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AirAsia’s profits hit by rising fuel costs: Near term outlook solid, squeeze in 2011?

AirAsia CEO, Tony Fernandes
AirAsia CEO, Tony Fernandes

AirAsia reported strong revenue, passenger growth and margins in its latest financial report for the three months ended 31-Mar-2010. The carrier is also optimistic about the outlook for its business. One pleasing aspect was the substantial improvement in AirAsia’s openness and transparency regarding the performance of its Indonesian and Thai operations, as preparations begin for a potential IPO of Thai AirAsia. Investors welcomed the overall result, sending AirAsia’s shares 4.3% higher on the day of the earnings report (31-May-2010).

CEO, Tony Fernandes, stated he is optimistic regarding AirAsia’s prospects for the remaining quarters of 2010, noting forward bookings are “looking good”. Mr Fernandes admitted Europe’s financial and economic troubles “could become a drag on the global economic recovery” but added Asia appears to be showing little signs of a slowdown.

He stated, “there’s an increasing demand for air travel, especially in the Low-Cost Carrier segment. The rise in demand provides favourable opportunities for an upward-revision of fares in certain sectors.” The group handled over 6 million passengers in 1Q2010 compared to 5 million in 1Q2009, with solid growth across the three units, and with load factor increasing in all markets.

AirAsia passenger numbers: 1Q2009 vs 1Q2010

10% increase in revenue and net profits. EBITDAR falls as fuel prices hurt

AirAsia Berhad announced a 10% lift in profit after tax of RM224.1 million (USD68.5 million) for the first quarter of 2010 (or a net margin of 25.5% - steady year-on-year), as revenues rose by the same amount to MYR878 million. But EBITDAR fell 17% year-on-year and core operating profit (profit before tax before adjustments) slumped by one third, which was mainly attributed to the 47% rise in average fuel costs.

The average fuel price in 1Q2009 was USD57 versus USD84 per barrel in 1Q2010.

AirAsia EBITDAR and profit after tax margins (%): 1Q2010

The Malaysian unit’s passenger numbers surged 17.1% to 3.7 million passengers, while passenger load factors rose 4 ppts to 74%. This was despite an 11.1% increase in capacity.

AirAsia passenger load factor: 1Q2009 vs 1Q2010

This is an extract from a report in the upcoming edition of Peanuts! Weekly. The full report, available for individual purchase, contains the following sections/data:

  • Sloppy reporting needs attention
    • Inconsistent unit revenue and cost data (US cents and Malaysian sen) in analyst presentation: 1Q2008 to 1Q2010
  • Ancillary revenues performing well
    • AirAsia Group ancillary income/pax and ancillary income growth (% change year-on-year): 1Q2008 to 1Q2010
  • More welcome detail about Indonesia and Thailand
  • Thai AirAsia: Near term challenges, but well positioned
  • Indonesia AirAsia: expanding higher yielding international routes
  • Ancillary revenues performing well
    • AirAsia revenue and ancillary income growth (% change year-on-year)
  • 1Q2010 Group route and fleet plans: India and ASEAN in focus
    • AirAsia Group Fleet: 31-Mar-2010
    • A320 delivery plan for the remainder of 2010
    • AirAsia route plans
  • Outlook: 2010 looks good, but squeeze could be on in 2011. Fuel and airport capacity the key risks
  • AirAsia moves to the next stage of Asian evolution: Thai and Indonesia IPOs?
  • Separating the structures 
  • And setting the regional agenda

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