AirAsia brings forward orders as demand surges

(REUTERS) AirAsia Bhd, Asia’s largest budget airline and a key customer of European planemaker Airbus, said it was bringing forward some plane deliveries as rising demand helps it to offset the high fuel costs ravaging the industry.

While some full-service airlines like Australia’s Qantas Airways (QAN.AX) have been cancelling plane orders due to an uncertain global economic outlook, Malaysia-based AirAsia on Tuesday predicted rising passenger numbers for its markets.

“Based on the current forward booking trend, underlying passenger demand in the third quarter for the Malaysian, Thai and Indonesian operations remains positive, while the recently started operations in the Philippines and Japan continue to build scale,” it said, as it reported a 3 percent dip in quarterly operating profit.

Airlines across the world are struggling with rising jet fuel bills and sluggish economies in Europe and north America.

Earlier this month, Australia’s Qantas cancelled orders for 35 Boeing Dreamliner jets to cut costs after posting a full-year net loss for the first time in 17 years.

“AirAsia’s business model is working fine. It is the other full-service airlines that are facing losses,” an analyst from TA Securities told Reuters.

“I don’t think they will cancel the orders they have placed now, unless the results are really bad. Qantas fell into losses and I don’t see this happening to AirAsia,” the analyst added.

AirAsia (AIRA.KL), with an operating fleet of 116 aircraft, has ambitious expansion plans, with some 375 Airbus (EAD.PA) A320 passenger jets on order, according to an AirAsia official.

The firm carried 8.3 million passengers in the second quarter – a 13 percent increase from a year ago as holidaymakers took advantage of cheap plane tickets due to increased capacity.

“To cater for the high demand traffic throughout the region, AirAsia has brought forward additional aircraft in 2013 and 2014 bringing the total number of aircraft to 21 and 24 respectively,” it said.

Not all analysts are convinced by the strategy, however, with one at a local investment bank warning profits could come under pressure from potential losses at new start-up units in the Philippines and Japan.

“It remains to be seen if losses from these units can be sustained by its Thailand operations which tends to perform favorably,” said the analyst who declined to be identified as he is not authorised to speak to the media.


AirAsia said it made a net operating profit of 130.94 million ringgit, excluding one-off items, in the second quarter, down slightly from 135.17 million in the same quarter last year.

Net profit was boosted by a one-off gain of 1.16 billion ringgit following a share sale at its Thai unit.

The Thai unit, Asia Aviation Pcl, raised 4.5 billion baht in May and plans to use the proceeds to raise its stake in Thai budget airline Thai AirAsia.

Reflecting the challenging operating environment globally, AirAsia shares have been in decline, trading at 3.55 ringgit on Tuesday from a recent peak of 3.82 ringgit on July 9.

Still, of the 25 analysts tracked by Thomson Reuters, 18 have a “strong buy” or “buy” rating on AirAsia, while four have “hold” calls and three have “underperform” or “sell”.

AirAsia recently made its first major airline acquisition, buying Indonesia’s Batavia Air for $80 million in cash to expand in Southeast Asia’s biggest economy, a move that will ratchet up competition among low-cost carriers in Indonesia.

The move came after its partnership with the country’s national carrier Malaysian Airline System Bhd (MASM.KL) fell through in May – a development that was seen as driven by pressure from labour unions fearing job losses. (Reporting By Yantoultra Ngui, Anuradha Raghu and Al-Zaquan Amer Hamzah; Writing by Yantoultra Ngui; Editing By Raju Gopalakrishnan and Mark Potter)