AirAsia: Ancillaries and brutal cost control deliver 17.6% after tax margin for Malaysian operations


AirAsia reported another successful third quarter to 30-Sep-2009, with each of its short haul airlines reporting profits, on the back of strong passenger number and revenue growth. The Thai JV airline’s performance did not match the highly positive results elsewhere, particularly those of the main Malaysian operation, which delivered an EBITDAR margin of 31.7% and an after tax profit margin of 17.6%.

AirAsia performance for the three months ended 30-Sep-09





Revenue Growth




EBITDAR margin




Profit after tax margin




Passenger numbers (million)




Passenger number growth




RPK growth




ASK Growth




Seat Load Factor




In a climate where most other airlines in the region are reporting their worst figures in history, this result does suggest that AirAsia’s model is in the right space at this time.

(Note: a complete report on AirAsia’s results will be provided in this week’s Peanuts Weekly)

“Relentless” cost reduction

CEO Tony Fernandes stated that: “AirAsia’s relentless focus on costs continues to deliver savings. While fuel remains  volatile, we have continued to drive up productivity gains through investments in technology,  contain airport and handling costs while the current low interest rate environment helps us to  reduce the cost of aircraft financing.”

Ancillaries an integral part of the strategy

The importance of ancillary income to AirAsia’s business strategy is growing rapidly, helping compensate for the current weakness in yields. Said CEO Fernandes,  “Average fare was down in the third quarter but despite the significant drop, the contribution  from ancillary income more than offset the impact of lower average fares.

“Ancillary income grew by 86% to RM130 million representing 20.4% of total revenues. This is the strategy going forward whereby our passengers will continue to enjoy low fares whilst we make it up from growing the ancillary sources. This strategy will shield the Company from being overly exposed to airline specific risks and make the business more robust.”

As the following graph shows, the focus on this source of revenue is generating increasing levels of return (although the upward trend is somewhat distorted by reduced yields, inflating the impact of the non-ticket revenue).

AirAsia ancillary revenue per passenger and ancillary revenue as percentage
of total revenue: 1Q07 to 3Q09

AirAsia's average spend per passenger on ancillaries is now MR36.20, generating in total RM130 million for the third quarter:

Perhaps the good news is that, measured against ancillary returns in other parts of the world, AirAsia’s proportion of revenue from this source is nonetheless still relatively low.

Ancillary revenue comparison: Ryanair, easyJet and AirAsia, periods to 30-Sep-2009


6 months

12 month

9 months





Ancillary%total revenue




Ancillary revenue per PAX

11 EUR

11.4 GBP

30.8 MYR

The rapid improvement of income from ancillaries is well illustrated in the following graph (which appears in the Centre’s “Global LCC Outlook; The world has changed”).

In the same report, Ryanair COO, Michael Cawley recently noted he believed that ancillaries “maxed out” at around 22%, at least for his airline. Even so, that suggests there is still considerable upside for AirAsia, still only at just under 14%.

The growth of ancillary revenue, easyJet, 2003-2008

Low cost, long haul works…

Meanwhile, AirAsia X, now operating at a respectable 77% load factor, demonstrated that “The long haul, low cost model is proven successful”. It is early days to be making such a claim, but those same early days tend to be the most difficult for a new entrant. AirAsia X is reportedly profitable at this stage, although the quarterly financial results were not specific.

The long haul carrier is also to introduce a limited number of flatbed seats shortly, to cater for demand at the lower end of the premium market – a feature which must be viewed with some concern by full service competitors.

According to management, the outlook for AirAsia X remains strong – the “fourth quarter (is) looking positive with strong loads and high yields”.

With its current fleet of four A330-300s and two A340-300s, AirAsia X serves three points in Australia, two in mainland China, and one in each of Taipei, London and Abu Dhabi. The carrier has another 22 A330s on order and 15 A350-900 orders and options.

An increasingly formidable competitor

AirAsia and its partner airline AirAsia X is now becoming a sizeable global competitor, as can be seen from the following route map. Together the two operate 129 routes – of which  over half are city pairs which were previously not connected by direct air services.

AirAsia and AirAsia X route network, Nov-2009

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