AirAsia posts lower Q3 profit due to higher costs

KUALA LUMPUR (Reuters) – AirAsia Bhd, Malaysia's flagship budget airline, reported lower operating profit for the third quarter, as an increase in expenses offset a growth in capacity.

The carrier's net operating profit for the three months ended September came in at 374.2 million ringgit ($91.72 million), down 7.7 percent from a year ago. Average fuel price over the quarter rose 7 percent to $63 per barrel, AirAsia said.

Its net profit, however, jumped almost 43 percent to 505.3 million ringgit, helped by lower deferred tax expenses. This beat a forecast for 294.9 million ringgit from one analyst, Thomson Reuters data shows.

The airline's capacity over the period rose 14 percent, while its average fare dropped 2 percent.

AirAsia has been rapidly expanding capacity across Asia to take advantage of robust demand in emerging markets like Malaysia, Indonesia, Thailand and the Philippines, where cheap tickets help stimulate travel.

The group is planning to add 12 aircraft to its fleet through operating leases in the fourth quarter, in one of its fastest pace of expansions in the last few years.

"Despite travel alert for the potential volcanic eruption of Mount Agung in Indonesia, we remain optimistic as strong demand continues to be observed across most sectors coupled with a stable fuel price and foreign exchange environment," the airline said of its fourth-quarter prospects.

In the third quarter, AirAsia's revenue rose 45 percent to 2.45 billion ringgit, helped by the capacity increase.

Including revenue from items like extra baggage and food, fares were steady with the prior year. The load factor – a measure of how full planes are – dropped 1 percentage point to 87 percent during the period.

Meanwhile, budget carrier AirAsia India expects revenue to double to 12 billion Indian rupees ($186 million) this calendar year, and triple to 18 billion rupees in 2018, its chief executive said on Tuesday. The airline, a tie-up between Malaysia’s AirAsia Bhd and India’s Tata Sons conglomerate, made revenue of 6 billion rupees in 2016, Chief Executive Amar Abrol told reporters at an industry conference in Dubai.

Air passenger traffic in India, the world’s fourth biggest market, is growing at over 20 percent annually.

Abrol declined to say when the airline expected to turn a profit, but said it was targeting to launch its first international route in January, 2019 which would most likely be to either Malaysia or Thailand.

Under new rules, domestic airlines can fly overseas as long as they deploy 20 aircraft or 20 percent of capacity in India, whichever is higher. Airlines previously had to wait five years before they were permitted to fly on foreign routes.

AirAsia India’s fleet will increase to 21 Airbus A320 jets by the end of next year, up from 13 today, Abrol said.