Philippines’ AirAsia expects to become profitable by year-end

Philippines’ AirAsia (PAA) is a “turnaround story which is developing quite well,” says AirAsia Group CEO Tony Fernandes as the local associate airline narrowed its net loss for the first quarter and improved its load factor to 77 percent.

PAA recorded a 25 percent increase in Revenue per Available Seat Kilometer (RASK) and managed to reduce its Cost per Available Seat Kilometer (CASK) by 2 percent to R2.96, he pointed out.

Ancillary income per passenger likewise went up 14 percent year-on-year. Hence, “We are targeting for PAA to be profitable in the fourth quarter of 2015 and to continue to remain cash positive,” the CEO declared.

Parent firm AirAsia Berhad yesterday reported its first quarter results, hauling in about RM1.3 billion (R16 billion) revenues and RM273.43 million (R3.3 billion) operating profits (up 20 percent year-on-year), on the back of 5.5 million passengers carried and a 75 percent load factor.

The company attributes its positive performance to its lean and disciplined cost structure coupled with its resilient business model.

“A number of catalysts will drive AirAsia Group this year,” Fernandes maintained. “Despite the challenges, we were able to post good numbers on the back of a better operating environment and well planned and executed internal strategies.”

“One of the main catalysts is a more rational market in Malaysia. The restructuring of Malaysia Airlines will bring about a healthier competition for all industry players. Airline operators are now a bit more disciplined in their capacity management setting the stage for a better operating environment in 2015.”

In addition, “Sales are looking good in the second quarter as demand from China is slowly coming back. During the first eight weeks of the second quarter, we saw an 18% y-o-y increase in sales for the whole Group with 21% y-o-y increase in Malaysia, 15% increase in Thailand and 27% increase in the Philippines.”

Load factor across the Group also generally forecasted to improve year-on-year in the second and third quarter on the back of improved demand and disciplined capacity management.

“We also continue to drive our ancillary revenue up through a combination of improvements on existing offerings and the introduction of new products,” he noted.

“On the existing offerings, we are introducing dynamic pricing, offering different prices based on seasonality, routes and special promotions. On top of that, we are doubling the spend per head on our food & beverages (F&B) through rebranding and new products such as brewed coffee onboard.

Furthermore, he expects their newly launched AirAsia EZPay currency wallet, which holds up to seven currencies at lower rates, will drive cashless transactions and higher conversion for ancillary take-up.

AirAsia also launched a new online system in April which is four times faster than its predecessor with better booking flow that will improve conversion as well. But the big item that will push the ancillary income per passenger up to over R733 (RM60) would be duty free.

“We have big and exciting plans in store for duty free which include the newly launched website.”

On a more favorable cost environment, Tony said, “As seen in 1Q15, we are beneficiary of the low fuel price. Taking advantage of this, the Group has hedged 50% of its fuel requirement for 2015 at an average cost of US$88 per barrel on jet kero and remain unhedged for 2016.”

On top of this, “We continue to lobby for lower airport charges across the region and we have seen some good progress with Langkawi in Malaysia and Singapore and positive signs for Indonesia, Thailand and the Philippines.”