melbourne.
These two routes have been added on the back of the success of the Gold Coast route that opened in November, 2007.
"Perth and Melbourne look fantastic and the Gold Coast has been a huge surprise to us," an upbeat Fernandes says.
This is just the first part of a business plan that will see Air Asia X over five years expand to 25 destinations across Australia.
"I am also keen on Adelaide and even Darwin," Fernandes adds.
But don't hold your breath for an Air Asia X Sydney service in the near future.
"The rights are an issue and we can sort that out, but Kingsford Smith is an expensive airport, very, very expensive," he said.
"For us to really make this work we need potentially low fares and that doesn't mean necessarily low fares to the present competition, but low fares in terms of affordability.
"I have to say I am exploring Newcastle as a potential ahead of Sydney."
In order to succeed, Fernandes is adamant that the airline must stay true to its original plans.
"I think the low cost airline model can only work if you stick very religiously to the model," he says.
"Yes, you can add bits and pieces, maybe assigned seating, but the principal has to be 25 minutes turnaround, high density seating.
"We can give you a suite of services so you get a better product, but you pay for it."
That is not to say that Air Asia X and other low cost carriers are not facing an uphill battle to stay ahead of the many facets of the crisis currently facing the airline business, such as high fuel costs, softer consumer demand and industry consolidation.
"I don't believe in consolidation, I believe that organic growth is the
only way," Fernandes says.
"I think you are going to get a premium airline that focuses on business class and low cost airlines will take over the back end of the market."
But even as the new kid in the skies Fernandes pays his respects to some of the old carriers.
"Qantas is one of the most successful airlines in the world, as is Singapore Airlines," he says.
"They have come out of a legacy government, they have a lot of protection and they had a lot of initial cash.
"For me, I founded Air Asia with RM1 million (about $A416,000) and I have to use the power of my people to ensure that we survive."
With most of their financing already in place, by 2009 Air Asia X will have six A330-300s and one, possibly two A340-300s for its planned KL-London route.
The recent instability in the oil market has seen many airlines shave millions off their profit forecasts or add to their red column woes.
Fuel hedging of up to two years or more into the future is a common practice amongst airlines, but a bold gamble seems to have paid off for Air Asia X.
"We didn't hedge anything. I have taken a very negative view on oil and we had some hedges at $US77, which I bought out," Fernandes says.
"I have been consistently saying that there is so much speculation in the market that the bubble will burst and the bubble has burst."
For the future, both Air Asia and Air Asia X are looking at hedging options for 2009 and 2010 but have not made commitments yet.
By basing local fares on the ringgit fare, Air Asia X has also sheltered itself from the falling Australian dollar.
"We are not charging a premium to people coming over to Malaysia from Australia so the falling dollar does not make a major difference to us,"
"A falling Australian dollar means lower costs for us in terms of turnaround fees and passenger charges."
With affiliate Air Asia operating with one of the world's lowest unit costs of 23 US cents a passenger kilometre and a break-even load of 52 per cent, Fernandes believes that as Air Asia X grows he has to be constantly vigilant that operating costs are reigned in.
"Oil aside, I think we can go another 10-15 per cent in slashing our operating costs in bureaucracy, airport charges, communication plans and overall office expenses and overheads."
Air Asia X franchises its brand from Air Asia, uses a common online ticketing site, livery and uniforms, and even produces its own promotional material and in-flight magazine.
"We have got new planes now so engineering costs will be coming down in about two years time," he adds.
Fernandes is also keen that Air Asia X maintains as flat a structure as possible.
"I would say my biggest job is managing employees, of which I have 6,500, and I would spend more than 50 per cent of my time with," he says.
"We have no unions, we are family orientated and have a low staff turnover and I think we are a genuinely happy company and I think that adds a couple of points on the bottom line," says Fernandes, who has an open Facebook page and gives his mobile number to staff.
The business model, the success of the parent company and the new training facilities at LLCT, and high forward bookings for the next quarter, are all good markers, but as Australians we are used to seeing low cost airlines fail.
Just think Freedom Air, Air Paradise, Impulse and Compass and Ozjet, all still littering websites but long gone.
Fernandes replies strongly when he says he runs a company that has already weathered many problems, some of which have caused other, less well prepared airlines to fail.
"Success is never guaranteed," he says.
"We have survived SARS to bird flu to protectionism to moving airports, earthquakes, tsunami, terrorism, so we are pretty stress tested.
"We are young (Air Asia), in terms of being only seven years old, but we
are an old warhorse."
Air Asia X will launch the Melbourne-KL route on November 12th. - AAP
taken from www.themalaysianinsider.com/index.php/business/12040-air-asia-bucks-the-global-economic-crisis