AirAsia to start new airline, stays defiant on fuel hedging

AIRASIA X co-founder Tony Fernandes said he is preparing to launch a new airline, betting that expanding while the aviation industry’s being roiled by high oil prices will pay off in the future.

The new airline will be announced in the next month or two, Fernandes said in a video interview from Montreal late on Wednesday (May 6).

The low-cost South-east Asian carrier group is moving some planes for the business it is starting, he said, without providing further details.

The expansion would come on the heels of AirAsia’s multibillion-dollar order for what Canadian Prime Minister Mark Carney lauded as the largest purchase ever of Canadian-made commercial aircraft.

The order, involving 150 Airbus SE A220 planes, is part of the Fernandes’ plans to expand AirAsia’s fleet with smaller, nimbler planes that will fly passengers to all corners of Asia.

“Why waste a crisis? There are opportunities in a crisis,” the 62-year-old said. “We cannot control what happens in the Middle East, but we have to take a view that it’s not going to last for two years.”

It’s a bold bet, even for a company that’s made unconventional choices before. The company’s decision to avoid hedging fuel costs has contributed to shares of AirAsia tumbling about 35 per cent since the Iran war started, making it the worst performer on the Bloomberg World Airlines index during the period. 

Fernandes remained defiant on hedging fuel costs, predicting oil prices will eventually come back down. 

“Obviously people who hedge now are in the money, but over a longer period, hedging never really works,” Fernandes said. “So we continue to not hedge like many American airlines and we feel oil is bearish.”

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To help fund expansion, AirAsia is preparing to sell as much as US$600 million in bonds and is in talks with Malaysian banks for “quite a large” refinancing loan that would bring down interest costs, Fernandes added. 

He’s also planning to meet with Canadian pension funds to attract investors, he said. 

Meanwhile, the airline is expecting short-term pain. The company is unlikely to meet its initial profit target, something the company will soon announce, he said. Revenue for the year will be similar to what it predicted, “more or less,” he said.

AirAsia has discussed expanding in Vietnam, people familiar with the matter have said. The company operates out of Asian countries such as Malaysia, Thailand and Indonesia, with Airbus fleet of about 250 mostly single-aisle aircraft, and its latest order will expand its backlog to around 550 single-aisle jets.

Separately, AirAsia has announced it’s going to launch flights from Bahrain, with the goal of launching a local unit based in the Gulf island nation. BLOOMBERG