By Chan Quan Min
Long-haul budget airline AirAsia X will delay aircraft deliveries and channel capacity growth to its new Bangkok and Bali hubs in order to halt financial losses in the hundreds of millions this year to date.
Azran Osman Rani
The airline’s CEO Azran Osman-Rani today said the airline would need to change course after being “set back by the second shock suffered by the aviation industry in July and the resultant demand slowdown.”
Details of a new strategy plan for 2015 emailed to members of the media called for no new routes or additional capacity at its Kuala Lumpur hub next year.
The “shift to a consolidation phase” will see almost all new aircraft go to its new hubs in the Thai capital, Bangkok, and Indonesian resort island of Bali.
“In light of the changing market landscape in Malaysia where travel demand has softened… we see less need to continue expansion in our core Malaysian route network in 2015.
“This will allow more time for routes and capacity added in 2013 and 2014 to mature and reach profitability as average fares increase in line with demand,” Azran said in a statement.
His plans call for six out of eight Airbus A330-300 widebody planes scheduled for delivery next year to go to either Bangkok or Bali and not Kuala Lumpur. The remaining two planes will be put up for sale.
Expansion over the next three years will be slowed as AirAsia X has negotiated with Airbus for the deferral of seven A330-300 planes to be scheduled for delivery in 2016 and 2017, a 45% reduction.
Following the deferrals, AirAsia X will take delivery of a total of four aircraft in 2016 and five in 2017.
The route network would see capacity adjustments next year. Flights between Malaysia and Australia will see frequency reductions while North Asia routes will get more flights.
There will also be seasonal capacity adjustments in order to “reduce the need to lower yields to fill up excess capacity,” Azran said. This will be in the form of frequency reductions during the lean season stretching from April and September next year.
“We have firm contracts to redeploy aircraft capacity from Malaysia to wet-lease operations during our lean season where they coincide with short-term peak demand elsewhere such as the peak European summer season and Umrah travel season.”
“By deploying our excess capacity instead of incurring low yields, the capacity will instead be generating healthy margins during this period,” he said.
Azran estimates the share of revenue from charter and wet-lease operations at 23% of 2015 operating income. Wet-lease is a form of aircraft leasing where planes are offered to the lessee complete with crew.
To raise cash levels, the airline has executed a sale-and-leaseback of two aircraft, swapping RM420 million of debt in the balance sheet for immediate net proceeds of around RM150 million. AirAsia X plans to complete sale-and-leaseback deals involving four more aircraft by mid-December.
AirAsia X today reported an operating loss of RM140 million in the third quarter this year compared to a small operating profit of RM25 million in the same quarter last year as it continues to struggle to fill excess capacity from its ambitious growth plans.
This is the fourth consecutive loss making quarter for the airline.
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