AirAsia

Aug 27, 2005
AirAsia profits double while rest struggle
Low-cost carriers face overcapacity, low fares and high jet fuel prices

By Arthur Poon
ASIA's most successful low-cost carrier, AirAsia, has more than doubled its profits despite higher oil prices.
The Malaysia-based airline posted a net profit of RM111.6 million (S$49.6 million) for the year ended June 30, almost 130 per cent more than the RM49.1 million made in the previous financial year. However, it fell short of its forecast of RM147.7 million. The carrier, which is the only public-listed budget airline in the region, blamed the shortfall on not having enough planes to support its expansion of routes in Malaysia and Thailand. Although it failed to beat its forecast, AirAsia's fortunes contrast sharply with those of three other Singapore-based low-cost carriers: Jetstar Asia, Valuair and Tiger Airways. 'As far as we know, only Air- Asia is profitable, while the rest struggle as industry overcapacity, low fares and high jet fuel prices take their toll,' said Mr Shukor Yusof, Standard & Poor's aviation editor yesterday.
'AirAsia has benefited from its early start in the no-frills market and its smart hedging programme,' he added, referring to AirAsia's bid to manage the ups and downs of oil prices by buying futures contracts. None of the leading regional low-cost carriers, except listed AirAsia, have disclosed passenger traffic or financial performance. AirAsia said yesterday revenue was RM666.3 million in the period, a 70 per cent increase over RM392.7 million previously.
It carried 1.2 million passengers at an average fare of RM150 in the past three months, and enjoyed a load factor of 76 per cent. Jetstar appears to have chalked up a loss of almost A$40 million (S$51 million) in its first seven months of operation. This figure is estimated from the loss written into the books of its Australian parent Qantas Airways, which has a 49 per cent stake. Qantas reported a loss of A$18.5 million from Jetstar in the year ended June 30.
Rival Valuair lost $4.1 million in its first seven months of operation last year, much of which was due to start-up costs. Last month, Jetstar and Valuair merged under the Orange Star banner after a $60 million capital injection. Meanwhile, Tiger Airways, backed by Singapore Airlines (SIA), said earlier this week it will take up to three years to break even - some two years later than its initial target. Said its chief executive, Mr Tony Davis: 'The airline industry has very high start-up costs... We've always looked at a three-year programme for individual routes to become more profitable.' When the budget airline was launched by SIA and its partners last year, the carrier said it aimed to turn in a profit within the first year of operations.
Low-cost carriers here bemoaned the lack of new air rights. They cannot fly on such lucrative routes as Shanghai, Jakarta or Surabaya. High fuel costs have also hurt them more than full-service carriers such as SIA. This week, the price of crude oil hit a record US$68 (S$114) a barrel. AirAsia has used oil futures contracts to help reduce the risk of surging oil prices eroding its profits. The contracts will shield 63 per cent of its next fiscal year's costs.
Standard & Poor's Mr Shukor said the three low-cost carriers here have reportedly dismal earnings, raising questions whether low-cost carriers in the region 'will continue to face turbulence, or worse, fade away' like some of the failed American and European ones.
For now, Jetstar and Tiger are looking to expand in India to play 'catch-up' to AirAsia.


It's always inspiring to see how some succeed in adversity. And after listening to Tony Fernandaz at one of the SMU talks, AirAsia seems to be a little closer to the heart. even though it's a Malaysian company. hee. It will be interesting to see how the rest try to catch up and i certainly hope that in the process, air travel will get cheaper and cheaper for us all. whoo hoo.