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Business

AirAsia aims to fly to US West Coast via Japan by 2020

CEO says he hopes to use Nagoya as transit hub for new long-haul routes

AirAsia Group Chief Executive Tony Fernandes outlines the company's ambitions to serve the U.S. and Europe, using Nagoya as a possible transit hub. (Photo by Tsuyoshi Tamehiro)

TOKYO -- AirAsia Group aims to fly to Los Angeles and San Francisco on the west coast of the U.S. by 2020 from its base in Southeast Asia via Japan, Chief Executive Tony Fernandes told the Nikkei Asian Review on Aug. 16.

Asia's largest budget carrier has grown rapidly in the region, but Fernandes underlined his strategy to take passengers to North America and Europe as the company's next step of development. He sees Japan as a connecting hub between Asia and the west.

AirAsia's ambitions will heighten competition in the region, especially with Japanese full-service carriers that have long dominated long-haul flights to the west, exerting further pressure on airfares.

"Japan serves as a fantastic hub for us, as it only takes 12 hours to L.A. or San Francisco, as well as 10 hours to Europe," said Fernandes. The group will use some of the newly ordered Airbus A330neo widebody jets for the long-haul flights. It is expecting delivery of 100 of those from the end of 2019.

AirAsia X, the group's long-haul unit, will handle the flights to the west coast via Japan either from Malaysia or Thailand. Nagoya is under consideration as the Japanese stopover hub, since the group's subsidiary is based there.

"We can provide opportunities to customers who care about affordability, and also to Asian customers who want to discover regions other than Tokyo or Osaka," said Fernandes.

AirAsia X launched flights to Hawaii from Kuala Lumpur in June 2017, with a stopover in Osaka, becoming the first low-cost carrier to serve this route, which was monopolized by full-service carriers, such as local ANA Holdings and Japan Airlines.

Around 80% of passengers that fly this route are Japanese, the company said. It announced in May that it will add daily flights serving this route from four times a week, at a promotional discounted rate of just 12,900 yen ($116) for each leg.

Despite its success in serving this route, the company's ambitions for Nagoya have yet to receive Japanese regulatory approval. He complained that "regulatory approvals are so slow in Japan" and that "regulators should facilitate business." 

AirAsia Group has rapidly expanded in Japan. Thai AirAsia X launched Bangkok-Sapporo flights in April and Bangkok-Nagoya will begin in October. Its Japanese subsidiary plans to start Nagoya-Taiwan by the end of this year and Fernandes is also considering South Korea and Guam. 

However, the group will cease Tokyo-Jakarta flights at the end of September. That route was only launched in May, but full-service carriers dominate that sector which is often used by business travelers.

Japan offers ample room for growth, compared with Southeast Asia where there are many low-cost carriers. According to Professor of Airline Business at J.F. Oberlin University Ryu Tanji, low-cost carriers served 50% of international flights from Malaysia in 2017 and 38% from Indonesia, but only 23% from Japan, highlighting the growth potential.

ANA and JAL are also rethinking their business models. ANA recently announced that it would consolidate its low-cost carrier subsidiaries to begin flights to Southeast Asia while JAL said it is planning to launch a budget airline from Japan to Europe and the U.S.

AirAsia's new plans to serve western markets marks its second attempt. It withdrew from Europe in 2012, cutting flights from Kuala Lumpur to London and Paris, due to hefty costs incurred from a rise in fuel prices.

It now hopes that the newly developed aircraft will make the budget model sustainable for long-haul flights with better fuel efficiency and higher seat capacity. According to research from MIDF investment bank, AirAsia X's new order for the twin-aisle A330neo will reduce fuel consumption by 25%, compared with existing aircraft of a similar size.

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