Air AsiaX quits Europe- The end of Low Cost Long Haul?

Tony Fernandes' Air Asia X A330 long haul low cost services to from Kuala Lumpur to Europe are to end in March.

Obvious questions include:

-Can the low cost model really work on highly competitive long haul routes?
-Was the relatively weak home base and hub, Kuala Lumpur,the problem and would somewhere else have worked better?

Quick answers point the the former with maybe a little help from the latter though if the prices and schedules of Air Asia X's own connections at Kuala Lumpur were sharp enough that itself should not have been a problem.

Short haul low cost airlines have undercut their legacy rivals by;

-Higher daily utilisation thanks to quicker turnarounds and good combinations of sector lengths to cram as much as possible into the commercially useful day without necessarily a lot of midnight/early hours fying.
-Lower turnaround costs by dispensing with most cleaning other than whatever the cabin crew could manage in the very short times allowed.
-Flexible and very cost effective rostering of flight and cabin crew to maximise utilisation and minimise/eliminate expensive and time consuming nightstops.
-Minimising Head Office and support staff levels.
-By virtue of all of these being able to profitably undercut existing carriers with prices they can not afford to consistently match.

So what's different for long haul?

-With long sector lengths and therefore a much lower number of turnarounds there is not the scope to substantially improve utliisation by tighter turnarounds. The ratio of saveable ground time to air hours is so low that this possibility is very marginal rather than a substantial boost to utilisation.

The key factor though is fare levels already offered by high frequency good quality operators. The Asian and Gulf airlines in particular are very good at fine tuning
loads to meet a target load factor by dynamic pricing. They have done it for years. They mainly offer at least double daily frequencies on major traffic flows and all provide full service catering and amentities. On the Atlantic, despite alliances having reduced competition to some extent, there are also usually reasonably low fares to be had. As result, particularly between Europe and Asia there is very limited headroom for a new low cost, no frills operator to consistently offer substantially lower fares than the incumbents. Add to that some customers' iritation at having to carefully navigate around low cost carriers' secondary charges, some of them punitive from their short haul experiences,and the low cost long haul proposition just isn't attractive enough. Unlike on short haul there is very limited scope for raising the basic selling price to higher levels as the bookings on a flight build up because as soon as they get even closer to those of full service airlines why should the customer proceed with the purchase?

What does this mean for other genuinely low cost entrants to the medium to long haul market? Jetstar with its longish but essentially medium hauls from Australia into Asia might look an obvious case. The reality though is not that. Jetstar's longer haul business is very different from its geuinely low cost type offerings within Australia. Once it flies beyond the continent it becomes more Qantas-lite rather than low cost and that indeed is its purpose. Qantas long haul with its plethora of high cost union agreements and inhibitors to productivity can not compete with the Asian carriers on Australia-Asia and Intra Asian routes. Its only choices were either to shrink into defending its position on traditional routes between Australia and Europe (mainly London),Japan and West Coast USA,- which Qantas mainline long haul essentially has done,- or to create a LOWER but not LOW cost version of itself. Hence the appearance of the medium/longer haul part of Jetstar. This is a very different animal to genuinely low cost Air Asia X. There has been talk of it extending its reach further,-eg into non UK Europe,-but the ability to make a profit despite the very high costs of the second sector from Asia onwards will be the issue.

It looks therefore as if the end of Air Asia X's services into Europe could mark the end of true LOW cost long haul but it in no way marks the end of LOWER cost long haul opportunities on routes between Europe and Asia. There is a gap for an Asian based Jetstar or similar operation but it will be keenly fought off by the existing encumbents who have high capacity and the ability to price as they wish.

Game not over,-just changed.