AirAsia X Airlines Pulls Out Of UK Market Over Emissions Trading Scheme

 

 
 
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AirAsia X Airlines Pulls Out Of UK Market Over Emissions Trading Scheme

By Bill Goldston
 

January 13, 2012 - AirAsia X Airlines, a long haul, low fare affiliate of AirAsia, announced a realignment of its network with a focus on its core markets. The move will see AirAsia X withdrawing services to India (Mumbai and Delhi) and Europe (Paris, London) from its Kuala Lumpur hub.  

“The continued high jet fuel prices and the weakening demand for air travel from Europe, brought about by the current economic situation together with exorbitant government taxes, have placed cost pressures on operating long-haul low cost flights between Asia and Europe, compromising our ability to offer the low fares AirAsia X is known for.” 

“The implementation of the Emissions Trading Scheme and the escalating Air Passenger Duty taxes in UK, which will rise yet again in April 2012 has forced our decision to withdraw our services to Europe.”

AirAsia X is a long-haul, budget airline based in Malaysia. The airline is operated by AirAsia X Sdn. Bhd.  It commenced operations on 2 November 2007. Its first service flew from Kuala Lumpur International Airport, Malaysia, to Gold Coast Airport in Australia. AirAsia X flies to destinations within Asia, as well as destinations in Oceania and Europe. The airline operates a fleet of 11 aircraft and has placed orders for more. 

AirAsia X started flights to London in March 2009. At that time, oil prices were less than US$40/barrel, and have since tripled. With the Arab Spring unrest of 2011 spilling over to the unrests in Syria and Iranian oil embargo this year, oil prices are expected to remain high and crippling the economics of long-haul flights, where fuel represents over 50% of operating cost. 

Moreover, the European situation is also compounded by a very weak economy and depressed consumer demand, which has resulted in a reduction in the number of passengers from Europe on the flights over the past several months. Flights to Europe have also been burdened by exorbitant government taxes such as the UK Air Passenger Duty which will be increased to £92 per departing economy passenger and £184 per departing Premium passenger from 1 April 2012. From 1 January 2012, the European Governments have also imposed an additional carbon tax under their Emissions Trading Scheme, which further adds to an already high cost. 

The confluence of macro-factors, including high fuel prices, depressed European economy and exorbitant taxes have made it economically impossible to sustain these flights, despite AirAsia X recording load factors of over 80% for its London and Paris flights in 2011. Attempts to increase fares to reflect the higher operating cost recently have shown the price elasticity of travel, with demand falling down adversely.

 
AirAsia X launched flights to Mumbai and Delhi in 2010. Structural issues in the Indian aviation market have made it difficult to operate economically viable flights. The airport and handling costs in New Delhi and Mumbai are already more expensive than even airports in Australia, and the authorities have just approved a massive 280% increase in airport fees effective April 2012. 
 
   

The Indian routes have also been under-pressure when the Malaysian Government removed Visa-on-Arrival facilities in August 2010, soon after the routes were launched. This places Malaysia at a significant disadvantage versus Thailand and Singapore who offer Indian tourists convenient Visa-on-Arrival facilities. 

Azran Osman-Rani, CEO of AirAsia X said “AirAsia X remains focused on maintaining its global leadership position in the low cost, long-haul segment. We intend to concentrate capacity in our core markets of Australasia, China, Taiwan, Japan, and Korea where we have built up stable, profitable routes within an infrastructure that supports low cost services. We intend to open up new routes within these markets, as well as add frequencies on existing routes. Announcements of our future expansion plans will be made soon.”

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