Alex McWhirter examines topical business travel issues. This month: can the low-cost model work long-haul?
Two years ago, the arrival of Malaysia’s budget carrier, Air Asia X, on the London to Kuala Lumpur route was a breath of fresh air. It gave much-needed competition to incumbent Malaysia Airlines and, being a no-frills service, it was assumed that flight prices to South East Asia would fall dramatically. But it never happened.
Air Asia X kicked off the route with £99 one-way deals but since then prices have gradually risen. According to the publicity blurb, one-way tickets now start at £338. Anyone hoping for an introductory offer when the carrier switches its flights from Stansted to Gatwick later this month will be disappointed.
When businesstraveller.com asked the carrier’s chief executive, Azran Osman-Rani, whether the £99 deal might return, he admitted it wouldn’t be possible as “the taxes [plus fees and charges] alone are in three figures”.
So why has Air Asia X begun charging the sort of rates you would expect from a conventional airline? It’s partly down to higher fees and the price of oil. But one wonders whether the low-cost airline model is effective for long-haul services. The jury is out concerning Air Asia X, but it must be noted that other long-haul carriers that served the UK, such as Hong Kong’s Oasis and Canada’s Zoom, failed.
Conventional wisdom suggests that budget carriers only make money on short services. That is because they turn a profit per sector, so the more sectors they can accomplish in a given time, the greater the revenue.
Flying within Europe enables the likes of Easyjet and Ryanair to notch up as many as eight sectors in a 24-hour period whereas, between Europe and Malaysia, Air Asia X manages just over one. So, every day, Easyjet and Ryanair have eight opportunities to score points with factors such as increased seating per plane, lower airport fees, no catering and no frequent flyer programme giveaways. Crucially, they then profit eight times a day with ancillary fees – covering speedy boarding, baggage, booking and insurance – which have become an important revenue stream.
By contrast, a long-haul budget carrier operating 12- or 13-hour sectors has only one bite at the cherry a day. After that, it incurs the same high expenses as traditional carriers in terms of staffing, fuel (Air Asia X operates thirsty four-engine A340s) and en route navigational fees.
It would seem these factors have led to Air Asia X hiking its fares. Glance at the pricing information in this issue’s Route of the Month, on Kuala Lumpur (see page 19), and you will find that while Air Asia X continues to beat its nonstop rival on price, it is undercut by indirect carriers.
That’s another disadvantage of the long-haul model. On short sectors, there are fewer opportunities for indirect airlines to muscle in. But the longer the flight, the more you will find indirect carriers waiting in the wings to poach customers.
True, many passengers will pay a premium for the ability to fly 16,900km nonstop. That’s fine if you are near London – but what if you are in the regions? That is when the indirect airlines score. KLM can fly you to Kuala Lumpur via Amsterdam with departures from regional airports the length and breadth of the UK. Emirates can take you via Dubai with departures from regional cities such as Birmingham, Manchester, Newcastle and Glasgow. Regional passengers can still take the train or fly into Gatwick, but that pushes up the cost and overall journey time.
A spokesperson for Air Asia X explained that the carrier was well aware of the competition and that its fares might not be the cheapest. That is why it wishes to be known as offering a “value-for-money” rather than a no-frills product. The carrier also points out that it offers a cost-effective business class product that appeals to small and medium-sized business owners and well-heeled leisure travellers. Some ancillary fees, which are all extra-cost options in economy class, are included in the business price.
Another selling point is that passengers can feed into the carrier’s extensive regional network over Kuala Lumpur. Unusually for a budget airline, connecting passengers are offered a “Fly-Thru” service allowing them to through-check their luggage.
This is all well and good, but Air Asia X will face much stiffer competition in future. Not only is Emirates inaugurating A380 services into Kuala Lumpur from the beginning of December, but Malaysia Airlines will be a more effective force when it joins Oneworld at the end of next year – a development that might cause British Airways to consider restarting flights to Malaysia.
To cap it all, both Qantas’s Jetstar and Singapore Airlines have expressed plans to introduce budget flights that will link Asia with Europe. It looks as if interesting times lie ahead.
