Interview: AirAsia CCO Explains The LCC’s Recovery Strategy
AirAsia Group Chief Commercial Officer Karen Chan discusses the pace of the recovery so far, why the LCC is streamlining its network, and which markets could see the launch of a new AOC in the coming years.
How is the recovery progressing for AirAsia across your business units in Malaysia, Indonesia, the Philippines and Thailand?
For the year until December, we recovered about 67% of our total capacity. Obviously, domestic started much earlier than international, and most of our domestic businesses have recovered close to 85%. We’re not back to 100% in some markets because we have started rationalizing our network to focus only on routes that are profitable. We’ve also been streamlining our schedule to ensure profitability—so some routes that were 21 times per week are now 14 times per week, for example.
On the international side, we are between 60% and 65% recovered. This will continue to grow as China reopens, which used to contribute 19% of our total revenue. We expect international to jump to 85-90% quite quickly. We’re seeing this with other airlines too—Chinese carriers in particular are being very aggressive and taking up any slots they can find.
Can you tell us more about what those network changes will entail?
We will be a lot more sensible in terms of the frequency that we are instigating on certain routes, especially in domestic markets. The ratio in the past would probably have been about 60% of our capacity on domestic and 40% international. We’re flipping it to focus more on international because the demand is there and because we can command a higher yield.
Overall, we are opening 50 new routes this year. A lot of them will be basically focusing on certain hubs that we have already established, for instance, Johor Bahru (Malaysia). We’re now using Johor Bahru to fly to other international destinations. We are also double downing on Medan in Indonesia and looking at how we can better connect the east of the country. We’re also planning to build Cebu as a hub in the Philippines, alongside Manila. So that will involve looking at service from Cebu to Taiwan and Japan, for example.
Leisure and VFR traffic seems to be very strong at the moment. Is business travel slower to return, as has been the case in other parts of the world?
It's interesting as we’re seeing strong business demand in some markets. If you look across ASEAN, a lot of the automotive industries are in Indonesia and Malaysia. We’re now flying Singapore-Kuala Lumpur 11 times per day, for example, and a lot of the investment bankers I speak to are no longer flying SQ [Singapore Airlines] but are traveling with AirAsia. Business travel is strong on specific routes, and we’re also seeing demand return for medical travel.
China reopened for international travel on Jan. 8. Are you looking to restore pre-pandemic capacity as quickly as possible or waiting to see the levels of demand?
We’ve already reopened the majority of our China routes for Malaysia AirAsia. However, there are certain headwinds that we are seeing. One of the main ones is that there’s a severe backlog of people trying to renew their passports. Group booking from China is also available from Feb. 8, which is fantastic, but the type of people who tend to travel in groups are typically elderly, and the sentiment to fly is perhaps lower. When Chinese citizens return home, they also still need to undergo PCR testing. This means there are certain roadblocks still in place and so pickup has been slower than expected. I therefore think we’re looking at Q2 or even Q3 before we’ll be back to 50% of pre-pandemic levels.
Given the expected surge in international traffic during 2023, are airlines and airports operationally ready to handle the sudden influx?
The shortage of experienced manpower in airports is becoming an issue. We’ve already experienced that when we opened routes to Japan—anyone traveling over Christmas would have suffered very long queues at check-in and immigration. There will be growing pains as we actually get back to normality, but airports need to ramp up faster. This manpower shortage is also affecting connectivity. AirAsia flies a lot of after-midnight flights because we have the best connectivity for onward morning flights. In China, about four airports have told us they are unable to handle any after-midnight flights. That means we have less slots and fewer opportunities for those onward connections.
Are you seeing a greater level of incentives for AirAsia to resume services or add new routes?
If you look within ASEAN, airport charges have gone up significantly because anything that needs fuel have gone up. While they may actually maintain the same sort of incentive, the base charges have gone up for us and it’s making it very, very difficult for carriers to fly back. Airlines have to pass it on to consumers, and that makes it less competitive and less attractive for those particular airports.
Where we are seeing incentives is from airports that actually need a lot of stimuli to go and get travelers back. So, whether it's new airport, or whether it’s leisure routes from destinations that were previously dependent on Chinese traffic, they recognize that traffic may not come back until Q3. However, for some of the popular destinations like Hong Kong, Singapore or Tokyo Narita, you have to take it or leave it as carriers are queuing up to get your slots.
AirAsia is launching a new joint venture airline in Cambodia with Sivilai Asia later this year. Why have you selected Cambodia for the next phase of the group’s expansion?
Cambodia was a big market for us pre-COVID that we served with Malaysia AirAsia and Thai AirAsia. We now have a great opportunity to work with a great partner. Although Cambodia isn’t the biggest market in terms of population size, it provides a very good connecting hub for us for traffic from North Asia. Beyond Phnom Penh, Sihanoukville is turning into the next Macau, the mini-Las Vegas. We see the potential for a lot of connecting traffic, as well as for leisure and entertainment. It also won’t just be about international flights as we will offer domestic service. We’re going to start small and build to maybe 13-15 aircraft over the next five to seven years. But we do feel that this is a strategic location for Indochina.
Are you considering AOCs in any other locations at the moment?
We are also looking at the Indian subcontinent. With the increase of the middle class in both Bangladesh and Pakistan, there is an opportunity to leverage that because of their population sizes. Before COVID, we only flew once a day to Bangladesh, but from February that has increased to three.
The labor traffic is significant. Can we use the labor traffic outbound from Bangladesh, Nepal and Pakistan, as well as inbound to Bangladesh as a steppingstone to go to the Middle East? We’re therefore looking at that as a possible hub.
We are exploring Central Asia too. We’ve been talking to the Uzbeks and Kazakhs for many years and now with the whole situation in Ukraine, there are 300,000 Russians stuck in Kazakhstan. Europe has closed the doors on Russia so where can they go? I think there’s an opportunity, but it may not be in the immediate future.
How does AirAsia work with long-haul carrier AirAsia X?
Right now, long-haul is a completely separate company and run independently. However, there are a lot of synergies, and we see long-haul as being very complementary. Our short-haul unit cannot fly from Kuala Lumpur to Beijing or Hangzhou, for example, so we need to depend on the long-haul unit to bring all those Chinese travelers into Malaysia and feed our domestic routes. It's a very symbiotic relationship.
When do you expect your aircraft utilization to be back to 2019 levels?
We closed 2022 with about 160 aircraft in operation and we expect to be back to 100% during Q4 this year. With the Airbus A321neo deliveries scheduled, our fleet will be 250-plus by 2027.
Overall, are you expecting a strong recovery this year?
We are seeing the light at the end of the tunnel. We are flying so it’s definitely much better than during the COVID era! But is it going to be a walk in the park? Absolutely not. There is still a lot of uncertainty. We are testing the waters with China, but things can change anytime.
A big focus needs to be ensuring we have network stability to rebuild brand trust and consumer confidence. That’s an industrywide issue and something we’ll all have to work on. However, we’re nevertheless hopeful of a strong recovery this year
This interview first featured in Routes Daily, published during Routes Asia 2023 from Feb. 14-16. Click here to catch up on all three issues of the digital magazine.