AirAsia sees higher losses in India in 2Q

AirAsia India's losses are expected to increase in the second quarter of the current financial year due to heavy discounting and intense competition.

In fact, profits are unlikely in the near-to-medium term unless there is a change in market conditions and government policy, according to aviation consulting firm Capa.

AirAsia India has widened its loss to Rs.44.15 crore for the June quarter against Rs.0.69 crore for the corresponding quarter of the previous year. According to a filing by its parent company with the Malaysian stock exchange, AirAsia India has reported a negative 12% Ebitdar (earnings before interest, tax, depreciation, amortisation and rentals) margin for the June quarter.

AirAsia India started operations on 12 June 2014 with an Airbus A320. In just about a year, the airline has grown to a fleet of five aircraft with 10 destinations in India, and hit the one-million-passengersflown mark recently. AirAsia India is a joint venture in which AirAsia Bhd holds a 49% stake, Tata Sons Ltd 30% and Arun Bhatia of Telestra Tradeplace Pvt. Ltd the rest.

Tata Sons is in the process of buying out the stake held by Telestra Tradeplace. Mittu Chandilya, managing director and the chief executive officer of AirAsia India, did not offer any comment. However, according to Capa, AirAsia India will grow its fleet in 2015, even though the parent group is slowing expansion, as it attempts to turn around struggling affiliates and restore profitability. AirAsia India plans to add at least one more Airbus A320 by the end of 2015.

To its credit, AirAsia India, in the first quarter of the current fiscal, had 83% seat occupancy-highest among all AirAsia affiliates. AirAsia India also reported a 13% reduction in unit costs and expects further reductions in unit costs as it continues to spool up, Capa said.

But the airline still faces challenging market conditions and a government restriction prohibiting international operations until airlines are at least five years old and operate at least 20 aircraft (5/20 rule).

AirAsia India is banking on being able to operate international services to achieve higher aircraft utilization. "AirAsia India initially expected the 5/20 rule to be abolished by its one-year anniversary, but it now appears restrictions will not be removed entirely under a new civil aviation policy that is in the process of being drafted," Capa said.

The consultancy noted that the average yield for AirAsia India has been below that of domestic competitors, resulting in losses, despite its high seat occupancy. The calendar second quarter is a peak travel period in India but AirAsia India remained unprofitable while even Jet Airways (India) Ltd and SpiceJet Ltd, both of which posted large losses in the fiscal year ended 31 March 2015, were in the black, it said.

Jet Airways reported a profit of Rs.221.70 crore in three months ended 30 June, compared with a loss of Rs.217.65 crore in the year-ago quarter. SpiceJet reported a net profit of Rs.71.84 crore for the quarter ended 30 June compared with a loss of Rs.124.10 crore in the year-ago period.

For the parent, six of its eight AirAsia-branded airlines were unprofitable in the first half of 2015, with only the long-established, short-haul airlines in Malaysia and Thailand in the black. Passenger traffic across the AirAsia family grew by only 6% in first half of 2015 to 26.5 million.

The year will almost certainly see the slowest annual traffic growth in AirAsia's 14year history, Capa noted.

"2015 will also mark the first year that AirAsia will shrink its fleet. AirAsia now plans to end 2015 with 193 aircraft, including 166 Airbus A320s and 27 A330-300s, compared to 197 aircraft at the beginning of the year. Extremely modest growth is now planned for the next three years, resulting in a fleet of 208 aircraft (177 A320s and 31 A330s) at the end of 2018," said the aviation consultancy.