Bloomberg News

AirAsia Orders Airbus A330s as It Plots Return to Europe (1)

December 18, 2013

AirAsia X Aircraft

An aircraft operated by AirAsia X Bhd. taxis on the runway as another aircraft takes off at Kuala Lumpur International Airport in Sepang, Malaysia. Photographer: Goh Seng Chong/Bloomberg

AirAsia X Bhd. (AAX), the long-haul unit of Asia’s largest low-cost carrier, said it plans to return to Europe using Airbus SAS wide-body aircraft ordered yesterday to build a discount equivalent of Dubai-based Emirates.

The order for 25 twin-engine A330-300 planes valued at $6 billion includes a variant with increased range that will allow flights to Europe, said Tony Fernandes, the chief executive officer of AirAsia (AIRA) X’s parent.

AirAsia X first introduced flights to Europe in 2009, serving London and Paris, only to drop them in the first half of 2012, saying the older planes it was using weren’t efficient enough to make the services profitable. A fresh foray will put pressure on established European carriers including Deutsche Lufthansa AG, which counts Asia among its most profitable markets, as well as discount carrier Norwegian Air Shuttle AS.

An AirAsia X entry into Europe “will be painful for everybody,” said Kenneth Sivertsen, an analyst at Arctic Securities AS in Oslo. “It sounds reasonable if the forecast for traffic streams keep increasing.”

The only European budget carrier serving Asia is Norwegian Air, which began flights to Bangkok from Scandinavia five times a week earlier this year and aims to add a second Asian base within five years. AirAsia said it will pay for the planes with cash flow and debt.

Nobody Waits

“It’s time to really take that next step and build the equivalent of an Emirates in the low cost arena, Fernandes told reporters in Paris yesterday. ‘‘The world doesn’t wait.”

Fernandes said his company will build the low-cost equivalent of Emirates, which has become the world’s biggest international carrier by grabbing traffic from older operators with the world’s biggest fleet of Boeing Co. (BA:US) 777s and Airbus A380 double-deckers.

Airbus aims to keep its A330 twin-aisle jet in production for another decade as low-cost airlines seek cut-price planes to introduce long-haul services. The A330 series initially benefited from a three-year delay for entry into service of Boeing Co.’s 787 Dreamliner, and continues to find demand from carriers that don’t need the full range of the Boeing model or Airbus’s planned A350-900 and want lower capital costs.

Airbus in 2012 announced plans to update the A330 to help compete with Boeing’s 787 and 777 aircraft. The new variant, due to enter service in 2015, will use technologies from the A350 to increase its range and capacity.

Engine Variants

AirAsia X, with 16 planes today, will have 57 planes including six leased by 2019, Fernandes said, adding that it will “be back for more.”

The A330 is powered by engines made by Rolls-Royce Holdings Plc (RR/), the most popular variant lately, Pratt & Whitney and General Electric Co. (GE:US) The airline didn’t say yesterday which turbines it will take for the 25 planes.

AirAsia X, which listed in Kuala Lumpur in July, plans to replicate the business model of parent AirAsia by opening secondary hubs in other Asian cities.

Shares of the airline rose 1 percent to 1.01 ringgit as of 9:25 a.m. in Kuala Lumpur trading.

Budget airlines in Southeast Asia have ordered at least 1,000 new aircraft in the past five years as economic expansion across the region enables more people to start flying in countries such as the Philippines and Vietnam.

AirAsia X’s affiliate won rights to use Bangkok as a base in October and is also seeking to operate out of Jakarta. In its home base, a new budget terminal is scheduled to open outside of Kuala Lumpur in May, allowing the carrier and AirAsia to accelerate growth.

There’s “huge untapped potential” for long-haul, low-cost carriers in Asia, AirAsia X Chief Executive Officer Azran Osman-Rani said in an interview today with Bloomberg Television. The airline risks losing market share if it doesn’t commit to big capacity expansions now, he said.

“In this business scale matters, first-mover advantage matters,” Azran said by phone from Paris. “We want to make sure we’re ahead of the rest of the competition in the long-haul low-cost carrier space.”

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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