AirAsia 1H2015 results: the region’s leading LCC regroups for the long run, reining in expansion


AirAsia is slowing expansion as it attempts to turn around struggling affiliates and restore profitability. Six of the eight AirAsia-branded carriers were unprofitable in 1H2015 with only the long established short-haul carriers in Malaysia and Thailand in the black.

Passenger traffic across the AirAsia family grew by only 6% in 1H2015 to 26.5 million. 2015 will almost certainly see the slowest annual traffic growth in AirAsia’s 14-year history.

2015 will also mark the first year AirAsia will shrink its fleet. AirAsia now plans to end 2015 with 193 aircraft, including 166 A320s and 27 A330-300s, compared to 197 aircraft at the beginning of the year. Extremely modest growth is now planned for the next three years, resulting in a fleet of 208 aircraft (177 A320s and 31 A330s) at the end of 2018.

This is the second in a series of reports on AirAsia financial results for 1H2015. The first report focused on the AirAsia X Group, which now includes medium/long-haul LCCs in Malaysia, Thailand and Indonesia.

See related report: AirAsia X slows fleet expansion, seeking a 2H2015 turnaround. Could AirAsia buy its half-sister?

This report examines the overall position and outlook for AirAsia with a focus on the five short-haul LCCs that fall under the AirAsia Group.

Malaysia AirAsia and Thai AirAsia post 1H2015 profits

The original and largest AirAsia carrier, Malaysia AirAsia (MAA), has consistently been highly profitable over the last several years with high double digit operating margins. But MAA has seen its annual net profit decline for three consecutive years and its annual operating profit decline for four consecutive years.

In 1H2015 MAA was able to improve its operating profit from MYR401 million (USD123 million) to MYR517 million (USD142 million). But the carrier’s net profit continued to drop driven by finance costs and foreign exchange losses. MAA reported a net profit of MYR392 million (USD108 million) in 1H2015 compared to a net profit of MYR507 million (USD155 million) in 1H2014.

The profit figure for MAA is also somewhat misleading as some of its profits have traditionally been generated from aircraft leases to overseas associates. MAA reported MYR459 million (USD126 million) in aircraft operating lease income in 1H2015 compared to MYR393 million (USD120 million) in 1H2014.

Thai AirAsia (TAA) has also consistently been profitable over the last several years although it did see a large reduction in profits in 2014, including a small loss in 1H2014, due to the civil unrest in Bangkok. TAA turned a net profit of THB1.297 billion (USD39 million) and an operating profit of THB1.709 million (USD52 million) in 1H2015 compared to a net loss of THB73 million (USD2 million) and an operating loss of THB82 million (USD3 million) in 1H2014.

TAA has always been the second largest AirAsia branded carrier after MAA based on fleet size and passenger numbers. Over the last year TAA also retook the distinction of being the second largest AirAsia carrier based on revenues from Malaysia AirAsia X (MAAX) as MAAX cut capacity.

Six affiliates post losses in 1H2015, leading to a combined USD67 million net loss

All six of the smaller (and newer) members of the AirAsia family were unprofitable in 1H2015. The losses at these six carriers totalled an alarming USD214 million in 1H2015.

When also factoring in the profits at MAA and TAA, all eight carriers in the AirAsia family had a combined net loss of USD67 million in 1H2015.

Profit/loss (in USD millions) and revenues (in USD millions) for all AirAsia carriers: 1H2015 vs 1H2014



net profit 


net profit

op profit 


op profit 





Malaysia AirAsia (MAA) +108 +155 +142 +123 722 800
Thai AirAsia  (TAA) +39 -2 +52 -3 444 367
Indonesia AirAsia (IAA) -79 -68 -58 -52 190 247
Philppines AirAsia (PAA) -36 -62 -24 -64 99 100
AirAsia India (AAI) -10 -1 -10 -1 30 0.3
Malaysia AirAsia X  (MAAX) -71 -43 -26 -46 393 435
Thai AirAsia X (TAAX) -0.3 -11 N/A N/A N/A N/A
Indonesia AirAsia X (IAAX) -18 -0.6 N/A N/A N/A N/A
TOTAL  -67 -29  +76 -43   1,878  1,949

The combined net loss for this same group of eight carriers has widened slightly from a loss of USD29 million in 1H2014. Five of the carriers saw higher net losses or reduced profits compared to 1H2015 with TAA, Thai AirAsia X (TAAX) and Philippines AirAsia (PAA) bucking the trend.

But on an operating level there has been a slight improvement over the last year, driven primarily by the higher operating profits at MAA and TAA. Excluding TAAX and Indonesia AirAsia X (IAAX), AirAsia carriers combined generated an operating profit of USD76 million in 1H2015 compared to an operating loss of USD43 million in 1H2014.

AirAsia X Group does not provide operating profit/loss figures for TAAX and IAAX, which launched services in Jun-2014 and Jan-2015 respectively. Short-haul affiliate AirAsia India (AAI) also launched in Jun-2014 and therefore had a very marginal loss in 1H2014.

(Note: The above figures have been calculated by CAPA and are presented to highlight the overall profitability across the AirAsia portfolio. AirAsia does not report figures in this way as it has three separate stock listings with financial statements that only include subsidiaries and exclude partially owned affiliates.)  

Unfavourable market conditions impact AirAsia

AirAsia has faced challenging market conditions across its home market of Southeast Asia since late 2013. Intense competition and overcapacity has impacted AirAsia’s performance in virtually all of its markets.

AirAsia also has launched three new affiliates since Jun-2014. All three of these carriers have faced various regulatory setbacks, leading to higher than anticipated losses.

Lower fuel prices have provided a boost in 1H2015 and have partially driven the improvement in operating results at four of the five original carriers – MAA, TAA, PAA and MAAX. But hedges and USD appreciation offset most of the reduction in fuel prices. The short-haul AirAsia Group hedged 50% of its fuel in 1H2015 at an average price of USD93 per barrel.

Five AirAsia carriers lost more than USD20 per passenger in 1H2015

AirAsia is optimistic it will see improvements across the portfolio in 2H2015. Three AirAsia carriers have been restructuring (IAA, MAAX and PAA) and are expected to be at least break-even by the end of 2015. Two of the three start-ups (IAAX and TAAX) are also expected to be at least break-even by the end of 2015.

But AirAsia still faces challenges in all its markets and it is unlikely all of the unprofitable carriers will be able to complete turnarounds in 2H2015 as hoped.

Five AirAsia carriers had losses per passenger of at least USD19 in 1H2015. This is clearly unsustainable and indicates how far several of the affiliates need to come before they are profitable.

Passenger traffic and average profit/loss per passenger for AirAsia carriers: 1H2015




Net profit/loss

per pax (USD) 

 Op profit/loss

per pax (USD)

Malaysia AirAsia (MAA) 11.49  +$9 +$12
Thai AirAsia  (TAA) 7.24  +$5 +$7
Indonesia AirAsia (IAA) 3.19  -$25 -$18
Philppines AirAsia (PAA) 1.82  -$20 -$13
AirAsia India (AAI) 0.54  -$19 -$19
Malaysia AirAsia X  (MAAX) 1.73  -$41 -$15
Thai AirAsia X (TAAX) 0.38  -$1 N/A
Indonesia AirAsia X (IAAX)* 0.08  -$225 N/A
TOTAL 26.47 -$2.50 +$2.90

Of the seven AirAsia carriers which report revenues three also had had net margins below negative 30% in 1H2015. A fourth carrier had a similarly unsustainable net margin of negative 18%.

Net and operating profit/loss margin for all AirAsia carriers except IAAX and TAAX: 1H2015 vs 1H2014



net margin 


net margin 


op margin 


op margin

Malaysia AirAsia (MAA)  +15.0%  +19.4%  +19.7%  +15.3%
Thai AirAsia  (TAA)  +8.8%  -0.6%  +11.7%  -0.7%
Indonesia AirAsia (IAA)  -41.5% -27.5%   -30.5% -21.5% 
Philppines AirAsia (PAA)  -36.7% -61.7%  -24.5%   -63.6%
AirAsia India (AAI)  -33.5% -32.9%   N/A N/A 
Malaysia AirAsia X  (MAAX)  -18.1% -9.9%   -6.6%  -10.6%
TOTAL  -2.6% -1.5% +4.0% -2.2%

Philippines AirAsia continues turnaround efforts

PAA has seen the biggest improvement over the last year, narrowing its operating loss by 62% in 1H2015 while revenue and passenger traffic has remained flat. But PAA has benefited from relatively favourable market conditions in the Philippines compared to other major Southeast Asian markets including Indonesia, Malaysia and Thailand.

PAA’s two local competitors, the Cebu Pacific and Philippine Airlines (PAL) groups, were both profitable in 2014 and 1H2015. AirAsia’s Philippine operation is still highly unprofitable and has accumulated losses of more than USD100 million since it was launched in Mar-2012.

The recent completion of PAA’s merger with Zest, which was initially acquired in early 2013 and adopted the AirAsia brand in 2014, should drive down costs and improve PAA’s position. All AirAsia A320s in the Philippines were recently placed under one air operators certificate (AOC), enabling the group to streamline headcount.

PAA is now renegotiating supplier contracts and preparing to implement self-handling at all its hubs in a bid to reduce handling costs. PAA is also working on deals with leasing companies to facilitate the early return of V2500-powered A320s that were inherited from Zest. These aircraft are more expensive to operate and maintain because all other A320s in the AirAsia Group fleet are powered by CFM56s.

PAA already reduced its fleet from 20 to 17 aircraft in 1H2015, enabling it to improve average aircraft utilisation rates as passenger traffic remained flat at 1.8 million. PAA has been cutting unprofitable routes and redeploying capacity into more promising markets.

The AirAsia Group stated in its 20-Aug-2015 results briefing that a new network rationalisation exercise will lead to capacity reductions at PAA’s Cebu hub and expansion in the Philippines-China market. The group also reported that existing shareholders are planning to inject USD50 million in new capital. Four Filipino investors each have 15% stakes in PAA while the AirAsia Groups owns the remaining 40% stake.

The new capital should give PAA more time to complete its turnaround. But as CAPA has previously highlighted, the carrier “still faces challenges in the Philippines market which will have to be overcome for its Philippine operation to become profitable on a sustainable basis and for IPO ambitions to become realistic”

See related report: Philippines AirAsia/Zest AirAsia rallies as it prepares for an IPO, but challenges remain

Indonesia AirAsia still faces challenges

IAA also has its share of challenges as the airline restructures and shrinks in a bid to return to profitability. The airline has been battling difficult market conditions and was impacted in 1H2015 by the 28-Dec-2015 crash of one of its A320s.

IAA ended 2Q2015 with 29 A320s. As CAPA previously analysed in Jul-2015, IAA is planning to shrink its fleet to 25 A320s by the end of 2015 as the network is restructured.

See related report: AirAsia adjusts Indonesian operation but should be able to maintain leading international position

The AirAsia Group confirmed in its 2Q2015 results presentation that four or five A320s will be coming out of the IAA fleet by the end of the year. The group said aircraft will be removed from the Bali, Bandung, Jakarta and Medan bases while the Surabaya base will not be impacted.

IAA is mainly focusing on domestic capacity cuts as it sees more favourable conditions in the Indonesian international market, which is also served by new medium/long-haul LCC IAAX. IAA is planning to redeploy some domestic capacity to the international market in 2H2015. For example more flights are being added from Surabaya to Johor and Kuala Lumpur in Malaysia while domestic services from Jakarta to Medan and Bali to Solo are being suspended.

IAA is also following PAA in boosting aircraft utilisation rates and implementing self-handling at its bases. IAA’s average aircraft utilisation rate is expected to improve from about 10hrs in 2Q2015 to 11.3hrs in 4Q2015 as the size of the fleet is reduced.

But the outlook for IAA remains relatively cloudy given the intense competition and slower economic growth in Indonesia. AirAsia is also still working on securing new capital for IAA. Until new shareholders are brought in and IAA succeeds at issuing new convertible bonds there will be lingering concerns.

Malaysia AirAsia expects to benefit from MAS capacity cuts

Market conditions are more likely to improve in Malaysia due to capacity cuts at flag carrier Malaysia Airlines (MAS). AirAsia also benefits from a much stronger position in Malaysia is as it is already the market leader.

MAS has cut three international routes that are served by MAA and capacity on another seven overlapping routes. MAA also has launched services in Jul-2015 from Kuala Lumpur to Male in the Maldives, a route which was dropped by MAS on 23-Aug-2015.

But the Malaysian domestic market remains challenging as overall domestic capacity is being reduced only slightly. MAA's other main competitor, Lion Group Malaysian affiliate Malindo Air, also continues to expand in both the domestic and international markets, further pressuring yields which have already declined significantly over the last two years.  

The fleet at MAA was cut by one aircraft in 1H2015 to 80 A320s and is being reduced further in 2H2015. But fewer aircraft are expected to drive aircraft utilisation improvements rather than capacity reductions. MAA has been saddled with excess aircraft over the last year due to challenges at overseas affiliates and the failure to complete anticipated aircraft sales.

See related report: AirAsia 2Q profits drop as its Malaysian unit grapples with excess aircraft. But outlook improving

As CAPA analysed in the first instalment in this series, medium/long-haul sister carrier MAAX cut capacity in 1H2015 as part of a restructuring initiative. MAAX is also hoping to benefit from MAS capacity cuts, particularly to Australia, but still faces challenges and is in a much weaker position than MAA.

AirAsia India faces challenging outlook 

TAA and start-up AirAsia India (AAI) will be the only AirAsia short-haul carriers which will grow their fleet in 2015. AAI currently operates five A320s, up from three aircraft at the beginning of 2015, and plans to add at least one more A320 by the end of 2015.

In 2Q2015 AAI had the highest load factor among all AirAsia affiliates at 83%. AAI also reported a 13% reduction in unit costs and expects further reductions in unit costs as it continues to spool up.

But AAI still faces challenging market conditions and a government restriction prohibiting international operations until carriers are at least five years old and operate at least 20 aircraft.  AAI was banking on being able to operate international services in order to achieve very high aircraft utilisation. AAI initially expected the 5/20 rule would be abolished by its one-year anniversary but it is now appears restrictions will not be removed entirely under a new civil aviation policy that is in the process of being drafted. 

AAI average yield has been below domestic competitors, resulting in losses despite high load factors. The calendar second quarter is a peak travel period in India but AAI remained unprofitable while even Jet Airways and SpiceJet, both of which posted large losses in the fiscal year ending 31-Mar-2015, were in the black.

AAI's losses are expected to increase in 3QCY2015 due to heavy discounting and intense competition. Profitability is unlikely in the near to medium term unless there is a change in market conditions and government policy.

AAI has to date faced an aggressive response from its competitors and this is likely to continue to be the case on new routes that it enters. The carrier will therefore require a stronger war chest to withstand what can at times be irrational pricing and capacity deployment, and will likely join IAA and PAA in requiring further recapitalisation.

Thai AirAsia focuses on international expansion

TAA is being allocated the most additional A320s in 2015 – five aircraft including three which were delivered in 1H2015. TAA also plans to grow its fleet by five A320s in 2016, giving it a total of 50 aircraft at the end of 2016.

TAA passenger traffic grew by 22% in 1H2015 with similar increases in the domestic and international markets. But TAA is planning to shift its focus to expanding in the international market in 2H2015 and 2016 as domestic market conditions are challenging due to the rapid expansion of Thai Lion Air.

See related report: Thai Lion Air to double in size by end of 2016, further impacting Nok Air and Thai AirAsia

TAA is launching services to Bangalore in Sep-2015. It also plans to open a new base at U-Tapao Airport near Pattaya in 4Q2015 with flights to four Chinese and two other destinations.

TAA has a relatively bright outlook as it the largest LCC in Thailand’s international market. Expansion at TAA and sister medium/long-haul carrier TAAX is aimed at leveraging this strength and benefitting from anticipated growth in Thailand’s international market.

But demand in Thailand’s international market will likely be impacted in the short-term by the recent bombings in Bangkok. The bombings could force TAA and TAAX to postpone planned new China routes. TAAX also has been set back by new regulatory restrictions blocking all Thai carriers from expanding to Japan and South Korea

AirAsia A320 fleet to shrink by six aircraft in 2H2015

Overall AirAsia plans to shrink its A320 fleet in 2H2015 from 172 to 166 aircraft, driven by the sale of several older A320s and the leasing out of four A320s outside the group. AirAsia expanded its A320 fleet in 1H2015 by only one aircraft.

AirAsia also has included the sale or return of 72 A320s in its newly revised fleet plan for 2016 to 2021. The group is slated to take 95 A320s (five A320ceos and 90 A320neos) during this six year period, leading to a net growth of only 23 aircraft or 14%. That equates to average per annum growth of less than 3%.

AirAsia Group fleet revised plan: 2015 to 2021

Fleet expansion could still easily be accelerated by reducing the number of aircraft returns and sales. But AirAsia is unlikely to resume double digit annual fleet growth, which it consistently recorded since it was established in 2002.

As CAPA highlighted in the last instalment, the AirAsia X Group is also significantly slowing down expansion of its A330 fleet. AirAsia X is now planning to take only five A330s by the end 2018, giving it a fleet of 31 aircraft (29 A330-300ceos and two A330-900neos).

As a result the entire AirAsia family is now slated to have a fleet at the end of 2018 of 208 aircraft (166 A320neos, 11 A320ceos, 29 A330-300ceos and two A330-900enos). This is only 12 aircraft more than the current fleet of 196 aircraft, including 172 A320s and 24 A330-300s.

Faster expansion is possible from late 2018 as AirAsia X starts to take the 55 A330-900neos it has on order. But AirAsia X has not yet indicated when it plans to return or sell its A330ceos, which gives it the flexibility to potentially follow short-haul sister AirAsia in pursuing modest fleet growth through 2021. (AirAsia X has 19 A330-900neo deliveries for 2019 to 2021.)

AirAsia passenger growth slows

As it slows down fleet growth AirAsia will almost certainly see a slowdown in passenger growth. The eight AirAsia carriers combined transported 26.5 million passengers in 1H2015, representing a 6% increase compared to 1H2014.

Passenger growth across the AirAsia portfolio was 9% in 2014, representing the first year growth was in the single digits. Passenger growth for 2015 will likely end a few percentage points lower and could dip further in 2016.

AirAsia passenger (in millions): 2002 to 2014

  AirAsia Group AirAsia X Group Total AirAsia
2002 1.04    1.04
2003 2.09    2.09
2004 4.87    4.87
2005 7.37    7.37
2006 12.11    12.11
2007 15.34  0.02  15.35
2008 18.35  0.27  18.62
2009 22.70  1.03  23.74
2010 25.68  1.92  27.60
2011 29.86  2.53  32.39
2012 34.14  2.58  36.72
2013 42.61  3.16  45.78
2014 45.58 4.48  50.06
1H2015 24.28 2.19  26.47

As CAPA previously highlighted, AirAsia transported just over 50 million annual passenger in 2014, becoming the first airline brand in Asia outside China to reach the 50 million annual passenger milestone. AirAsia also recently carried its 300th million passenger since its late 2001 launch.

See related reports:

The slowdown in the growth rate is sensible as AirAsia needs to focus on improving profitability across its portfolio. But the slower growth will likely come at the expense of market share as competitors, particularly the Lion Group, continue to expand their fleets at rapid rates.

AirAsia has an extremely flexible fleet plan, which will enable it to reaccelerate expansion should it succeed at turning around its ailing affiliates and if market conditions improve. Given the recent losses across most of the portfolio and the low level of investor confidence – AirAsia and AirAsia X stock prices have tumbled roughly 70% over the last year – growth for now has to take a back seat.

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