AirAsia Posts Quarterly Revenue of RM1.51 Billion

AirAsia has posted a quarterly revenue of RM1.51 billion, up 15% from the revenue reported in the same quarter last year.

The strong revenue recorded is on the back of a 19% year-on-year (y-o-y) growth in the number of passengers carried at 6.29 million which was ahead of the 7% capacity growth, allowing the company to record a high load factor of 82%, y-o-y growth of 5 percentage points.

The double digit growth was aided by the improved demand of Chinese travellers which has grown 22% y-o-y this quarter.

In Q3 2015, AirAsia recorded an operating profit of RM316.00 million (up 58% y-o-y). During the quarter under review, the company posted Revenue per Available Seat Kilometre (“RASK”) of 15.84 sen (up 3% y-o-y). This was in line with strong sales over the period as travel activity peaked during the festive celebrations in August. In addition, RASK held up positively despite the company’s decision to remove the fuel surcharge on 26 January 2015. This was reflected by a drop in average fare to RM157 (down 7% y-o-y). If excluding fuel surcharge, RASK for Q3 2015 would have been up 16% y-o-y while average fare would have been up by around 12% y-o-y. Meanwhile, net operating profit for the period under review is RM166.06 million (up 61% y-o-y).

AirAsia Berhad CEO, Aireen Omar, said, “The increase in RASK (including and excluding fuel surcharge) proved that lower fares stimulate the market as seen by the significant increase in the number of passengers that travelled with AirAsia who also received a windfall due to the removal of fuel surcharge. Meanwhile, ancillary revenue as a whole has increased by 15% y-o-y with the highest contributor coming from baggage (44% of total ancillary revenue) followed by cargo (10% of total ancillary revenue) and insurance (7% of total ancillary revenue). The highest growth seen among our ancillary products are AirAsia Insurance (up 36% y-o-y) and connecting fees for our ‘Flythru’ service (up 34% y-o-y). These led to the company recording an ancillary income per pax of RM46 this quarter.”

The company’s cost, measured in terms of Cost per Available Seat Kilometre (“CASK”) was reported at 12.54 sen, down 4% y-o-y despite higher utilisation of assets as reflected by the number of flights which saw a growth of 11% y-o-y to 42,644 flights. The significant depreciation of the Ringgit y-o-y and the greater number of flights has resulted in staff and maintenance cost marginally trending higher by 13% and 22% respectively. On the other hand, fuel expense declined by 1% y-o-y on the back of 14% lower average fuel price at US$77 per barrel, despite the 16% increase in fuel consumption due to the increase in the number of flights.

Aireen said, “The strategies we have set out previously to increase our cash and to improve our net gearing proved to be working but was impacted by the strengthening of US$. At the end of 3Q15, the company’s US$ denominated borrowings has actually reduced by 3% from US$2.78 billion in 2Q15 to US$2.69 billion in 3Q15. But due to the fluctuation of US$ against the MYR, when converted, the US$ borrowings show a 14% increase from RM10.52 billion to RM11.98 billion. Cash on the other hand has increased by 31% quarter-on-quarter (“QoQ”) to RM2.40 billion following the sale and leaseback exercises of aircraft on top of growing cash from operations after servicing debts. The company’s net gearing ratio is at 2.98 times at the end of 3Q15,increased mainly due to external factors which have no impact on the company’s position. Taking out the effect of recognition of losses from PT Indonesia AirAsia’s (“IAA”) Perpetual Capital Security subscription, net gearing is at 2.56 times and if currency fluctuation between US$ and MYR be kept constant QoQ, net gearing will be at 1.83 times, down by 17% QoQ”

Following the foreign exchange loss on borrowings of RM435.98 million, losses incurred from the share of results of associates and jointly controlled entities and one-off costs related to the sale and leaseback of aircraft, the company recorded a loss after tax of RM405.73 million. Foreign exchange losses due to the adverse movement in the exchange rate on US$ denominated borrowings are merely an accounting valuation (RM:US$ – 4.4475 as at 30 September 2015 as compared to RM:US$ – 3.2805 as at 30 September 2014). Excluding losses from the share of results of associates and jointly controlled entities, profit after tax amounts to RM219.20 million.

AirAsia Group – Consolidated Results of AirAsia Berhad and Associate Airlines

For the first time, segment reporting of associates are included in the quarterly Bursa Announcement. The operating segments have been identified by each Air Operating Certificate (“AOC”) held within the AirAsia Group, and are categorised as Malaysia, Thailand, Indonesia, Philippines, India and Japan.

The Group posted quarterly revenue of RM2.80 billion while operating profit for the Group was recorded at RM332.15 million and net operating profit for 3Q15 stands at RM160.36 million. The Group’s net profit for the quarter under review is recorded at RM64.91 million.

On consolidation of accounts for the whole Group, the company’s auditor attempted to revisit their opinion on this matter and we are hopeful that the Group will be allowed to consolidate and therefore present a fairer view of the Group’s performance and financial position.

Thailand

Thai AirAsia (“TAA”) posted revenue of THB7.27 billion in 3Q15, a substantial increase of 31% from the same period last year. Operating profit increased by 221% y-o-y to THB506.75 million from the operating loss recorded last year. This led the associate to post a strong 146% increase in profit after tax to THB174.43 million.

AirAsia Group CEO, Tony Fernandes, said, “TAA continued to post good numbers with triple digit growth in operating profit and profit after tax and contribute back positively to AirAsia Berhad. During the quarter, they recorded 26% y-o-y increase in passenger numbers with load factor holding steady at 81%. Despite the decrease in average fare, TAA still managed to record a 5% increase in RASK at THB1.64. CASK reduced further by 10% y-o-y to THB1.52, due to 9% drop in fuel expenses.”

Indonesia

Indonesia AirAsia (“IAA”) recorded a revenue of IDR1.48 trillion in 3Q15, down 14% y-o-y which is in-line with the 7% decrease in capacity and led to the 12% decrease in the number of passengers carried. Average fare decreased by 20% y-o-y to IDR615,027 and ancillary income per pax however increased by 6% to IDR176,252. Although overall cost reduced in 3Q15, IAA recorded an operating loss of IDR59.53 million.

Tony said, “IAA’s turnaround plan was solid but was affected by new regulations. Demand during the quarter was affected due to the negative equity regulation introduced which was widely covered by both local and international media. This created uncertainty and prompted travel agents to divert bookings away from IAA. However, the negative equity issue has been resolved and on the positive side, the 40% floor price on domestic routes have been revised back to the original 30% which is very positive for IAA. Ancillary revenue is also promising with good trend especially on core ancillary products like baggage and pick-a-seat. Cost reduction was a big part of the turnaround plan. It is showing good progress with CASK and CASK-ex fuel reduced by 14% and 6% respectively. This however is below our internal target which is mainly due to the strengthening of US$ against the IDR, and also the slight delay on the original plan to remove 4 aircraft out of IAA and redeploy them to the other associates. This was caused by the longer than expected aircraft checks and de-registration process. In 3Q15, only one aircraft managed to be redeployed to MAA at the end of September. To date, three aircraft have been redeployed and taken out of IAA’s fleet and the benefits of this can be seen in the upcoming quarters.”

Philippines

Philippines’ AirAsia (“PAA”) posted a 29% increase in revenue at PHP2.07 billion and strong growth in the number of passenger (up 46% y-o-y). Capacity grew by 14% that has led to a 19 ppts increase in load factor and a good 27% increase in RASK at PHP1.85. CASK decreased by 1% to PHP2.61 on the back of a 21% decrease in aircraft fuel expenses, 14% decrease in staff costs and 6% decrease in aircraft operating lease expenses. Further guided by the management’s turnaround plan, operating losses reduced by 33% to PHP871.77 million.

Tony said, “The turnaround plan is on track in PAA. The cost reduction and restructuring exercise are beginning to bear fruit as we see losses being trimmed. Operating numbers are showing good progress and we are seeing the trend to continue into the upcoming quarters as well. Re-fleeting exercise is on track to remove 4 older IAE engine power fleet and introduce 1 CFM engine aircraft to create one standard fleet. We will be disciplined and continue with our planned retirement of inefficient aircraft as well as matching capacity growth with demand while pushing forward with our plans to market the Philippines as an untapped tourist destination with great potential.”

India

AirAsia India (“AAI”) recorded a 114% increase in revenue at INR1.31 billion and strong capacity growth of 221% y-o-y. Meanwhile, average fare increased steadily by 79% to INR2684 while ancillary revenue per passenger grew by 253% to INR470.

“Our operations in India are geared to grow further after a year in service as we believe our low fares and excellent product appeals to travellers in India who remain underserved by air travel. Load factor remains stable at 76% amid heightened competition by other players while total passengers carried increased 225% y-o-y to 0.41 million passengers carried,” said Tony.

During the quarter, AAI posted an operating loss of INR611.53 million.

Outlook

Commenting on the company’s outlook, Tony said, “In Malaysia, all signs point towards rational and sustainable growth in the coming quarters as other players have significantly reduced capacity and rationalised their routes while the irrational price war that took place in the past is over. Domestic traffic in particular, saw a significant reduction of 18% at the Main Terminal Building of KLIA while at klia2, traffic jumped 22% in September 2015. Therefore, we are the witnessing the positive effect of rational pricing and its impact towards passenger travel patterns. Demand from Chinese travellers has also recovered starting from May 2015 whereby traffic has increased by 21% y-o-y. Similarly, fuel trended low in the quarter which undoubtedly remains favourable for all airlines. We see a great end to the year and a light at the end of the tunnel for the Malaysian operations after a series of headwinds that affected our operations.”

“As seen in 3Q15, we are beneficiary of the low fuel price. As of now, the Group has hedged 50% of its fuel requirement for 2015 at an average cost of US$88 per barrel on jet kero while we have hedged 30% at an average cost of US$65 per barrel for 2016. Passing on this benefit to our passengers through the removal of fuel surcharge earlier this year proved to be rewarding with demand increasing double digit in 3Q15,” Tony added.

On the associates’ operations, Tony highlighted, “Our Thai operation continues to deliver superb results and is expected to sustain this strong growth as political stability has brought about the return of international travellers and reinvigorated the tourism industry. The Tourism Council of Thailand has forecasted that tourist arrivals will grow by 9% in 4Q15, ending 2015 with a growth of 22%, mainly due to Chinese travellers flocking once again to various Thai destinations. We will continue to see strong growth and numbers coming from TAA which will be taking the most number of aircraft among all AirAsia operations in the next couple of years.”

Whereas in Indonesia, he stressed that “IAA has resolved its negative equity requirement and strongly benefits from the reversal of the price floor ruling from 40% to 30% on domestic routes. IAA’s fleet removal exercise will continue with additional aircraft to be redeployed to the other short-haul associates at the end of this year and early next year. This will reduce IAA’s operational cost significantly and allow the associate to operate efficiently, increase aircraft utilisation with optimum number of fleet. As IAA has completed most of its route rationalisation and cutting of loss making routes, aircraft utilisation is expected to increase from 10 hours to 13 hours by year end. There are also plans to drive offline sales by motivating agents with better incentives and fares. Meanwhile, in the Philippines, PAA no longer operates two AOC which eliminates duplicate positions and has increased fleet rotation and efficiency of crewing. Zest Airways Inc. has been renamed Philippines AirAsia Inc. and we look forward to a new brand campaign taking place towards the end of the year. Re-fleeting plan is on track where older aircraft that were acquired during the acquisition of Zest Air will be sold or targeted to be returned to third party lessors, leaving PAA with a standard fleet of A320 aircraft powered by CFM engines.”

Commenting on India and Japan, Tony said, “AAI on the other hand will continue with its growth plan, adding in more aircraft to be based at its current two hubs in Bengaluru and Delhi. The associate will work towards keeping its cost under check, with increased focus on ancillary revenue. On top of these, we have also recently announced that our newly re-launched AirAsia Japan has obtained its AOC and we are looking forward to officially re-commence operation in the market by first half of 2016. Japan will contribute significantly to our existing extensive network across Asia and will further cement AirAsia as the biggest low cost carrier in Asia.”