Air Asia leads Asian LCCs (Low Cost Carriers) and rocks on!

By Dian Hasan | March 4, 2010

The airline industry is one fickle industry indeed. A survivor and fighter rolled into one. Most people probably don’t realize that the airline industry is the first to feel any impact related to global safety and security, and the travel industry depends on it to a great extent. And then there’s the economy!

Tony Fernandes, CEO of Air Asia, is leading the pack of ruling Asian skies with his Malaysia-based Air Asia budget carrier.

The past decade alone has seen a myriad of challenges, both natural and man-made. From: the Asian Crisis, 9/11, Global Terrorist Attacks, Wars in Iraq and Afghanistan, Bird Flu, Asian Tsunami, Hurricane Katrina, Global Economic Crisis, foiled Airplane bombing attempts, Swine Flu… and the list goes on. Yet against this dire background, LCCs (Low Cost Carriers) have mushroomed across the globe, witnessing the birth of new airlines. While the same period also saw the demise of plenty of others, including established carriers like JAL (Japan Airlines).

Air travel experience today is of course not the same as a few years ago, increased airport security is to blame. Such condition makes travelers more concerned about flying, but by no means does it point to the end of air travel. There are more people flying today than ever before.

In fact the opposite is true;  while there are airlines that are filing for bankruptcy, others are flying high. In an industry that has been shaken to the core, it’s interesting to see that during the current global recession there are still some bright spots.  What is clear, however, is that the airline business model needs to be reviewed, how airlines are positioned against the changing consumer behavior, the shifting of growth from full-service airlines to LCCs, and the change in business travel – every full-service airline’s profit margin champion – amid the reality that airlines are seeing a vanishing first-class passengers and business class passengers downgrading to economy or economy deluxe.

Let’s also not forget that air travel taps deep into the human psyche! Travel equates to adventure, seeking exploration, reconnecting with family and friends, forging new business and personal relationships, recreation… all traits that have powerful symbolic meanings. This relates to how the human brain functions, through the Reptilian brain, mainly driven by our instincts, not logic or feelings. Discovery and exploration are human abilities indirectly linked to our need of survival and reproduction.

So it’s always interesting to follow trends in the global air travel industry. There’s always something new to learn for all other industries. Here’s a story from Air Travel World (Brian Straus, Feb 26, 2010) about Malaysia-based LCC, Air Asia, the high flying carrier that has weathered the global downturn and successfully recorded profits.

Here’s the original story in full.

AirAsia earned a MYR549.1 million ($161.1 million) profit in 2009, reversed from a restated MYR496.6 million loss in 2008, as it opened four new bases and grew market share “in every market we serve,” according to CEO Tony Fernandes.

The LCC’s 2008 loss was its first since going public in 2004, and Fernandes said he does not anticipate a return to the red in the near future. “There are early signs that the global economy is stabilizing and the benefits are already visible in the aviation industry. Passenger traffic is growing, particularly in the LCC segment. The supply-demand conditions are favorable to upward revision of fares in certain sectors.”

Full-year revenue climbed 11.5% to MYR3.18 billion on a 24% surge in passenger numbers to 22.7 million. Cost of sales was reduced 10.3% to MYR1.8 billion and operating profit soared 59.2% to MYR1.28 billlion from MYR807.3 million in 2008.

Twelve routes were added last year and bases were established at Penang, Bandung, Phuket and Surabaya. The Malaysian unit carried 14.3 million passengers, up 21%, as RPKs rose 14% to 15.43 billion. Capacity climbed 17% to 21.98 billion and load factor slipped 0.4 point to 75%. Average fare was down 17% to MYR168.2 but ancillary revenue per passenger rose 46% to MYR29.1. Unit revenue dropped 8% to 13.54 sen and CASK was cut 19% to 10.41 sen. It operated 48 aircraft at year end compared to 44 one year earlier.

AirAsia Thailand lost THB808.9 million ($24.4 million), widened 10% from a THB735.4 million deficit in 2008, owing to a THB1.11 billion charge related to 737-300 redelivery. Its operating profit of THB148.4 million compared to a THB735.4 million loss the prior year. AirAsia Indonesia lost IDR189.3 billion ($20.2 million), 34% worse than the IDR140.9 billion hit in 2008.

AirAsia reported a consolidated fourth-quarter profit of MYR76.7 million compared to a MYR201.7 million deficit in the year-ago period despite a 1.2% fall in revenue to MYR894.1 million. Operating surplus was down 24.4% to MYR321 million. The 2008 fourth-quarter loss resulted from one-time charges related to fuel hedges and aircraft financing.

The company expects passenger growth of 11%-14% in 2010. It will retire its remaining 737-300s and become an all-Airbus operator by the third quarter and reiterated its plan to launch operations in Vietnam this year in partnership with VietJet (ATWOnline, Feb. 12).

by Brian Straus

Source: Air Travel World


About dianhasan

Brand Storyteller, Travel Writer, Speaker, Creative Writer & Thinker - avid observer of randomness in everyday life - Sustainable Business, Eco Matters, Sustainable Urban Issues, Architecture, Heritage Conservation, Innovation & Brand-Strategy, Cross-Cultural Communications, Travel, Tourism & Lifestyle.
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3 Responses to Air Asia leads Asian LCCs (Low Cost Carriers) and rocks on!

  1. The food in Phuket is fantastic and cheap, all the locals we met were very friendly and anxious to advice use. We stayed at Siam Inn- a completely different place to the hectic tourist trap in the east of Phuket City.

  2. Pingback: Brand Building | More on the compelling role of color [6] | IDEAS INSPIRING INNOVATION

  3. Pingback: The state of the global airline industry… growth shifting toward Asia!! [1] | IDEAS INSPIRING INNOVATION

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