The announcement of Air Asia X is a step forward into a new business model for Low Cost Carriers (LCCs). In principal, the concept is nothing new as Oasis Hong Kong and Qantas have already ventured into this. With Air Asia X moving this way, it is an emulation of the basic business concept. The prospects are very promising and all indications are that Air Asia X is expected to succeed due to the vast experience of Air Asia’s management in the short haul LCC Industry and there are indications of possible liberalization of LCCs.

The LCC business model is expected to be sustainable if several things are considered and exercised. The management needs to analyze and execute good operating efficiencies for each aircraft used for the long haul flights. Traditionally, LCC aircrafts operate within a one to four hour flight time window, thus effectively having faster turnaround time for short haul flights. In retrospect, operating low cost long haul flights effectively would requires carriers to fly their aircrafts in a five to twelve hour timeframe.

An advantage of an aircraft kept in the air for longer periods is that it is considered to be ideally operating effectively as it is perpetually in service as opposed to being grounded. This brings down the cost of aircraft operations. The concept can be sustained if ticket prices are slashed considerably as opposed to flying with a main stream carrier from Kuala Lumpur to Hong Kong. This should be reinforced with good hub connectivity such as frequent feeder flights between Kuala Lumpur and Asian cities.

Air Asia X’s business model is different from legacy carriers because it is trying to cater for budget long haul travelers after successfully creating a budget short haul travelers’ model. It is trying to cater for this segment of travelers due to a high a demand for cheaper travel rates. It would also serve Air Asia X well for not flying into Heathrow International Airport because of the higher aeronautical charges it would have to pay to the British Airport Authorities such as landing, parking and baggage handling charges as opposed to in a LCC airport like Luton Airport. The business model of LCCs is to operate effectively with the lowest costs. In addition to London Heathrow Airport’s higher costs, its daily high traffic rate poses a problem for LCC carriers and its customers. This problem is also experienced by other airports in London such as Gatwick International Airport.

Air Asia X is expected to operate into London’s Luton Airport, or airports in the northern region such as Manchester or Liverpool. London’s Luton and Liverpool Airports are hubs for EasyJet’s flights from the United Kingdom to Europe and there could be some arrangements which could be reached between the airlines such as Air Asia X flying into EasyJet hubs while the previous reciprocates landing rights into Kuala Lumpur’s LCC Terminal.

LCCs like Air Asia X should concentrate on economizing the operating costs per aircraft and an example noted previously; the longer the aircrafts are up flying, the lower its costs are. Another key success of an LCC business is to operate between LCC Airports as opposed to primary international airports. Air Asia also channels its ticketing, marketing and branding strategies to Air Asia X. This will serve the latter well as previous efforts has served Air Asia well when it started competing against Malaysia Airlines for the domestic and international sectors.

The operating costs for LCCs are significantly lower than legacy airlines at 4 US cents per seat mile. Although LCCs typically have lower profit margins than legacy airlines, they achieve their financial targets through ensuring higher passenger load factors, more rigid piloting policies, faster turn around times at airports, efficient supply chain management and other cost control measures.

For its fleet of low cost carriers, Air Asia may opt for the Airbus A330-300 aircrafts due to the fact that it purchased the Airbus A320 aircrafts for its existing operations. It would be easier to maintain and service the aircrafts from Maintenance, Repair & Overhaul (MRO) engineering perspective as it makes better business sense in terms of spares management.

With the recent trends in the airline industry globally, long haul LCC is the next concept of budget travel. New airlines such as Oasis Hong Kong that started this business model is now facing competition from other airline companies such as Qantas, Jet Star Asia and other legacy airlines. It is natural that other carriers replicate the same model in order to satisfy air travelers’ demands.

Obviously keeping costs down is a priority for LCCs by keeping the turn around time quick so that the aircraft is utilized effectively and keeping the aircrafts in the air for longer periods. There are hints in the industry for the emergence of an alliance amongst LCCs as one of the possible success factors being explored for long haul LCCs. In line with global trends, most LCC’s in North America are also adopting longer route networks and this seems to be effective and proving to their counterparts worldwide that long haul budget travel is feasible if a right formula is achieved.

Air Asia’s initiative for long haul budget travel will definitely edge Kuala Lumpur International Airport (KLIA) LCC Terminal over other budget terminals and secondary airports in South East Asia earmarked for low cost travel. This is because it will make Kuala Lumpur a hub for global long haul budget travel and the spillover will be felt in terms of business and tourist arrivals and also KLIA’s ability to derive more aeronautical and non-aeronautical revenues. The benefits are tremendous for KLIA which is on its way to establish itself as a global hub.

Air Asia’s vision about the future of air travel was spot on and in milder terms spent the early parts of its journey to educate doubters and consumers about the benefits of low cost travel. Some parties and critics saw the emergence of Air Asia as a threat to Malaysia Airlines initially, but their doubts slowly changed over the years when they saw the tourism potential of this venture. Air Asia’s emergence has brought new alternatives for people looking for budget travel. The same applies to all LCCs which are emerging in other Asian countries.

However the potential seems bright if certain things are considered. Efficient aircraft utilization is essential. In low cost, short haul travel operations, the turnaround time is essential to keep the aircrafts fully optimized.

Long haul LCCs can compete along the same routes by legacy airlines and offer air travelers another alternative to long haul travel in terms of cost alone. The no frills concept might prove popular with students and budget tourists looking for cheap ways to fly. Another standpoint is complementing legacy airlines turnaround operations by flying to non-competing destinations. Offering cheap fares for these destinations will prove immensely beneficial for international air travelers.

LCCs in the US are flying further than before and it seems like a worldwide trend of LCC’s moving towards a long haul low cost model. However, we have to bear in mind that this model might work for some carriers but not for all.

This article was authored by Mohamed Haris Izmee, Consultant, Aerospace & Defense Practice, Asia Pacific, Frost & Sullivan.

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