KEY POINTS:
AirAsia X, the long-haul associate of AirAsia, the region's biggest low-cost airline, is eyeing the New Zealand market.
Operating wide-bodied A330-300 aircraft from Kuala Lumpur, the Malaysian carrier is rapidly expanding its services to Australia. Having started last year with flights to the Gold Coast, it has announced the start next month of services to Melbourne and Perth, and is now looking across the Tasman.
Speaking on the sidelines of the annual World Low Cost Airlines Congress in London last week, AirAsia X chief executive Azran Osman Rani said although his airline had not advertised in this country, New Zealanders were flying to the Gold Coast to connect with its flights to Kuala Lumpur. From there, AirAsia offered onward flights throughout the region.
He said AirAsia X had been in contact with Auckland and Christchurch airports and would consider on-flying to New Zealand once the airline had established its Melbourne service. But he also noted that with current flights from Perth - by Air New Zealand - restricted to Auckland, there was probably unmet demand for another Perth-New Zealand service.
Interest in the New Zealand market was also confirmed by Tony Davis, chief executive of Singapore low-cost carrier Tiger Airways. But while Malaysian carriers can take up rights to fly beyond Australia, Singapore carriers are prevented from doing so under Australian Government policy protecting Qantas from competition by Singapore Airlines on the lucrative transpacific route.
So while Tiger Airways has rapidly expanded its domestic services since it began operating to Australia, Davis said that the Government had so far declined to grant it "beyond rights", even if they were strictly limited to the Tasman.
A highlight of the London congress was a session involving leaders of three of the world's biggest low-cost carriers: Herb Kelleher, founder and executive chairman of US company South West Airlines, which pioneered the low-cost model; Tony Fernandes, chief executive of AirAsia; and Howard Millar, deputy chief executive and chief financial officer of Ryanair.
Kelleher noted commercial aviation was an "endemically frail industry" that faced an average of two crises a decade and had incurred a net aggregate loss since its origin. But low-cost carriers had "brought freedom to fly to the people of the world" and greatly expanded the market. In 1966 only 15 per cent of Americans had flown; now it was 85 per cent.
He said although the current world economic downturn was causing so-called legacy carriers - full-service airlines - to cut capacity, in general this could help the low-cost carriers, though the smaller ones faced difficulties: 29 had failed due mainly to under-capitalisation.
Kelleher saw the need for two longer-term moves: production of a new, small twin-jet aircraft (120-150 passengers) capable of 20 per cent greater fuel efficiency; and the reformation of air traffic control to allow more direct routes.
Fernandes stressed the "massive untapped market" in Asia. Air travellers had grown rapidly from around 1 per cent of the population to around 5 per cent in Thailand and Indonesia, and 15 per cent in Malaysia. He said more than half of AirAsia's routes were new and profitable.
He stressed the importance of marketing and innovation. After the Bali bombing, 10,000 seats were advertised free and had sold in an hour, and subsequently no Bali flights were cancelled. Nor had the tsunami deterred the carrier from opening a route to Aceh, northern Sumatra, with flights rising from three a week to daily.
Millar of Ryanair conceded the carrier was "not making much" at present, but though the coming winter would be tough - he expected three airlines would fail - there were still opportunities.
"Low fares are here to stay, and all the more desirable in times of recession."
But he predicted that in 10 years only three legacy airlines would be left in Europe: British Airways, Air France and Lufthansa; and just two low-cost ones: Ryanair and EasyJet.
Representatives of other European low-cost carriers, however, were undeterred. Flybe (Britain), Air Berlin, Clickair (Spain), Norwegian Air Shuttle, and Aer Lingus all reported profitable operations.
Fernandes drew attention to the tendency of legacy airlines to concentrate on the front end of the aircraft, with improvements to first class, business and premium economy sections, where yield was greatest. He speculated that perhaps the economy section would eventually disappear.
Just last week Air NZ announced that to meet unprecedented demand it was doubling the number of premium economy seats on its eight B777-200ER aircraft.
However, Air NZ also appears to be directing its attention to improving the comfort of economy passengers.
David Stone is an independent aviation consultant and commentator. He travelled to London courtesy of Air NZ.
