‘AirAsia X turnaround not dependent on M’sia Airlines’

By Stephanie Jacob

KINIBIZ speaks to AirAsia X acting chief executive officer Benyamin Ismail to get his take on the promised second half of 2015 turnaround, the first quarter of 2015 results, the impact of changes at Malaysia Airlines, and his plans for the airline.

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KINIBIZ: Revenue was boosted by income from higher operating lease income, wet leases. But scheduled flight revenue fell, can we expect this trend to continue?

Benyamin Ismail: Ever since we came in, we have done a lot of capacity management. We have reduced capacity and we have cancelled some flights. And really what you have seen is that there have been some revenue reductions there.

I think last year was a bit tight for the industry, and I think for Malaysia itself and also for the AirAsia group. We were just recovering from (Malaysia Airlines) MH370 and MH17 (tragedies) and then the QZ8501 incident in Indonesia happened and things got tougher. So really in the first one month, in January, we did not do marketing out of respect for the passengers.

So we saw some reductions in loads. But generally, what we did well was that we stood strong and tall without reducing our fares.

I think in terms of the wet leases (when the plane is leased together with the crew), that is something we look at on the side to cover up the extra capacity that we have by leasing the aircraft to our affiliates.

Will you continue with the wet leases?

Yes, we will continue with the wet leases. What I tell my team is that make sure you cherry pick your leases, choose the ones that will make lots of money. I am not in the position to agree on low-margin wet leases, anything above 10% will be something that I want.

AirAsia X has been cutting capacity, but the load factors have also fallen. Does this concern you?

It does, but of course across the board we are seeing loads coming down.

By across the board, do you mean the industry?

Across the industry. We have already seen Malaysia Airlines has been hit and our sister company AirAsia Bhd has also seen its loads slightly down.

But I think for us, the difference between our loads last year and our loads this year, is that last year we had to throw fares and of course, that was to drive traffic. But this year, I want to make sure that we do not give up too much just to drive traffic.

I think the loads can be stimulated. It will have to come through marketing, that is important for us. Before we did not have sufficient funds to market, because when we came in cash was tight and we were more focused on trying to turn around the business.

So now, we feel things are improving. There are some extra cash buffers that we have, we have been spending on marketing, and we are seeing loads picking up. I have been spending quite a lot of time in Australia, loads are slowly coming back there and the next target for me is to try to bring back Korea and Japan.

Can you tell us about your plans to increase ancillary income?

Ancillary income is something that we are trying to drive. Of course we have our core products in terms of food, baggage, and etc. But what we want to do is push other products.

We just started with our prepaid cards and we want to get people to use that. Secondly, we want to push AirAsia BIG, which is our loyalty points. What we want to do is make sure that whatever points you receive, you can redeem. Thirdly, we are looking at trying to put WiFi on board and to roll that out by the third or fourth quarter.

The other big thing is something that AirAsia Bhd has started, which is duty free. Currently our duty free is through a third party. But we want to do this on our own.

So you want to handle duty free yourselves?

Ourselves, being the the AirAsia group. So what they started in AirAsia Bhd, we will do in AirAsia X. We have our own logistical operations, where you can order and then we will deliver it door to door.

Both AirAsia X management and analysts have said that your turnaround is tied somewhat to what happens at Malaysia Airlines, in terms of it cutting routes and capacity. What happens if Malaysia Airlines does not do that? Is there a contingency plan?

I think the most important thing is that we stood firm in our decisions. So we could have waited for Malaysia Airlines to just restructure and start reducing its capacity. But what we did was we went ahead and reduced first. We were head to head with them in Sydney with double flights daily. We were head to head with them in Melbourne. And Malaysia Airlines was just throwing in low fares.

So I decided, I could not wait any longer. I did not have a sugar daddy to support me. So what I did was I cut. So Sydney is now doing daily flights. I have cut down on Melbourne and I have cut down on Gold Coast. Because if I had waited for it (Malaysia Airlines), then I would have been in an even worse position now.

And I have seen the bleeding lessened, and I am quite happy those decisions were made. We have also cut a bit of North Asia, where it was dumping in Shanghai and in Japan.

I mean basically the only thing is waiting for upside (from possible changes at Malaysia Airlines). If there is any upside, our numbers will get better. But we are not waiting for a miracle, our turnaround does not rely on Malaysia Airlines.

So you are confident that even if nothing changes at Malaysia Airlines, the second half of 2015 will still see you going back into the black and the turnaround will still be on track

Yes, I mean there are a lot of things we have been doing to our operations. Just to make sure all our processes are tight, to make sure we are not fat in terms of our operations. We have streamlined a lot of our operations to save a lot of cost. With AirAsia Bhd, cost has also been saved with them (through streamlining). So we have seen a lot of reductions on that side.

Are there going to be staff reductions or steps like that?

There have been some staff reductions, we have been looking at where we have excess people. Not to the aggressive point of what Malaysia Airlines is doing, but we have reduced a bit. But more importantly, moving forward we will not be looking at hiring more.

Taking Malaysia Airlines out of the picture, can you talk a bit about your other competition. What is the yield environment like and are you positive you will be able to increase your yields going forward?

Yes, I am quite positive. You got to realise that the only carrier we are competing with is Malaysia Airlines. If you are looking for any other similar airlines there is only Scoot out of Singapore, but that caters to a different market entirely. They do not have the feeder traffic that we have from AirAsia Bhd. So we ride a lot on AirAsia Bhd in terms of bringing 40% of its traffic onto our flights, so that is number one.

Two, is that I think we have normalised our yields compared to where we were last year. But I do think there is still a lot of upside there. The only issue is loads and we need to stimulate loads through marketing initiatives and work harder with tourism agencies of different countries to see if we can do more coordinated approaches.

With yields in the market, we have seen it normalised. I think in the last three years there was a bit of a blood bath because there were a lot of low-cost carriers starting up, then lasting for a year and then just going down the toilet.

So I think that it is always the big guys that end up standing tall. So I am confident that with AirAsia Bhd and the whole AirAsia group being together, I think our brand is very strong.

Can you tell us about route expansion plans?

As I mentioned, we have capacity managed quite a bit. But we are analysing week by week to see how our performance is. I am ready to pull the trigger if we see some recovery. And I am ready to push double flights daily on some of the routes – but again I am not going to do it if I do not get the comfort that the route is recovering.

But on top of that we are looking at some new routes that could we could potentially fly. I think the most notable one, that we have been clearly stating and which we are on the brink of getting approvals for, is Kuala Lumpur to Honolulu through Osaka.

This is something that will be a great route for us and it will put us back on the map. And we have another few routes we are looking at in Japan and others, but I do not want to commit to those because we are still sorting through regulatory approvals and all.

What about to Europe?

Europe is next year. But again it is something we have to look into in terms of the aircraft. At the moment we will not be able to reach direct, so I have told the engineering team to explore other aircraft options.

Or we might just use the current options and do a one stop somewhere and then take you to London. We just have to be sure that we do not get strong competition from the Middle East carriers.

What are your fleet management plans?

We have eight aircraft on delivery, we are looking to sell two. Next year, we have deffered two aircraft and we are only taking two.

In terms of turnround, what would be the indicators for you to say ‘Okay, we have done it and it is sustainable’?

One of the marks would be the sales that we receive cover our cost. I think right now the sales that we receive can be a bit low, just because of the (lack of) marketing.

Secondly would be to have consistent profitability over a few quarters and make sure it is sustainable even over non-peak times. That is important for us.

And then to ensure that we are current on our creditors. We have the rights issue coming in and it will be important that we can manage our creditors moving forward.

And the rights issue will be sufficient to cover that?

It will be. But then again you do not want to spend all the pocket money you get at one go. So I think what we want to do is just plan it out accordingly and then manage it through a payment plan.

Would you like to add anything else?

I think the second quarter coming up is still going to be a bit bleak. Because a lot of our initiatives are most likely to kick in the second half of the year. So second quarter I think we will still be in the red. But most important thing I think is, in the third and fourth quarter, I am quite confident that we will see the return of AirAsia X (into profitability).

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