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felt confident they were on the right path and gradually put capacity
back in the system.
Melbourne, Sydney and Perth were restored to double daily fre-
quencies, while the Gold Coast gained an onward link to Auckland,
New Zealand. Other recent additions included Iran’s capital Tehran,
Wuhan in China, and the now axed route to Mauritius. Sapporo in
Japan had already joined the network in late 2015, contributing to
last year ’s 30 percent hike in Available Seat Kilometres (ASKs).
Shrewd bets over fuel costs were another positive driver. In a de-
parture from its normal strategy of hedging solely to cover forward
bookings — in effect, locking in fuel prices for sold tickets — the com-
pany made a qualitative decision that oil prices had bottomed out last
year. “Fuel was sitting at about 30 bucks. There was no way that you
could see it going down any further,” Ismail recalls. “So we hedged
100 percent [of 2016 costs] and we were quite a bit in the money.”
He admits, nonetheless, that hedging can be risky. Having locked
in 72 percent of 2017 fuel costs at US$60 per barrel, the airline is
now paying over the odds for its contracts. Spot prices for crude oil
dipped to US$50 in March amid rising stockpiles in the US. Currency
depreciation is also hurting the airline, with Malaysia’s ringgit losing
nearly a quarter of its value since 2014.
Turning to the coming summer season, Ismail enthuses about
the launch of AirAsia X ’s first American destination: Honolulu
America, like Europe, has always been part of AirAsia X ’s long-
term plan. But the limited range of its fleet again creates difficul-
ties. Whereas the A350 can serve the US West Coast nonstop
from Malaysia, the upcoming A330neo will likely only reach
as far as the Pacific islands. And the A330-300 is even more
restricted, requiring a stop in Osaka, Japan, en route to Hawaii.
Ismail admits that the stop is not ideal for Malaysian passen-
gers, but he says its hits the seven-hour sweet spot for efficiency
while also opening up a lucrative new outbound market.
“Hawaii is the number one tourist destination for Japanese,”
he notes. “Of course every airline flies to Tokyo from Hawaii,
so it would be highly competitive. There’s only three other
airlines flying out of Osaka.”
The airline boss would not be drawn on future US route
development, insisting that he wants to “make Honolulu a
success first”. However, with no delivery schedule yet agreed
for the A350s, it is clear that one-stop connections will remain
a key part of the business. Small wonder that AirAsia X has a
long-term goal of launching affiliates in Japan and India — ge-
ographical intermediaries to both the east and the west.
“It will not be in the three or four-year plan. But once we grow
at the scale where there’s a lot of aircraft coming, it immediately
makes sense to put some aircraft in those hubs,” Ismail affirms.
“India can connect you to Europe. Japan can take you to...the
US. If you have that connectivity it will be great. But we’re still
far from it. First, we want to make sure all three [existing] airlines
are sustainable. Then we know that we’ve got the right model, we’re
operating the right way, and we can just transfer that strategy.”
Pressed on whether London might be launched as a fifth-freedom
service via India, he says all options are on the table. Oman and
Kuwait are other possible candidates for stopovers.
Management ’s willingness to experiment with routes in this way
is one of their best strengths. Along with the cancellations already
mentioned, AirAsia X has launched and grounded flights to Abu
Dhabi in the United Arab Emirates, Christchurch in New Zealand,
Malé in the Maldives, Mumbai in India, and Tianjin in China. Each
failed route allowed the company to refine and optimise its still-nas-
cent business model.
Experimentation has also fostered ingenuity. While premium seats
seem incongruous with a low-cost proposition, the airline’s flatbeds
offer a pragmatic hedge between loads and fares.
“ We don’t call it Business Class,” Ismail says of the 12-seat front cab-
in on the A330-300s. “ We are selling a seat rather than an experience.
You just get unlimited bottles of water and a pillow...And the key thing
is the rationale: in reality, you will never fill the plane 100 percent. The
average when you fly a route is about 85 percent. So that incremental
15 percent might as well be converted to something different.”
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