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

AirAsia has reported a drop in profits at its Malaysian short-haul subsidiary for 2Q2014 while its affiliates in India, Indonesia, Philippines and Thailand were all in the red. But Asia's leading LCC group is confident market conditions are improving, leading to improved results in 2H2014 and 2015.

The outlook in Malaysia should particularly improve as AirAsia is in a position to benefit from the upcoming restructuring at Malaysia Airlines (MAS). AirAsia has seen profits slide over the past year due to rapid capacity expansion at MAS and Lion Air Group's new Malaysian affiliate Malindo Air, pressuring yields.

Malaysia AirAsia has responded by slowing down expansion, increasing ASKs by a paltry 3% in 1H2014 despite having a much larger fleet than one year ago. Anticipated capacity cuts at MAS as it restructures could enable AirAsia to reaccelerate growth and restore aircraft utilisation rates to more normal AirAsia levels.