UPDATED: AirAsia, one of the world’s largest low-cost carriers and fastest growing airlines, announced on Wednesday it planned to operate long-haul flights from Bangkok to Scandinavia. It was a direct challenge to Norwegian Air, which on Thursday reported an operating loss instead of the expected profit in its quarterly report.
AirAsia’s founder Tony Fernandes secured a deal for 50 new long-haul Airbus A330neo planes at the Farnborough Airshow near London this week, reported newspaper Dagens Næringsliv (DN). “This is fantastic,” Fernandes said of the NOK 90 billion contract (USD 14.5 billion). “For me this agreement is a dream come true.”
The 50-year-old has built up AirAsia after buying the remains of a Malaysian state airline 15 years ago. He’s credited with revolutionizing air travel for ordinary people in Asia, covering large parts of the region. AirAsia has a fleet of 169 aircraft, with a further 373 on order. The A330neo planes were due to be delivered in four years.
Budget airline battle
To date, Fernandes’ intercontinental subsidiary AirAsia X has only flown between Asia and Australia. Now, his sights are set on challenging the established airlines operating Asia to Europe routes, a year after Norwegian Air became the first budget airline to operate a low-cost service between Scandinavia and Asia.
“We will definitely fly between Bangkok and Scandinavia, without doubt,” Fernandes said. “The market is big enough for both us and Norwegian. I have a separate company called Thai AirAsia X, and that will definitely fly to both Sweden and Norway. I hope it happens soon, if I can convince the rest of the management team.”
Fernandes told DN he was “100 percent sure” his airline would appeal to Scandinavian travelers, because customers would have the advantage of transferring directly onto their next AirAsia flight from its Southeast Asian hub. “I love the area and all Scandinavians want to go to Bangkok,” he said. “It is more fun to fly with us, because we have cute flight attendants on board and more fun. When you fly with us to Bangkok, you can easily fly on. That is our advantage compared to the other airlines in Europe. With us you can fly on to Cambodia, Laos, Malaysia and almost anywhere you want.”
AirAsia also planned to resume its London route within the next five years, which it first operated from Kuala Lumpur in 2009 but shut down in 2012. “That was because we had a plane with four engines, and they used too much fuel,” Fernandes said. “The plane was too big and the oil prices went through the roof. Fifty dollars a barrel was good, but 130 dollars a barrel was impossible to tackle. London is something very special for me, and I long to fly there. The is a lot of emotion in that, but it is also a global hub.”
Norwegian: as expected
“This is what we have predicted for a long time: we are part of a global industry, and so we cannot sit here in Norway and pretend we are not part of a global world,” said Norwegian Air’s communications director Anne-Sissel Skånvik. “That is why we must position ourselves as we’re doing.”
Fernandes himself had nothing but praise for Norwegian’s rapid expansion in recent years. “I love people who are innovators and will try new things,” he told DN. “Kjos has not built up Norwegian because he is stupid, I think he knows what he’s doing. The more there are like him, the better it is for us.”
Other airlines including Thai, Qatar Airways and Emirates already fly direct to Scandinavia, but the challenge from a low-cost carrier is new. AirAsia and AirAsia X both outranked Norwegian Air in the 2014 Skytrax World Airline Awards for best global budget airline, announced at the Farnborough Airshow on Tuesday. “It is everyone fighting against everyone,” said Skånvik. “Aviation is global.”
The news of a new budget challenger could have come at a better time for Norwegian Air. On Thursday, the company’s quarterly report revealed an operating loss of NOK 85 million, significantly lower than the expected profit of NOK 103 million. Before tax, the result was minus NOK 137 million, instead of the expected NOK 81 million profit. The earnings before interest, taxes, depreciation and amortization (EBITDA) was NOK 94 million, when NOK 275 million was anticipated. Turnover was also lower than expected, at NOK 5.043 million instead of NOK 5.071 million. The result saw a 6.7 percent drop in Norwegian shares to NOK 193.20.
Swedbank attributed the weak second quarter to significant yield pressure and costs related to the leasing of long-haul aircraft. Norwegian Air also listed the weak Norwegian krone, high oil prices and a strike in May as factors. The strike alone cost the airline NOK 1.1 million.
If those costs were taken out of the picture, Swedbank analysts said Norwegian Air was operationally excellent. The load factor was up from 76.9 percent to 79.8 percent on the same time last year. The airline’s “available seat kilometres” which measures available passenger capacity also grew by 35 percent in 2014.
Swedbank said yield pressure was intense right across Europe currently, but warned prices to some destinations were so low that they were not sustainable in the long-term. Many airlines could expect losses in 2014. Norwegian’s biggest rival SAS announced a staggering quarterly loss of over SEK 1 billion.