AirAsia sees higher losses in In­dia in 2Q

The Pak Banker - - COMPANIES/BOSS -

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.

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