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AirAsia X firms A330neo deal despite troubles

Yesterday’s (December 15) confirmation of 55 A330neos for AirAsia X seems to underline the potential for what is arguably the world’s most experienced long-haul, low-cost (LHLC) airline, but in reality it has been a miserable year for the Kuala Lumpur-based operator.

Despite the near-collapse of its main rival, Malaysia Airlines, AirAsia X has been unable to capitalise and its 2014/15 result will probably be significantly worse than the RM88m ($25m) loss of last year.

Rampant year-on-year capacity growth – of 60 per cent in Q1 2014, 47 per cent in Q2 and 24 per cent in Q3 – has rocketed ahead of demand and thus depressed yields, which have been falling since late 2013.

The carrier instead blames this slump on the two Malaysia Airlines disasters of 2014, and claims that the ongoing quarter will see a return to double-digit yield growth.

In this it may be helped by a retention of fuel surcharges as oil prices plummet, and much lower capacity growth in 2015.

Yet despite some aircraft deferrals, AirAsia X’s delivery stream will take its fleet from 26 widebodies this year to 84 – a mix of A330ceos and neos – by 2025, and questions are being raised about whether demand can sustain that growth.

Management believes that Asia’s demographics back its expansion schedule, but seven years on from launch the airline is clearly still grappling with the LHLC model. 

It has already proved unable to generate the right economics on its longest routes, to Europe, which were abandoned in 2012 in favour of more services to Australia.

These, however, have also been unprofitable, with AirAsia X reporting a negative margin of 12.5 per cent on its Australian services for the first nine months of 2014.

Good news for the carrier is that fuel prices have fallen by almost half in a year, and the AirAsia group is in a position to benefit as it is relatively unhedged for 2015.

Also, AirAsia X has kept its load factor steady at around 80 per cent for several years, so any turnaround in yields should quickly boost its bottom line.

Now all it has to worry about is the weak ringgit, deceleration of the Chinese economy, and emerging long-haul competition from Indonesia’s Lion Air.

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