Can AirAsia's Extreme Budget Model Last Forever?

AirAsia is widely credited with bringing budget airline operations to new levels of thriftiness.

According to research conducted by Bloomberg, the airline’s non-fuel costs are at rock bottom at 1.73 cents per available seat kilometer. That’s among the lowest in the world.It’s less than half of budget carrier Ryanair Holding’s 3.59 cents. And it's about one-sixth of what the big three U.S. carriers pay, the news organization reported.

The airline also famously targets guests who don’t mind doing without the frills of full-service airlines, in exchange for extremely low fares. This effort includes allowing flyers to pay only for the services they want.

Yet a recent opinion piece published by Bloomberg questions whether the extreme budget operations of the Malaysia based low-cost airline will be sustainable over the long term.

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The analysis noted the airline’s competitive edge comes from many places, including buying one type of aircraft, the Airbus SE’s A320 series, in large quantities. The volume purchases allow AirAsia to receive a significant discount on what it pays for aircraft, so much so that nearly one-fifth of its revenue is in the form of operating lease income (renting planes to other airlines in the AirAsia group).

The airline achieves savings in other ways as well, such as not offering long-haul routes, thus allowing its aircraft to do multiple flights a day. This, in turn, helps the aircraft pay for themselves more quickly, just one of many cost-cutting examples provided by the analysis.

Despite all of the noteworthy cost savings achieved by the airline, how long AirAsia, which has kept costs down for more than 15 years, can continue leading with its rock-bottom model, remains unknown.

What's more, not all of AirAsia’s costs are cheap. The airline has relatively steep employee costs.

Additionally, a significant portion of the airline’s profits depends on low user charges from the airports it serves, which aren't likely to last forever. When the region’s airports start to realize the money that can be made from the growth of low-cost airlines, the fees will likely experience significant increases, according to Bloomberg.

For the time being, these issues don’t appear to be a concern for the airline.

READ MORE: AirAsia X Becomes First Low-Cost Asian Airline Approved for Flights to US

Just this week, AirAsia group announced plans to launch its latest franchises in China and Vietnam, according to Air Transport World.

Group CEO Tony Fernandes said one of AirAsia’s goals is to continue to grow our presence and market share in the Association of Southeast Asian Nations (ASEAN) region.

The airline, which started with two planes and a staff of 250 in 2002, already flies to more than 88 destinations and offers many routes unique to AirAsia.