Can AirAsiaX make the low-cost long-haul model work with focus on Asia-Pacific? Interview with CEO Azran Osman-Rani

It might seem like an anxious start to the new year for AirAsia X, which recently announced that it would be introducing a daily KL-Sydney service and terminating all its flights to Europe and India. Far from being in the doldrums, it’s all part of the airline’s strategy to refocus and strengthen its brand, as its CEO Azran Osman-Rani shared with SimpliFlying in our latest airline strategy podcast.

Listen to the exclusive podcast below.

 

(c) 2012 SimpliFlying Podcasts

Note: The HTML5 player above should work with most modern browsers including those in mobile devices such as the iPad and iPhone. However, if you’re having trouble playing the file, please use the flash player at the bottom of this post. Please also note that the podcast above has only a snippet of the interview with Azran. To delve deeper into the mind of an industry stalwart and gain some exciting secrets to the success of AirAsia and its future plans, click the Buy button above and get our premium podcast at an introductory price of only $19. You can get the free, significantly abridged, SimpliFlying Podcasts on iTunes as well!

When AirAsia X began its operations in 2007, you could practically hear the skeptics sharpening their knives as they waited – and waited – for the long-haul budget carrier to fold.

No doubt those knives were whipped out once again when the airline recently announced that it would be terminating its services to London, Paris, New Delhi and Mumbai – flights to Europe and New Delhi will cease in March while operations to Mumbai ended in January.  Despite all the I-told-you-so’s, chief executive Azran Osman-Rani remains unflustered. In fact, he maintains that the long-haul, low-cast business model is one that can work – if done right.

Of Scale and Profitability

While Europe’s weak economy, high fuel prices and taxes, as well as the visa restrictions imposed by the Indian and Malaysian governments ultimately prompted the airline to halt services to those destinations, Osman-Rani says that markets such as Australia and China are proof that AirAsia X’s model is one that can, with the right scalability and economization, turn a profit.

“The model can definitely work but the ingredients to build that success require scale. What we have proven is that in markets [where we] have built sufficient scale, they have been very profitable. In fact, [our] profit margins are higher than even some of the disclosed profit margins of the leading full-service airlines in Asia.”

Indeed, despite the disruptions caused by the Tohoku earthquake and tsunami in Japan last year, the airline’s performance remained steady, netting it an on-site performance rating of 88 percent, which according to Osman-Rani “is much higher than some of the leading full-service airlines in the world.”

“Our engineering reliability rates [are] just about higher than everyone else…and if you go to the Skytrax website and look at the customer satisfaction scores for AirAsia X, we’re the highest among any Asian LCC and comparable to some of the top so-called 5-star airlines in Asia,” he continues. “We’ve developed a product that is very popular. It’s operation-sound and we can make it work and deliver profitability when we have scale and market.”

The Art of Strategizing

If there’s anything that the airline’s European and Indian sojourns have taught it, it’s that one has to prioritize. “If we want to compete, we have to let go of markets that are weak,” says Osman-Rani, adding that the airline will not be entering any new markets for the next two years but will instead focus on building up its brand and customer engagement platforms in Australia as well as Japan, Korea and China either by adding new cities to its network or increasing flight frequencies within its existing markets. “We’ve deliberately chosen the markets where we have a [strong] market leadership position and scale, by which we mean having multiple destinations in the market and strong frequencies that will connect well.”

However for many observers, it will be interesting to see if AirAsia X can maintain that position, especially when Singapore Airlines’s new low-frills carrier Scoot takes to the skies in June. The latter’s announcement that it would be operating direct Singapore-Sydney flights certainly played a significant role in putting pressure on the Malaysian government, which had been safeguarding Malaysian Airlines’ (MAS) interests up till then, to relax its restrictions on the Sydney route so that AirAsia X could be the first Asian LLC to operate to and from the Australian city starting April 1.

But what does he make of the competition? “The best way [of viewing the situation] is to look at what happened in 2004-2005,” says Osman-Rani philosophically. “Air Asia was a much smaller airline then and the entry of Jetstar and Tiger Airways into Southeast Asia made us wonder what’s going to happen to AirAsia with more competition and choice.” Fast forward seven years and it’s clear that those fears were largely unfounded.

That said, what’s going to determine which airline dominates the market isn’t a matter of who has the strongest network leadership. “The strength of the brand’s reach to customers is going to be the defining factor and it’s ours to lose if we can’t maintain that leadership position.”

In addition, there’s also the question of how fierce a rival budget airlines such as Scoot and Jetstar will turn out to be in the long run, given that much of the focus of AirAsia X’s growth will be on the north and south of Southeast Asia, which puts it in competition with larger full-service carriers such as Etihad Airways.

Entertaining Global Ambitions

 

Apart from strengthening the airline’s network and brand platform, Osman-Rani has grander ambitions as well and these include ideas for what he considers to be a truly global airline network hub. “The only model today is the global alliances – Skyteam, One World et cetera – and it isn’t a very strong consumer one because no one is going to say they’re going to fly SkyTeam. Everything’s still associated with the individual airline brand,” he explains. “In our model, what we’ve seen is the opportunity to create a global model anchored on one single brand – the Air Asia brand – and one single platform – AirAsia.com.”

Apart from AirAsia’s landmark tie-up with MAS, which will see both airlines capitalizing on each other’s resources in areas such as catering, ground handling and maintenance, Osman-Rani also points to AirAsia X’s collaboration with Japan’s ANA as an example, he points to how an airline can build on the same common brand platform rather than just having a loose alliance and code-sharing. “In this respect, one of the unique things that AirAsia is pioneering is how to roll this out globally. LCC is pretty much regional whereas the difference with AirAsia is AirAsia X. It is the trunk that can provide the link between the regions. For example, if AirAsia Japan establishes a very strong short-haul network, it provides AirAsia X the opportunity to come in to provide long-haul routes from Japan.”

Keeping His Eye on the Bigger Picture

For AirAsia X, 2012 is going to be a crucial one in terms of strengthening the foundations for its network, and that according to Osman-Rani means completing the task of reassigning the 30,000 passengers affected by the European and Indian flight cancellations, adding frequencies to “a couple of other existing routes” and making sure that the Sydney service goes off without a hitch.

More importantly, he is also hopeful that if everything goes according to plan, the airline won’t have to wait too long to file for an IPO. “I think if we succeed in [what we’ve set out to do] and hopefully with global equities picking up, we’d love to carry on with our plan for an IPO hopefully later in the year.”

When that happens, you can be sure the critics will be eating their words yet again.

In case you weren’t able to listen to the HTML5 version above, or if you wanted to listen to the podcast after you read the article, here it is for your listening pleasure in Flash.

(c) 2012 SimpliFlying Podcasts

Note: This is the free version of the podcast and contains the latest industry updates followed by a small snippet of the interview with Azran. If you want to listen to the full interview with Azran and gain some exciting insights as well as secrets to the success of AirAsia get our premium podcast at an introductory price of only $19. Just click the button below and you’ll be listening to it in minutes! The premium podcast also entitles you to a free copy of the complete podcast transcript. Just email us at podcasts@simpliflying.com to get it.

Shashank Nigam

Shashank Nigam

Shashank Nigam is the CEO of SimpliFlying and a globally sought-after consultant, speaker and thought-leader on airline branding and customer engagement strategy. He is also the youngest winner of the Global Brand Leadership Award and has addressed senior aviation executives globally, from Chile to Canada and from Sydney to San Francisco.Shashank's perspectives have found their way into major media outlets, including CNN Travel, CNBC, MSNBC, Bloomberg UTV, Mashable and in leading publications like Airline Business, ATW, Aviation Week, and others.Shashank studied Information Systems Management and Business Management at Singapore Management University and Carnegie Mellon University. Hailing from India, he splits his time between Singapore and Vancouver, among other cities.
Shashank Nigam
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