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AirAsia X CEO: Airline codesharing is a thing of the past
The carrier’s top man explains how clever budget airlines manage to turn a profit and why codesharing is as outdated as the Y2K bug
AirAsia X -- the five-year-old, long-haul subsidiary of low-cost carrier AirAsia -- is flying a revolutionary route.
Earlier this month, the Kuala Lumpur-based carrier announced it would give away a free Airbus charter party via Facebook.
Now the company's CEO is saying that codesharing -- interairline partnerships that allow one carrier to book connecting tickets, collect fares and place its codes on a "codeshare" partner airline's flights -- is passé.
In Shanghai recently to speak at the Hult International Business School on "Achieving Global Business Growth Through Leadership and Innovation," 41-year-old CEO trail blazer Azran Osman-Rani met with us to discuss the profit model for budget carriers and how passengers can score that coveted row of empty seats.
CNNGo: What does AirAsia X offer that other low-cost carriers don't?
Azran Osman-Rani: No other low-cost carrier has as many destinations in Asia as we do. Not only the number of destinations, but the frequency of flights.
We have 12 flights from Kuala Lumpur to Singapore per week. Other airlines typically have four to five.
CNNGo: Expansion is key in Asia. Does AirAsia X have codeshare plans?
Osman-Rani: We don’t believe in codeshare. It’s a 20th-century strategy.
CNNGo: Why not?
Osman-Rani: Through a codeshare or [airline partner] alliance, a passenger who needs to make a single journey across two different "codesharing" airlines must experience different brands.
In 2011, the unit cost for AirAisa X was 3.5 U.S. cents per seat per kilometer. For traditional airlines, it's 9 cents.
Going forward, the relationship between a passenger and an airline will be more integrated, not just limited to the actual flight experience. Interactions before the flight, during the flight and even after the flight (through an ongoing relationship with social media platforms) are important.
If there is no single, consistent brand or single, consistent product experience, it diminishes that relationship.
CNNGo: So AirAsia X doesn't partner with anyone?
Osman-Rani: We can still partner with other airlines. For example, in Japan we partnered with ANA and launched AirAsia Japan (AAJ). ANA has a majority of 51 percent ownership, but we still own the brand.
The new AAJ uses the same website, Weibo and Facebook page as AirAsia.
The brand is under AirAsia and the brand is the most important thing.
More on CNNGo: Could budget airlines topple Asia's legacy carriers?
CNNGo: How do budget airlines sell inexpensive tickets and manage to turn a profit?
Osman-Rani: A main method is to get a lot of usage out of the same cost of operating a single airplane. Compared with Singapore Airlines and Cathay Pacific, we can fly our airplanes more often.
We fly 17 hours a day and Cathay Pacific reported that they fly 12 hours.
The reason is they have premier passengers whose needs are more time-sensitive. For example, (their) passengers might require that they leave at night and arrive at a destination in the morning. That means (their) plane will have to stay on the ground unused at other times waiting for their next flight.
CNNGo: 'Premiere' passengers are a significant revenue source for many traditional carriers. Are there other benefits to not catering to that segment of the market?
Osman-Rani: We (can fit) as much as 30 percent more seating in a cabin because we only have economy class, while other airlines reserve large spaces for business and first class.
In 2011, the unit cost for AirAisa X was 3.5 U.S. cents per seat per kilometer, while a traditional airline's is nine cents.
To reduce costs, we also encourage people to check in by mobile phone.
CNNGo: Any other creative money-making methods?
Osman-Rani: I’ll give you one example.
Before you board a plane, you don’t know if the seats next to you will be empty or not. We launched Empty Seats Option, which means that for RMB100 (US$16), you can occupy the full row of three seats if there are no other passengers.
Traditionally, airlines keep flying everywhere, even in markets they lose money. They rarely make changes.
If I end up selling all the seats, I give you your money back. If the seats are empty, I get an extra RMB 100. In most cases, we can earn the RMB 100.
By doing this, we estimate we can earn up to US$1 million in 2012.
CNNGo: What countries will be most important for AirAsia X's development?
Osman-Rani: Traditionally, airlines keep flying everywhere, even in markets where they lose money. They rarely make changes.
To survive today, you have to make very quick decisions and [sometimes] change your plans.
The big challenge for us this year is moving out of Europe and reducing our planes in India.
Our big markets are in Australia, China -- including Taiwan -- Japan and Korea. We have a lot of scale in these places, instead of being everywhere.
The other challenge to the whole industry, and to the whole world, is the rising price of fuel.
More on CNNGo: Hangzhou airport's best budget deals
CNNGo: How will you deal with high fuel prices?
Osman-Rani: Because of our unique model, we burn less fuel per passenger than other airlines.
We burn two liters of fuel for one passenger 100 kilometers. For traditional airlines, it's four liters. That’s why the traditional airline charges more. That's our [advantage].