No issue of overcapacity in low-cost market

Full-service and low-cost segments have their respective target customers and airlines should create capacity accordingly, says Fernandes


THERE is no overcapacity in low cost market except for certain routes when full-service airlines compete with budget carriers and cause fare dumping, AirAsia Group Bhd CEO Tan Sri Dr Tony Fernandes said.

According to Fernandes, there is a huge growth potential for airlines in the low-cost market as opposed to oversupply which is largely claimed by the industry.

“Is there overcapacity in the low-cost market? No. Because there are over one billion people in Asia and most of them have not flown. Is there overcapacity in the full-service area? I am not sure,” he said at the official welcoming ceremony of AirAsia’s first A321neo in Sepang last Friday.

“But I notice, what is happening is that full-service carriers are trying to compete with low-cost carriers and that causes overcapacity in some routes and fare dumping,” he added.

He said both full-service and low-cost segments have their respective target customers and airlines should create capacity accordingly.

“If I sell Rolls-Royce cars and compete against Proton, I would never drop my price to Proton’s price. I know my market. Similarly, not everyone would want to travel with AirAsia. Many people want extra service, so you have to build capacity to fit that market,” he said.

Last month, Khazanah Nasional Bhd MD Datuk Shahril Ridza Ridzuan said in a Public Accounts Committee’s report that Malaysia Airlines Bhd (MAB) has continued making a loss due to oversupply in the industry.

Shahril Ridza said Malaysia has four airlines — MAB, AirAsia, AirAsia X Bhd and Malindo Airways Sdn Bhd — for a 30 million-people market, which translates to about 1.7 seats per true passenger.

Analysts said airline consolidation could resolve the problem or local airlines may have to cannibalise each other.

Still, Fernandes said AirAsia is positive to see further growth next year, driven by continued travel demand.

The newly-received A321neo is the first aircraft out of 353 ordered from Airbus SE. The second unit of the A321neo will be delivered by year-end and another two units next year.

Fernandes said all the A321neo is expected to be delivered in six years. The single-aisle aircraft has 236 seats, extra 50 seats from the A320neo. The longer variant to the A320neo is able to fly about one hour longer and delivers 10% more fuel savings.

AirAsia will initially operate the aircraft from its Kuala Lumpur hub to cities across Asia, with the first destinations including Kuching, Kota Kinabalu, Singapore, Bangkok and Shenzhen.

The discount carrier will eventually replace its existing A320 and A320neo fleet with the new aircraft throughout the network.

Earlier this year, AirAsia converted 253 orders for A320neo to the larger A321neo, making a total of 353 orders and AirAsia as one of the largest customers for the aircraft.

At present, AirAsia operates an all-Airbus fleet with more than 270 aircrafts out of its hubs in Malaysia, Thailand, Indonesia, the Philippines, India and Japan.