The last few years have been challenging for the airline industry as a whole, with the pandemic, manufacturing issues, and economic crisis all taking a toll before we even consider the impact of geo-political events and the rising cost of oil.
What’s causing problems for AirAsia?
The effect of strengthening and weaking currencies is not to be underestimated in this industry. When many of your costs are in US Dollars and most of your revenues are in weakening Asian currencies, costs can quickly spiral out of control. That is the situation AirAsia has faced through the summer as the airline attempts to rebuild its position and secure the financial stability to satisfy both markets and regulators.
But while current headlines are all about resolving these issues, it’s worth reflecting on how impactful AirAsia has been in changing the aviation market in Asia. After all, the issues laid out above have all been overlaid with the challenges of being a start-up airline: disrupting the status quo whilst competing against state-owned and occasionally state-protected competitors.
AirAsia’s early days
In 1998 a small operation launched in Malaysia as part of a local conglomerate, DRB Hi-Com, which operated domestic services between West and East Malaysia. It's difficult to make domestic services profitable, especially with just two ageing B737s and a very large competitor in Malaysia Airlines so - not unexpectedly - the airline, with its debt of around 40 million Malaysian Ringt, was about to collapse when acquired by Tony Fernandes’ Tune Air for one Malaysian Ringt.
With a bold plan, support from some of Ireland’s best low-cost airline management, and bundles of energy, AirAsia as we know it today was launched. Its growth since 2002 has been remarkable, as the chart below shows.
Pre-pandemic, AirAsia was operating around 78 million seats a year and while that shrunk dramatically in 2021 with Asia’s second wave of Covid, AirAsia is planning to operate nearly 64 million seats this year; down on last year as marginal services are cut in response to increasing operating costs. Cumulatively, the airline has operated over 941 million seats across over five million flights, and if you assume an 85% load-factor, then since 2002 that’s around eight hundred million passengers who’ve had the chance to sample AirAsia’s signature in-flight dish, the Nasi Lemak!
Adopting the franchise model
With a hugely successful operating model, AirAsia sought to expand into new markets in Asia where legacy carriers dominated and there was opportunity for LCCs. Seeking fast-track entry to these markets and recognising requirements for a majority local ownership, AirAsia sought partnerships in markets such as Japan, India, Vietnam and China. Ultimately, some of these either ceased operations or - in the case of China - never reached the market. But the ambition was bold and some of the franchise operations have proven to be very successful.
Thai AirAsia now operates over 120,000 scheduled flights a year and is the largest airline in Thailand based on capacity; twice as large as Thai Airways International. AirAsia Cambodia is a relatively new start-up (2024) and is still finding its way, but in an emerging market such as Cambodia the scope for further growth is significant.
Intriguingly, AirAsia has also franchised into long-haul markets with separate operations for their AirAsiaX long-haul networks. Operating long-haul low-cost services remains a questionable business, especially when initially operated on A340s where any movement in the price of oil can bring a sharp change in fortunes. AirAsiaX operates from Malaysia and Thailand to Australia, Japan, China, and South Korea, and provides valuable self-connecting traffic to the AirAsia operations. London Gatwick via Bahrain was scheduled for launch this year but is now delayed indefinitely, which again highlights how external factors can impact an airline. When luck is against you, it can really be against you!
This year, just over 60% of the AirAsia operation will be under the Malaysian entities, with AirAsia Malaysia accounting for 57% of the group’s scheduled flights - similar levels to in the peak year of 2019.
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Stretching the airline brand
AirAsia has attempted to stretch the brand into other travel-related businesses: Hotels, car hire, credit cards and ground arrangements are all part of the group’s attempts to build a larger one-stop travel eco-system that serves the rapidly growing market in Asia, with a focus on the younger leisure traveller.
Such brand extensions have had mixed success in recent years, but if the amount of effort required to extend the brand is controlled, then as we have seen in markets such as the United States, revenues from credit card commissions can make or break the financial year for an airline. AirAsia will be hoping that is the case for them in Asia.
Too big to fail?
The phrase “too big to fail” is being severely tested by airlines around the world as current events conspire against them. Who would have expected an airline with over 130 aircraft to fail? But that happened to Spirit Airlines earlier this year and was largely forgotten a few months after the event. That said, with some 328,000 scheduled flights planned for 2026 and 64 million seats on sale is AirAsia too big to fail?
Perhaps the real question is could the Asian market quickly find 64 million alternate seats with a few months’ notice? Absolutely not. And for that reason alone, alongside all of the positive changes that AirAsia has brought to the market in Asia, let’s hope that the pioneer survives and continues to challenge the status quo.
