Grey skies ahead as AirAsia X eyes US

Goh Seng Chong | Bloomberg | Getty Images

One of Asia's most popular budget carriers will spread its wings to the U.S. for the first time later this year, but analysts are skeptical on how profitable the new route will be.

AirAsia X, the long-haul unit of Malaysian low-cost carrier (LCC) AirAsia, announced on Monday that it will commence weekly direct flights from Kuala Lumpur to Honolulu by year-end as it takes advantage of weaker fuel prices. Group CEO Datuk Kamarudin Meranun announced that plans are also underway to resume flights to Europe, a route the airline operated in 2012 but cancelled due to high fuel costs.

The halving of global oil prices since last April has been a boon for airlines following a year of fatal accidents, including the December crash of AirAsia flight QZ8501.

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"It's very hard to say whether this [new route] will be successful and lift AirAsia X out of its financial doldrums," Mohshin Aziz, aviation analyst at Maybank Investment Bank, told CNBC. Indeed, the airline's balance sheet has been far from strong. In the fourth quarter of 2014, it recorded a net loss of $46.3 million, wider than the previous year's loss of $36 million.

"Malaysia Airlines (MAS) had a direct Hawaii flight as well about two decades ago, but it didn't last long as there wasn't enough demand. Malaysia and Hawaii don't have a long history of trade. Those same inherent risks may still apply here, so we must wait and see," Aziz added.

Risks of going long-haul

The inability to do quick turnarounds during long-haul flights is the biggest risk for budget carriers, said K. Ajith, UOB Kay Hian research analyst. "The long-haul operating model is very challenging for LCCs since the LCC model is predicated on an ability to reduce risk and do fast turnarounds, which equal to greater loads."

While AirAsia X is no stranger to long-haul flights, defined as over four hours of flying time, the Hawaii route would be its longest yet at fourteen hours. Jeddah is presently the airline's farthest location at nine hours.

AirAsia X to start Malaysia-Hawaii flights

Speaking to CNBC, the Centre for Aviation (CAPA) provided a more optimistic outlook.

"You're starting to see the potential of all the various AirAsia and AirAsia X units, they are starting to feed each other. When Japan AirAsia starts operating later in the year, it will loop in very well with this Kuala Lumpur-Hawaii service. It's a fascinating process and it's just beginning to get into maturity," said Peter Harbison, CAPA executive chairman.

Sentiment on the ground

Social media users expressed their reluctance over AirAsia X's new plans. Nathaniel Gavronsky of Iowa tweeted to CNBC there was "no way" he would fly fourteen hours on a no-frills service unless it was free.

"As long haul flights get onerous for travelers, they are a predicament for operators: How many frills do they offer and at what cost to passengers? If the discounts vis a vis full service carriers aren't significant, there's a risk of long haul flights losing customers," explained K. Ajith.

Others were quick to point out the benefit of cost savings: "I would fly to Hawaii with AirAsia X. With budget airlines opening doors to exotic travel options, it's easy on a traveler's wallet. For a decent price, some passengers don't mind compromising on the travel experience," said Kuala Lumpur resident Justin Goonting.