Positive flight path
AirAsia undeterred by rising fuel prices, expecting brisk demand on new routes in a growing region. By Erich Parpart
AirAsia Group remains bullish about its performance and business prospects despite climbing global oil prices, citing its bold expansion strategy, according t o f ounder and chief executive Tony Fernandes.
The Malaysian low-cost carrier, Asia’s largest discount carrier by fleet size, reported 16% year-on-year growth to 10.65 million passengers carried by its consolidated Malaysia, Indonesia and Philippines operations in the first quarter of 2018. That reflected a strong load factor of 87% and a 19% increase in seat capacity during the quarter.
AirAsia also celebrated a major milestone in March when it carried its 500 millionth passenger, who happened to be a Thai traveller on a Phuket-Bangkok flight.
“Look, we grew when the oil price was at US$130 (a barrel), right? I have consistently been an oil bear and there is plenty of oil supply right now. There is the sharing economy, there is more renewable energy, and there is plenty of supply,” Mr Fernandes told reporters at a recent briefing in Bangkok.
“There is so much supply that Opec (Organization of Petroleum Exporting Countries) has had to cut down production, so we will live through this as we have done during the oil price hike. It is not over $100 right now which it was before, and we still made money.”
Brent crude, the international benchmark for oil prices, last week reached its highest closing level since November 2014 at $78.23 barrel.
AirAsia’s operations in the Philippines, Indonesia and India are now “cash flow positive” and that has helped “tremendously”, Mr Fernandes said.
The carrier’s first-quarter financial results and passenger yield data are scheduled to be released this week. Malaysian research houses expect favourable earnings in the three months to March 31 given better operational statistics. The fleet size grew by 17 aircraft during the period to 123, comprising 87 in Malaysia (AirAsia Berhad), 15 in Indonesia (PT AirAsia Indonesia) and 21 in the Philippines (Philippines AirAsia).
This has increased the group’s available seat kilometre (ASK) figure by 17.6% year-on-year, according to PublicInvest Research of Malaysian Public Investment Bank. Revenue per ASK is the key financial performance metric in the airline industry.
As well, the Malaysian operation has increased frequencies on 13 routes while Indonesia added three (two from Medan and one from Padang) and the Philippines four (all originating from Clark) new routes.
Load factors have also been high at three other affiliates: 91% at Thai AirAsia (TAA), 83% at India AirAsia (AAI) and 79% at Japan AirAsia (AAJ).
Kuala Lumpur-based MIDF Research has maintained its buy recommendation on AirAsia with a target price of 4.80 ringgit a share. It was trading around 3.50 ringgit last week.
The group’s low-cost long-haul arm, AirAsia X, is also making new plans. It is looking at launching the first long-haul flight to Europe from Thailand by the second quarter of next year. Destinations to be served from the country could
include Eastern Europe, Sweden, Prague and Australia.
“We have to find the right aircraft to do long-haul,” said Mr Fernandes. “Australia is very close but that is a very long haul from Bangkok and I think Northern Europe and Eastern Europe are very real. Prague, Sweden and Israel are real but the United Kingdom is not real at the moment, we just got to get the right aircraft. The first
long-haul flight for AirAsia X will be from Bangkok, that is for sure.”
AirAsia X currently serves 26 destinations across Asia (such as Tokyo, Seoul, Busan, Taipei, Beijing and New Delhi), Australia (Sydney, Melbourne, Perth and Gold Coast), New Zealand (Auckland), the Middle East (Jeddah, Medina and Teheran) and the United States (Hawaii). AirAsia X is the first low-cost airline in Asean to be given approval by the Federal Aviation Administration to operate in the US.
“For AirAsia X, definitely the (Airbus A330) neo is very much our favourite choice of aircraft. At the moment we are still debating,” said Mr Fernandes. “As for the timing of that, we want to make sure that it will do what it said it’s going to do. I think TAP Air Portugal will be the first to take it. It is very important for us that a 251-tonne aircraft is the aircraft that can reach Europe.”
Airbus’s competitor, Boeing, has been trying to persuade AirAsia X to abandon the A330neo and switch to its newer 787 Dreamliner.
“The first version of the neo is 242 tonnes which won’t quite get to Europe and the second version is 251 tonnes and it looks like a fantastic aircraft,” said Mr Fernandes. “It looks like everything that we thought it would be but we are holding it off at the moment until we see exactly how it performs.”
AirAsia is also investing $200 in Thailand’s Eastern Economic Corridor (EEC) and now has two planes worth $80 million each flying from the Royal Thai Navy-operated U-tapao airport to attract tourists going to and from Pattaya and investors passing through the EEC in the future.
“Low fares and connecting to new destinations such as (from Thailand) to India which has no connectivity, new destinations from Phuket, starting from Krabi, doing U-tapao, that is our bread and butter,” he said.
The group is also planning to invest another 1.5 billion baht in U-tapao if the Thai government decides to go forward with expansion of the airport, which could include aircraft maintenance, repair and overhaul services and a low-cost carrier terminal. Mr Fernandes said the airport could serve as a credible alternative gateway once the planned 200-billion-baht rail link between Don Mueang, Suvarnabhumi, and U-tapao airports is in place.
“We will soon need another airport in Bangkok to land our flights, and U-tapao is basically Bangkok,” he said. “We want this to be the low-cost airport of Thailand, it might be a mixed airport, as we don’t know the final statistics the final decision from the government.
“We were a huge supporter of reopening Don Mueang and that has been a huge success — such a success that it is full already, so of course we will support U-tapao but we will have to wait and see.”
On the financial side, AirAsia is preparing to offer digital tokens in two months to use for its loyalty and reward programmes. That could lead in the future to a cryptocurrency that it can be used for transactions within partner airports such as a future U-tapao low-cost terminal.
Elsewhere in Asean, the group has just opened a new route from Manila to Bangkok to help remedy the problems in what Mr Fernandes calls “one of the most poorly connected countries to Asean” and it is now applying for two new routes from Manila to Busan and from Manila to Jakarta.
Indonesia, along with Thailand and the Philippines, is a big part of the Asean tourism sector, and flights to and from Bali and Bandung have been “a huge success”.
In Singapore, Mr Fernandes sees the Malaysian city of Johor Bahru as a “good point” to enter the city-state. AirAsia tried and failed with a Johor route years ago but now the relationship between the two countries has improved, so “Johor is a good alternative when Singapore is full at the moment”.
Meanwhile, a new Vietnam joint venture is scheduled to be flying by the end of this year or early 2019, but AirAsia has delayed a plan to open an airline in Myanmar.
“We are not moving ahead with Myanmar at the moment and we may revisit that later but at the moment we have decided not to go to Myanmar just yet,” Mr Fernandes said last week.
He had announced in March that the budget carrier was in talks with a potential partner to open an airline serving Myanmar, which would help the carrier to cover up to 95% of the Southeast Asian travel market.
“Getting to this 500 million passenger mark is because we have been opening new routes and trying new things, so connectivity is definitely what we are all about and that’s how we got here,” Mr Fernandes said.
AirAsia now expects to reach the one-billion passenger mark in five years, after taking 16 years to get to half that number. “In five years’ time, 21 years, we will have carried 1 billion people … and we are just going to keep growing,” he said.
We were a huge supporter of reopening Don Mueang and that has been a huge success — such a success that it is full already, so of course we will support U-tapao but we will have to wait and see TONY FERNANDES AirAsia Group CEO