AirAsia X expects to profit in one year on new routes

A WING AND A PRAYER: CEO Azran Osman Rani said the budget airline is targeting people who have never flown before and expects to fill 75 percent of its seats


Mon, Nov 05, 2007 - Page 11

AirAsia X Sdn, the Malaysian long-haul budget airline that made its maiden flight on Friday, expects to be profitable in a year as economic growth boosts demand for leisure travel.

The carrier, which offers tickets at about half the fares charged by so-called full-service airlines for similar routes, aims to fly about 1.1 million passengers in the next 12 months as it adds planes and routes, Azran Osman Rani, AirAsia X's CEO, said in an interview on the flight to Gold Coast, Australia.

"By offering cheaper rates, we are targeting people who never flew before," Azran said. "We'll break even within the first 12 months, on a cash basis" on the assumption the airline will fill 75 percent of its seats.

AirAsia X, backed by Richard Branson's Virgin Group Ltd and AirAsia Bhd founder Tony Fernandes, plans to add routes to Avalon, Australia, and Hangzhou and Tianjin in China, as Asia's economic growth makes holidays affordable to more people. The region's airline passenger traffic growth will likely outpace the global average until 2010, according to the International Air Transport Association.

"Rising incomes and liberalization of the air industry will boost travel demand in Asia," Yeoh Yung Juen, an analyst at TA Securities Holdings Bhd in Kuala Lumpur, said on Friday.

Surging crude oil and jet fuel prices may curb AirAsia X's ability to keep a steep discount, Yeoh said.

"Pricing is very important" for low-cost airlines, he said. "They may offer big discounts at first, but how sustainable are the discounts?"

Jet fuel prices have risen 53 percent this year to a record US$110.95 a barrel in Singapore, according to data compiled by Bloomberg.

The carrier will exercise an option to buy 10 Airbus SAS A330-300 in the first half of next year, raising its firm order to 25, Azran said. AirAsia X in June placed an order for 15 Airbus SAS A330-300 airliners worth US$2.9 billion at list prices.

That may help the airline increase its routes to about 13 destinations, including India and the Middle East, in five years, he said.

AirAsia X is also in talks with both Airbus and Boeing Co on ordering about 50 of either A350s or the B787-10s for European and other long-haul flights, Azran said.

To fund the purchase the airline plans to raise about US$85 million selling a 20 percent stake to investors from North Asia and the Middle East, Azran said, declining to name them.

That would boost its capital to US$125 million by the end of the year, allowing the airline to take up more loans to fund the plane purchase, he said. The stake sale will be done through the issuance of new shares.

The shareholders are completing talks with potential investors, Azran said.

"They're finalizing the deal, which will probably be signed in two or three weeks," he said.

AirAsia X also plans to raise at least 1 billion ringgit (US$299 million) from an initial share sale in the local bourse in three years, he said.

Passenger traffic worldwide will rise 29 percent by 2011 to 2.75 billion people, helped by growing consumer wealth in the Middle East, China and India, the International Air Transport Association said on Oct. 24. Profits at airlines worldwide may reach US$5.6 billion this year.