Profit at Malaysia's AirAsia hit by higher fuel costs

[KUALA LUMPUR] Malaysian low-cost airline AirAsia Bhd reported a 30 per cent drop in its quarterly net profit as higher fuel expenses overshadowed the effects of increased passenger numbers and an improvement in its load factor.

Asia's biggest budget airline is expanding and expects to achieve double-digit fleet growth this year to cater for rising demand for cheap travel in Asia.

Net profit for the first quarter ended March 30 fell to 615.8 million ringgit (S$199.29 million) from a year ago while revenue rose 31 per cent to 2.2 billion ringgit.

In January-March, AirAsia carried 9.15 million passengers, 6 per cent more year on year and ahead of a one per cent rise in seat capacity. The airline posted a load factor - a measure of how full planes are - of 89 per cent for the period, four percentage points higher than a year ago.

The airline said in a statement on Thursday that despite revenue growth, net operating profit fell mainly due to the approximately 20 per cent rise in average fuel price from US$56 per barrel a year ago to US$67 per barrel this quarter. Profit was also hit by a strong US dollar during the quarter.

Additionally, total staff costs increased by 76.8 million ringgit from a year ago, due to the revised staff remuneration package introduced in the fourth quarter of 2016.

Group chief executive officer Tony Fernandes said that the group's plan to sell non-core assets is on track.

"We are currently in final negotiations and will materialise the sale of Asia Aviation Capital, our leasing arm, very soon," he said.

Reuters reported in March that a little-known South Korean group had been picked as the preferred bidder for the deal that values the leasing unit at US$900 million.

Mr Fernandes said plans to list AirAsia Philippines and Indonesia, and its training centre, AirAsia Aviation Centre of Excellence, are still on.

Last month, AirAsia announced plans to set up a low-cost carrier in China, a move that comes just months after it signed an agreement to form a joint venture in Vietnam.

The LCC "should be long term positive for AirAsia, although upfront costs and gestation period could be a drag on near-term earnings", Affin Hwang Capital Research said in a report last week.

Net profit at AirAsia's long-haul budget affiliate, AirAsia X slumped 94 per cent in January-March but revenue rose 22 per cent.

AirAsia's shares rose 6.5 per cent to 3.13 ringgit on Thursday.

REUTERS