AirAsia closes strategic review

AirAsia Berhad ("AirAsia") recently finalised its strategic 5 year review on all its business as it sets course to push its dominance in the Asian region.

Group Chief Executive Officer Tan Sri Dr. Tony Fernandes stated that, "In 10 years, AirAsia Group grew from a 2 aircraft fleet to now the largest LCC in Asia with 118 aircraft and AirAsia is one of the most profitable airline in Asia. Malaysia has been the launchpad for AirAsia in terms of brand and has stamped its footprint in Thailand, Indonesia, Philippines and Japan".

He added "Despite being the dominant carrier in terms of market share and profitability in Malaysia, we have to ensure we maintain the discipline in maximizing our revenues, capital, human resource, increasing passengers carried as well as keeping cost down. As Malaysia now becomes a cash machine, the management turns it focus to its other core markets in Thailand and Indonesia where we foresee these entities generating similar profits to Malaysia in the future. We have also kept to our promise by delivering our first listing in Thailand and soon Indonesia this year as this both companies becomes financially dependent on their own balance sheet".

"The other focus is to develop our new entities in Philippines and Japan whereby in terms of LCC penetration, it is still at its infancy and there is utmost growth potential. We have put in a strong management team who shares our vision and strategy which will enable them to achieve similar dominance like Malaysia, Thailand and Indonesia", he said.

In terms of new ventures, AirAsia is not shy from exploring new opportunities in new countries. Based on our strategic review, the management believes that Singapore is best served as a virtual hub as most of the routes served are from established hubs in the AirAsia network and believe there is an excess of capacity already out of Singapore. Routes less than three hours allow better revenue returns due to more sectors flown and AirAsia have remain focused on that strategy hence the termination of longer routes like Kuala Lumpur to Colombo recently. Routes originating out of Singapore to larger population countries like China and India tend to be more than 5 hours hence AirAsia's decision not to proceed with any venture there in the foreseeable future. Whilst other Asean and Asian countries like Vietnam, Cambodia, Laos, Brunei, Myanmar and Korea seems attractive but the management will focus on AirAsia Group's existing operations that offer bigger domestic alternatives and with larger populations.

Tony also said, "In terms of non-Asean countries, India is an exciting market and I have been overwhelmed with the developments of the country recently in terms of promoting air travel. We will continue to explore opportunities there but I believe this market offers the most growth potential in terms of travel".

AirAsia has placed an order of 475 aircraft and 114 have been delivered. 87% of the aircraft is on balance sheet which the highest owned ratio for any airline in Asia. Despite high ownership ratio, AirAsia's balance remain solid with a net gearing of 1.03 times and a cash balance of just over RM2 billion.

Tony further added, "The Asean including China and India backyard has over 3.2 billion population which is 8 times bigger than Europe. We are in an exciting market to be in to build our brand as penetration of low cost carrier is very low. We see the potential of these markets hence why I am confident our huge aircraft orders will easily meet our capacity needs in the future. Larger passenger demand from these markets will translate to not just passenger revenues but also ancillary revenues. We are optimistic on our ancillary offerings and our new initiatives to be launched soon and will push up current ancillary passenger spent of RM41".

"We keep focused and disciplined in terms of cost and our business model which is imbedded in the mindset of our organisation. We have the lowest cost base compared to other airlines in the world and it would be hard for others to replicate that even new competitors. We will announce our full year results in February and fourth quarter was very strong in terms of performance. I believe 2013 will be stronger in terms of our load factors and yields because we have the ability in terms scale and cost to buffer any competitive pressures. I am very excited for what we have strategically planned for the next 5 years for AirAsia Group and will continue to beat the odds every year," Tony concluded.