AirAsia steps to make Indonesia, Philippines operations profitable

Published on : Thursday, January 3, 2019

Malaysian carrier AirAsia Group won’t open any new airline in the next three years and will focus on current operations after its proposed Vietnam launch, Group CEO Tony Fernandes said Wednesday.



According to September data, AirAsia operated 127 planes flying to over 130 destinations. The Southeast Asia’s largest budget carrier by fleet has also placed orders for 100 Airbus A330neo wide-body jets for long-haul flights.



The company most recently signed a pact “reaffirming” its intention to set up a low-cost carrier in Vietnam with its local partner Tran Trong Kien in his capacity as CEO of Thien Minh Travel Joint Stock Company and General Director of Hai Au Aviation Joint Stock Company.



The analysts doubt certainty of Indonesian and Philippines operations turning profitable this year as intense competition in both the markets amid highly-volatile fuel prices will continue to weigh on AirAsia’s operations.



While Indonesia AirAsia could be slightly profitable in 2019 thanks to robust demand, the company’s Philippines unit will likely remain in the red, said Nomura analyst Ahmad Maghfur Usman. Fallout from a recent crash of Lion Air flight could help drive traffic to AirAsia Indonesia, he said.



It is possible for AirAsia’s Indian operations to turn in a profit as early as next year although its business in Japan could remain in the red until the end of 2020, he said.



Global airlines have grappled with fickle input costs in 2018 as crude oil swung between a gain of nearly 30% and loss of 23% before ending the year at $66.73 a barrel. Jet fuel price averaged $86.8 per barrel for 2018, according to the International Air Transport Association.



Every one dollar increase in crude oil prices could potentially lower AirAsia’s profit by as much as 47.5 million ringgit, according to Nomura’s Ahmad’s estimates.



The fuel cost will largely determine whether Indonesia and Philippines operations would be profitable for AirAsia, said TA Securities research analyst Tan Kam Meng. Among the risks facing AirAsia is a rebound in crude oil prices to $70 a barrel, he flagged. Still, Malaysia remains key for AirAsia, said Tan. “Although profitability of Thailand, Philippines and Indonesia is a concern, it would not change valuation of the company significantly,” Tan said. The shares of AirAsia, which have added 6.94% over the past year, are currently trading 0.34% lower at 2.96 ringgit apiece.



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