Low-cost, long-haul carrier Air Asia X is to close its route between Kuala Lumpur and Adelaide from January 2015 due to the poor performance of the route, launched in October 2013. The carrier will end its flights on January 25, 2015 as difficult trading conditions between Malaysia and Australia and particularly price competition from Malaysia Airlines over the last year have made it unprofitable.

The cancellation of the route is likely to be the first move in a reduction of capacity from Air Asia X between Malaysia and Australia as the carrier enters a consolidation phase. The airline recently revealed capacity will be “tactically managed” with frequency reductions during lean seasons in Q2 and Q3, to reduce the need to lower yields to fill up excess capacity with a drop in the number of flights to Australia.

“In light of the changing market landscape in Malaysia where travel demand has softened and the industry capacity moderating, we see less need to continue expansion in our core Malaysian route network in 2015,” said Azran Osman-Rani, chief executive officer, AirAsia X. “This will allow more time for routes and capacity added in 2013 and 2014, to mature and reach profitability as average fares increase in line with demand.”

The airline plans to slow down aircraft capacity growth by reducing new aircraft deliveries from eight to six in 2015 through two planned sales, from eight to four in 2016 and from eight to five in 2017 through deferrals to A330neo models from 2018 onwards. This will mean a majority of the six aircraft deliveries will be allocated to Air Asia X’s associates in Thailand and Indonesia, which are generating positive cash flow and have more growth upside.

"The growth strategy for 2015 will shift to a consolidation phase, where no new aircraft capacity to be allocated to core routes in Malaysia’s network in 2015, although ASK capacity is expected to increase by five per cent versus 2014 due to the 12-month effect of capacity introduced mid-2014," said Osman-Rani.

In our analysis, below, we look at segment demand on AirAsia X’s routes between Kuala Lumpur and Australia, where alongside Adelaide, AirAsia X currently serves Sydney, Melbourne, Gold Coast, Perth and Darwin. MIDT data shows that AirAsia X carried just over one million passengers across this network in 2013, up 22.7 per cent on 2012.

In the first nine months of 2014, AirAsia X boosted passenger traffic to and from Australia by 71.9 per cent to 1.2 million from just 713,000 last year. However, its average segment fares declined massively from $430 in the first nine months of 2013 to just $291 in the first nine months of 2014, significantly impacting yield.

Data provided by