AirAsia X fares jump 40% due to Iran war; CEO calls it ‘the most critical challenge’
This comes as jet fuel costs doubles, from US$90 a barrel to about US$200
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[KUALA LUMPUR] Malaysian low-cost carrier AirAsia X has hiked airfares by as much as 40 per cent, and raised fuel surcharges by a fifth. This comes after jet fuel costs more than doubled in the wake of the Iran war.
Average jet fuel costs have soared to about US$200 a barrel from around US$90 previously, group chief executive officer Bo Lingam said in a media briefing on Monday (Apr 6), describing it as the airline’s most critical challenge.
The spike in fuel costs is hitting low-cost airlines particularly hard, pressuring business models built on cheap fares, and exposing the finances of AirAsia X, the subsidiary of AirAsia which operates medium to long-haul routes.
South-east Asia’s biggest budget airline group also faces the threat of jet fuel supply shortages across the region, from Vietnam to the Philippines, including its home market of Malaysia.
“We’ve been through many crises,” co-founder and strategic adviser Tony Fernandes said in the same briefing at the company’s headquarters in Selangor state. While the group does not “have all the answers” to the geopolitical situation, management is drawing on past experience and is prepared to respond, including cutting capacity or reducing costs if needed, he added.
Lingam noted that the carrier has already cut about 10 per cent of the group’s flights after the Eid al-Fitr holidays. It is also scaling back unprofitable routes, with some reductions expected to be temporary and others, permanent. It is adjusting aircraft deployment and bringing forward maintenance checks to manage costs.
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AirAsia X – which does not hedge its fuel costs – is also awaiting more details from the government on fuel availability in the coming months.
On Sunday, Prime Minister Anwar Ibrahim signalled that Malaysia may face fuel supply uncertainty as early as June, highlighting the country’s vulnerability to the global energy crunch even as near-term supplies remain intact.
The turmoil has complicated the carrier’s ambitious expansion into the Middle East, though AirAsia X said it still intends to move ahead. The airline had planned to launch a Bahrain hub and start the Kuala Lumpur-Bahrain-London route on Jun 26, and remains committed if conditions improve in time, noted Lingam.
Group chief commercial officer Amanda Woo said that bookings from Europe and other regions into Asia are rising, and the group is looking to increase frequencies to Central Asia, including Istanbul.
It is also exploring partnerships with other carriers as travel demand shifts.
AirAsia X shares rose as much as 4.3 per cent on Monday, trimming the losses since the war began to around 41 per cent. Still, the company remains the worst performer in the Bloomberg World Airlines Large, Mid & Small Cap Price Return Index. BLOOMBERG
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