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Exceptional Performance In Light Of Political And Rough Operating Environment

August 22, 2014 Financial No Comments Email Email

AirAsia Berhad (“AirAsia” or “the Company”) today reported its results for the quarter ended 30 June 2014 (“2Q14”).

http://industryclub.com.au/The Company posted quarterly revenue of RM1.31 billion, up 5% from the revenue reported in the same quarter last year. The increase in revenue recorded was on the back of the  number of passengers carried which grew 1% year-on-year (“y-o-y”) to 5.57 million which match capacity growth of 1% y-o-y. Seat load factor remained unchanged y-o-y of 80%, in line with the Company’s quarterly target.

During the quarter under review, AirAsia recorded a 17% decline in operating profit y-o-y to RM174.19 million due to its affiliate Thai AirAsia (“TAA”) posting its first quarterly lost which saw AirAsia equity accounting a share of net loss of RM13.6 million. Excluding this share of net loss, its operating profit y-o-y would have been flat highlighting AirAsia standalone performance was strong. The decline in gap of the Company’s average fare has narrowed to -1% y-o-y to RM157 with trend moving upwards in 2H14 as we see irrational pricing of competitors is diminishing. Despite the fall in average fare, ancillary income continued to outperform adding to the Company’s first positive performance in Revenue per Available Seat Kilometre (“RASK”), since the start of irrational pricing same quarter last year. EBIT margin however, remained solid at 13%. AirAsia was also able to maintain its cost leadership which is crucial in a volatile environment involving fuel prices and as the Company grows bigger. Profit after tax was reported at RM367.16 million, up 529% y-o-y mainly due to foreign exchange gain on borrowings.

AirAsia Berhad CEO, Aireen Omar highlighted, “AirAsia continues to be disciplined in an industry where irrational competition exists. With our lean operations and cost conscious culture that aims to optimise profitability, the Company embarked on a route rationalisation exercise in 2Q14, cancelling and cutting down frequencies on selected routes where the Company felt were diluting yields. Our Cost per Available Seat Kilometre (“CASK”) at 13.32 sen, slightly up from the 12.48 sen recorded the same quarter last year was mainly due to the increase in average fuel price of 9% y-o-y . Our non-fuel cost items remain under control as CASK ex-fuel was recorded at 6.50 sen, unchanged y-o-y.

The Company’s revenue, measured in terms of RASK, was reported at 15.36 sen which saw an increase of 2% y-o-y.  Aireen said, “Our strategy internally was to grow positive RASK on the back of a challenging irrational pricing environment and I am very glad to see we were able to achieve that this quarter.

Our ancillary business too performed exceptionally well with the 13% increase in ancillary income per pax at RM45 as compared to RM40 the year before. This is in line with the Company’s ability to innovate, coming up with new initiatives and alternative ways to sell our ancillary offerings.”

Aireen added, “Besides that, we continue to ensure that our cash position remains strong. At the end of the reporting period, the company had RM1.37 billion in deposits, bank and cash balances and we continue to manage our net gearing level which stood at 1.95 times as at 30 June 2014.”

TAA posted revenue of THB5.46 billion in 2Q14, up 2% from the same period last year. This quarter saw an operating loss THB464.91 million which led to a 164% decrease in profit after tax at THB317.61. AirAsia Group CEO Tony Fernandes commenting on regional affiliates, “Our decline in operating profit was due to the lower revenue as average fare declined by 14% y-o-y mainly due to drop in passenger travel caused by the political situaiton, depreciation cost of taking aircraft into our own balance sheet and spending on public relations and marketing as the political demonstration in Bangkok continues into the second quarter of this year. With the political demonstration, TAA still continues to record a solid 78% load factor. Like the Malaysian operations, ancillary income per pax for TAA also saw an impressive increase of 8% y-o-y to THB341, while CASK increased slightly by 2% y-o-y to THB1.62 due to the 10% increase in average fuel price. CASK-ex fuel on the other hand decreased by 1% to THB0.90.”

Indonesia AirAsia (“IAA”) posted an increase of 8% in revenue to IDR1,507.82 billion from IDR1,398.23 billion last year. IAA posted an operating loss of IDR271.75 billion from an operating profit of IDR87.66 billion last year. IAA’s 2Q14 loss after tax was IDR340.34 billion – down from a profit after tax of IDR51.66 billion last year. Tony said, “The decline in operating profit was mainly driven by the weakening of the Rupiah currency and the increase in dollar-denominated cost such as fuel, maintenance and its lease expense which led to a 33% increase in CASK at IDR606.16 from IDR456.19  y-o-y. We are now embarking on a route rationalisation programme, terminating loss making routes to ensure we optimise profitability at lower operational cost.”

On Philippines’ AirAsia’s (“PAA”), he mentioned, “We are investing a lot on marketing our brand locally and internationally to ensure we push passenger demand into the Philippines. We have revised our network and I believe this will push fares even higher in 2H14. I am very optimistic the worse is over as our turnaround plan has been put into place. We are also in the midst of getting government to support us on the development of Airports around the country to support our growth.”

Tony said, “Despite losses in affiliate operations, I am very optimistic that the current losses is short lived as most are due to external factors like the weakening of local currencies, geo-political climate and the fluctuations of fuel prices. Our other investee companies posted healthy profits which allowed AirAsia to recognise a profit of RM2.0 million from Asian Aviation Centre of Excellence Sdn Bhd (“AACOE”), and RM3.0 million from AAE Travel Pte Ltd (“AAE Travel”). Those are new part of the three pillars of strength of AirAsia Group which is airline specific revenues, ancillary income and private equity investment.

He added, “What I am proud of is that we continue to be innovative in our offerings which saw ancillary revenue increasing and led to the impressive increase in ancillary income per pax for the Malaysia and Thailand operations. Cost leadership is our best strength and the Group will continue to be focused on driving cost down through this challenging environment.”

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