AirAsia X to fly solo by 2011.
Monday, 14th June 2010
Source : The Wrap @ The Transit Cafe
Malaysia's long-haul budget carrier, AirAsia X, plans to be a stand-alone airline to accelerate its expansion. Corinne Wan finds out how the airline plans to do it.

The A350 that AirAsia X will take delivery of in 2011

When AirAsia's group chief executive officer Datuk Seri Tony Fernandes announced on Tuesday that AirAsia X would restructure to be a stand-alone airline via an initial public listing (IPO), aviation analysts were not surprised by the news as they viewed it as a way for the group to ease its financial constraints and for the LCC to carve its own "destiny".

On the proposed separation of the two airlines, Fernandes said, "After more than two years of operation we have begun to notice some dilution of the AirAsia business model, and recognise the need for AirAsia and AirAsia X to remain focused on their respective markets."

As part of this restructuring, AirAsia X will take over employment of its own pilots, cabin crew, ground staff, and commercial and marketing team. 

The airline will also implement its own marketing strategy, which will help strengthen its capabilities in the long-haul service sector. But it will still share AirAsia's culture, academy, brand and website.

This uncoupling of links will allay the concerns of AirAsia's investors that the company is funding the privately owned long-haul budget carrier, and thus may incur more debts in the process.

"AirAsia will not be funding AirAsia X anymore. It will seek funding separately though an IPO exercise," Fernandes reiterated.

AirAsia X chief executive officer Azran Osman Rani said for an airline to grow it needs capital through an IPO. The funds raised through this exercise would be used mainly to finance the 27 new aircraft it had ordered until 2020.

The airline currently has six A330s and two A340s. It expects to take delivery of three more A330s in December. It has also ordered 17 more A330s and 10 A350s to be delivered from next year until 2020.

AirAsia X's Azran (left) and AirAsia's Fernandes

Azran said AirAsia X had huge growth potential as the low-cost long-haul model was an "uncontested" market.

AirAsia X now flies to China (Tianjin, Hangzhou, Chengdu), India (Delhi, Mumbai), Australia (Gold Coast, Melbourne, Perth), Taipei and London.

The airline has obtained approval from the Malaysian government to fly to Seoul and Tokyo and may utilise the rights by year end. There are plans to fly to a destination in continental Europe and, possibly, the United States next year.

AirAsia X posted revenues of RM720 million (US$216 million) for the financial year ended 31 December 2009. It expects revenue for this year to double to more than RM1 billion. To date the airline has carried two million passengers.

"We need to deliver profits this year to show investors our track record," Azran said.

The airline has recently completed its RM100 million rights issue exercise to reduce its debt and fund its continued growth.

No details are available yet on AirAsia X's listing, the size of the IPO or who the bankers will be. As Fernandes said, the carrier was just "starting the process". The listing could be in the second half of 2011, subject to market conditions.

AirAsia X was launched in November 2007 and made history of sorts as the first long-haul low-cost carrier. AirAsia has a 16% stake in AirAsia X and an option to increase it to 30%. The other shareholders are Aero Ventures Sdn Bhd, of which Fernandes is an owner (48%), Richard Branson's Virgin Group (16%), with the remaining 20% held by Bahrain-based Manara Consortium and Japan-based Orix Corp.

In a related development, AirAsia Bhd also plans to seek separate listing for Thai AirAsia and Indonesia AirAsia to enable investors to choose to invest based on geographic and business models.

Photos courtesy of AirAsia - www.airasia.com

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