AeroBlogger

Pessimists might think that Air Asia X’s cancellations of routes to Europe and India signifies the demise of AirAsia X’s long-haul low cost carrier business model, and they might be right.

AirAsia X has announced that they will cancel service to London, Paris, New Delhi, and Mumbai. Their justification of the cuts – rising fuel costs, rising taxes in the EU (like ETS), rising airport costs in India, and new visa restrictions. However, in reality, the cuts are part of a bigger picture. AirAsia X had never been particularly successful in India or Europe.

A major factor in the cuts was the recent cross-ownership deal between Malaysia Airlines and AirAsiaX. The purpose of the London and Paris routes for AirAsia X was mainly to feed shorthaul regional routes on AirAsia. With Malaysia Airlines planning to send their A380 to London, and the proposed plan to allow connections between the 2 carriers, AirAsia doesn’t need the feed from AirAsia X’s loss making routes anymore. The low seat-mile costs on the A380 will mean that Malaysia Airlines will be able to charge competitive rates compared to AirAsia X’s fuel thirsty A340s.

AirAsia X is a long-haul low cost carrier. It is a market which is becoming increasingly crowded, with JetStar and now Singapore Airlines’ Scoot expanding fast. JetStar is focusing on China, while Scoot is launching its first route to Sydney. There is no doubt that AirAsia X and the Malaysian Government has felt threatened by this move, because they have announced that they will be launching their own service to Sydney very soon. The Malaysian Government has long protected Malaysia Airlines at the expense of AirAsia X, but now that low cost long-haul competition is arriving, it seems that the Malaysian Government has finally agreed. The Malaysian Government has also been highly protective of the China market, something which may also change in the near future.

AirAsia X blamed the cancellations of London, Paris, New Delhi, and Mumbai on very specific problems in the European and Indian markets. In Europe, the rising taxes were blamed. AirAsiaX already charges $13 to comply with the ETS that came into effect at the beginning of this month. In the UK, Air Passenger Duty is being increased to help cover the government’s budget shortfall. Even with high (~75%) load factors, these price increases hurt a carrier which already has very low profit margins.