AirAsia sees strong passenger load

30 October 2009

Group CEO says carrier is ‘not yield driven but volume driven’

PETALING JAYA: AirAsia Bhd, which has steadfastly widened its reach to new markets even as the financial crisis was unfolding, expects its passenger load factor to remain robust next year, according to group chief executive officer Datuk Seri Tony Fernandes.

“Our business is great. Our passenger numbers are up even during the puasa (fasting) month. Ancillary incomes are coming up very fast and we’re getting rights to many destinations,” Fernandes told StarBiz.

AirAsia’s load factor stood at 75% in the second quarter ended June 30. He said given the green shoots of economic recovery, yields were likely to improve and that things were not as gloomy as they were a year ago.

As such, “we are in a better position” now. However, he pointed out that the airline was “not yield driven but volume driven. That’s the key to a low-cost carrier (LCC).”

Datuk Seri Tony Fernandes ... ‘Ancillary incomes are coming up very fast and we’re getting rights to many destinations.’ - Filepic

In keeping with its aggressive route expansion, Fernandes said by year-end, AirAsia would add seven more routes to India.

It currently flies to four Indian destinations – Kolkata, Kochi, Tiruchirappalli and Trivandrum. It would continue its expansion mode next year as well, he said.

The carrier has deferred taking delivery of a third – or 16 of 48 – aircraft originally scheduled for 2010 and 2011 due to doubts over the timely completion of the new LCC terminal.

On whether this move might limit the airline’s capacity to tap the opportunities if there was a strong uptick in demand for air travel, he said it would be highly unlikely.

“We’ve got 82 planes! And we’re still getting deliveries. But if that’s the case, then it will just push our yields up.”

In a filing to Bursa Malaysia yesterday, AirAsia said it did not have to pay any penalty for the revision of delivery dates for eight Airbus A320 aircraft, initially scheduled for delivery in 2011 to 2014 and 2015.

The deferment is because it “foresees infrastructural constraints with the current airport facilities” and needs to “optimise its fleet and avoid the costs associated with leaving idle or under-utilised aircraft” due to such limitations.

The carrier had signed an amendment agreement with Airbus SAS for the revision. Under a purchase agreement signed in 2005 and a number of amendment agreements, AirAsia had agreed to a firm order of 175 Airbus A320 aircraft.

AirAsia said the original number of deliveries in 2014 would be increased from 18 aircraft to 24 whereas, in 2015, the company would take delivery of two aircraft as opposed to none from before.

AirAsia had much earlier unwound its fuel hedges, a stance Fernandes said the airline would continue to adopt for a while, even as crude oil prices might rise next year on the back of an economic recovery.

“Even if it (oil price) reaches US$100 per barrel we’re ready for it. We are okay at the moment,” he said, pointing out that the budget carrier had overcome the turbulence even when oil prices skyrocketed to a high of US$150 a barrel.

Over the last two weeks, crude oil had been trading around US$79 a barrel, touching a high of US$81.37 last Wednesday.

“Fuel price is a fake price. Eventually it (price) will settle on real demand,” Fernandes said, adding that it was also painful to hedge sometimes, especially given the high volatility of oil prices.

As such, he said that although AirAsia might remain “naked” or unhedged, it might hedge some fuel requirement over three- to 12-month contracts.

Although there were green shoots of recovery, the economy still remained fragile, he said.

Last year, fuel prices fell sharply from US$145.29 a barrel in July to a low of US$33.87 in December. AirAsia had unwound huge hedging contracts in the third quarter last year that led it to post its first quarterly loss of RM465.5mil since its listing in 2004.

Since then, AirAsia has not got into new hedges. In any case, Fernandes said, fuel hedging only offered short-term benefits. “What we have to do is to build a sustainable business.”