Assessing how AirAsia X is trying to capitalize on opportunities in China
Friday, 29th August 2014
Source : Traveldaily.cn Exclusive by Ritesh Gupta
If any outbound tourism source market can elicit an expenditure of $100 billion from approximately 100 million travellers in a year, then the lure of capitalizing on such opportunity is quite appealing;

So it doesn't come as a surprise when airlines are constantly evaluating the destination preferences of Chinese travellers.
It should be noted that Northeast and Southeast Asia make up for around 75% of international Chinese seat capacity. And in the list of top contenders that are trying to make the most of this traffic is AirAsia Group.
The group has been constantly expanding its operations in China.
In August, AirAsia X, the long-haul, low-cost affiliate carrier of the AirAsia Group, announced its sixth destination to China, adding Chongqing to Hangzhou, Chengdu, Beijing, Shanghai & Xi'An. This move also signals the fierce battle between carriers from Singapore and Malaysia to tap China as a source market. No-frills airline Tigerair Singapore continues to open up new gateways into China. Post the launch of direct flight from Singapore to Xi'an this year, Tigerair flies to nine destinations. There is a need to keep an eye on Jetstar, too. 
The AirAsia Group currently accounts for approximately half of China's international LCC market, according to CAPA and OAG data. China's Spring Airlines holds close to 20% share while Tigerair and Scoot combined account for about 10%. Overall, low cost carriers have jointly about 7% of total international seat capacity in China.
Azran Osman-Rani, CEO, AirAsia X states that a key strength is AirAsia's network connecting the largest number of Chinese cities to its various Southeast Asian hubs, "more than any other international LCC".
"We have seen the AirAsia brand awareness and adoption progressively improvement in China, which has enabled to generate high load factors on our Chinese routes, with a majority of passengers on these routes originating from China," said Azran. "Going forward, we will continue to add more routes to China and increase our flight frequencies."
The carrier flew a total of 2.7 million passengers to date into/from China from Kuala Lumpur with an average passenger load of 82%.
And now with Chongqing added on to the airline's network, the team expects to see its total revenue increase to over 17% with more than one million guests flying into/ from its China routes from Kuala Lumpur this year.
The group is known for the way cost structure is handled as well as stimulating new traffic volume.
So how is the entity focused on garnering highest possible yield in any market that it operates?
Responding to this, Azran said, "We do not deliberately focus on generating the highest yields. As the lowest-cost airline operator, we focus on volume to achieve load factors above 80% consistently."
He said "yield will fluctuate" based on seasonality.
"Generally highly yields will come from having more demand for our flights than our seat capacity, and in that regard we intend to broaden our distribution mix in China and tap different markets, including corporate and MICE to increase demand," said Azran.
Revenue generation
AirAsia X is striving to cross the US$1 billion annual revenue mark in 2014.
So how much China is expected to contribute? "Approximately 25%," said Azran.
The carrier's ancillary revenue grew by 54.2% y-o-y to RM150.1 million in the first quarter of this year. This was supported by total passengers carried of 1.1 million. Passenger ancillary revenue was 20.0% of total revenue. 
"This (ancillary revenue growth) is principally from the increase in number of passengers. The average ancillary income per passenger has not changed much.  Key sales contributors are our core ancillary products of baggage, assigned seats, and food and beverage," shared Azran.

The more people travel with AirAsia, the higher the take up rate of ancillary products.
"We try to make it simple during the primary booking process, and then follow-up later after the booking is completed, with email marketing to encourage the take-up of ancillary services," shared Azran.
The group also continues to add more options for optimizing the customer experience, and complement is business model. For instance, AirAsia has shared plans of low-cost Wi-Fi on board for the masses, and its Wi-Fi products are to be introduced on board AirAsia flights by year end. Instant Messaging, emails as well as content streaming will be made available.
Such initiatives are part of a plan to boost the group's ancillary income per passenger spent target of RM60 in the near term, as stated by AirAsia's group chief executive officer, Tony Fernandes.
The airline is looking at aggressively promoting its direct channel to complement its revenue generation. 
"We have seen a high adoption of digital e-commerce among Chinese travel consumers and willingness to purchase travel online through our airasia.com site. We will continue to emphasise advertisement and promotions via digital channels and social media platforms in China," said Azran.
With origin and destination fares AirAsia X is expected to take on full-service carriers. It would be interesting to follow the sort of impact that AirAsia X can make with its one-stop city pairs and competitive pricing going forward.
As for distribution, the online direct selling route is important. 

"Travel agencies have few opportunities to collaborate with AirAsia here," said a source, referring to the challenges associated with ancillary items.
 AirAsia X is looking at indirect online partners.
"We are expanding our distribution reach in China by tapping into online travel agents as we are currently connected to eLong and Ctrip and are looking at more OTAs in the future," said Azran. "We are also expanding our sales and distribution team in China whereby we will set up one sales team in our major destinations in China to cater to the expanding Chinese market."
There are challenges on several counts. According to specialists, short-haul travellers in China, especially from the northern part, are preferring destinations in Northeast Asia over the ones in the Southeast Asia, though exact figures are tough to assess. Also, considering that the spate of new Chinese carriers set to be launched by the end of 2014, and the authorities in China are encouraging the LCC model, the impact of such developments needs to ascertained as well. For instance, China Eastern is expected to partner with JetStar to launch a LCC JV in Hong Kong.
From the group's business strategy perspective, AirAsia needs to develop traffic between China and destinations beyond its hubs. The competition emanating from carriers in Southeast Asia can't be ignored. For instance, both the carriers - Tigerair and Scoot – are looking at new potential destinations in China. Good news is that airlines are increasingly finding success in secondary cities.
As for major cities, there is a need to look beyond the likes of the Beijing Airport. The demand at this airport is quite high but slots are limited, restricting expansion plans of carriers. The city of Beijing has the largest airport, catering to over 83m passengers last year. But it needs to be noted that the airport only witnessed a growth of just over 2%, the slowest in five years. If one considers the top five airports, Guangzhou proved to be the fastest in terms of growth, with over 8% increase in passenger volume.
Going forward, it would be critical for the group to strengthen its China-Australia connections.  The group is trying to work on this as AirAsia X has almost doubled its capacity to Australia in the past 12 months or so and the Malaysia-Australia routing isn't absorbing the increment. 

Azran Osman-Rani, CEO, AirAsia X is scheduled to speak at the upcoming China Edge 2014 TravelDaily Conference, scheduled to take place in Shanghai (September 3-4, 2014).
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