Running a budget airline ``can burn cash fast if you don`t get it right``, says Mr Fernandes.

AirAsia to focus on core countries

BOONSONG KOSITCHOTETHANA

Kuala Lumpur _ Following an aggressive expansion in the three years since its inception, AirAsia, Southeast Asia`s leading budget carrier with subsidiaries in Thailand and Indonesia, is consolidating business and maximising the full potential of operations within the region.

AirAsia has decided not to jump on the bandwagon of no-frills flights to the two huge, emerging air travel markets of China and India, nor is the airline aiming to create networks on other continents, defying industry analysts who assumed AirAsia wanted to move into those countries.

``We`re not ready for China and India. You can never push yourself too much and risk everything. You don`t need to be the first, `` said Tony Fernandes, chief executive of the Malaysia-based group, in an interview with the Bangkok Post.

At least 12 new low-cost carriers (LCCs) are expected to start operating over the next 12 months in China _ including Macau and Hong Kong _ South Korea and Japan. The Centre for Asia Pacific Aviation says conditions are ripe for LCC development in North Asia.

``There are 500 million consumers within a three-hour flight radius in North Asia who can afford air travel. Momentum in LCCs and new airline entries in North Asia is building rapidly, with China`s first private carrier, Okay Airways, taking to the skies in March, and four other new private entrants recently licensed by the CAAC,`` said Peter Harbison, managing director of the centre.

Six LCCs are expected to debut in India in the next two years, including Kingfisher Airlines, Air India Express, a subsidiary of Air India and the only operating no-frills domestic carrier, and Deccan Airlines.

AirAsia`s strategy, highlighted by the recent order of 100 short-haul, 180-seat Airbus A320 jetliners, is centred on strengthening its network in core countries such as Malaysia, Thailand, Indonesia and the Philippines, with plans to fly to Cambodia and Vietnam in the near future.

An A320 costs about $67 million.

There is a lot of business opportunity in Southeast Asia, where most of the population has never flown, Mr Fernandes said, adding ``Asia is big enough.``

AirAsia, along with its two subsidiaries _ Thai AirAsia and PT AWAIR, runs more than 100 domestic and international daily flights with a fleet of 30 Boeing 737-300s (148-seats) from hubs at KL International Airport and Senai International Airport (Johor Bahru) in Malaysia, Don Muang in Bangkok, and Soekarno-Hatta International Airport in Jakarta. The group has so far carried over 11 million passengers.

Apart from additions from India and China, Mr Fernandes believes there will be fewer new entrants to Asia`s budget airline business, and he projects a wave of consolidation.

ValuAir of Singapore, which took off in May last year, has already fallen victim to the pressure of high oil prices, fierce competition and skyrocketing costs. Last week, it was merged with the Qantas-backed no-frills carrier Jetstar Asia under a new holding company called Orange Star.

Aviation analysts suggest that the eight existing LCCs in Southeast Asia could be cut to three or four in the coming years.

``When I started the business three years ago, everyone thought it was a very easy business as fuel, capital cost and plane costs were cheap. Now they find it is a very hard and tough business. It is a business that can burn cash fast if you don`t get it right,`` said Mr Fernandes.

He questions if the no-frills operators in China and India truly understand the LCC concept, and whether the airport infrastructure in their countries is ready.

``When you go out and buy 100 planes, like in India, are the airports ready for the planes? Is the cost structure ready to reduce the fares so much?

``You`ve got to have the purist model, you have to have free seating, no serving food, a plane turnaround in 25 minutes, maximise the seats. The models I have seen in China and India are not like that. They have inflight entertainment, food and fewer seats on the planes,`` he said.

AirAsia is open to consolidation with airlines in the region including those from Thailand. ``It depends what they have to offer,`` he said.

He confirmed that he had consolidation discussions with Valuair, about turning Valuair into Singapore AirAsia, a subsidiary like the Thai AirAsia operation. The talks were called off last Friday after the parties could not agree on terms, triggering Valuair to turn to Jetstar Asia.

``Every airline in Thailand has problems,`` he said. ``Fuel prices are killing everyone. The airlines should look at ways to cut costs, integrate, merge take over.``