AirAsia post strong 1Q 2011 performance despite high fuel prices.

[Sri Ramani K. 0]

AirAsia post strong performance despite high fuel price

 

1Q11 By the Numbers:

Revenue: RM 1.05 Billion (up 20% y-o-y)

Operating Profit : RM 241.72 Million (up 46% y-o-y)

Operating Profit Margin : 23% (up 3 ppt)

Revenue / ASK : 16.44 sen (up 12% y-o-y)

Cash Balance: RM 1.8 Billion

Ancillary Income per pax: RM 50 (up 31% y-o-y)

Net Gearing Ratio: 1.57 (reduce from 2.25 y-o-y)

 

 

LOW COST TERMINAL, SEPANG, 24 May 2011 – AirAsia Berhad (“AirAsia” or “the Company”) recorded a growth in operating profit in 1Q11, in what Group CEO Tony Fernandes hailed as “excellent despite high fuel prices.”

 

“What is particularly significant for us is that our operating profit margins were also significantly higher year-on-year, demonstrating that we are maintaining tight control of costs even as we grow revenues. Yes, fuel prices shot up – but that is something beyond our control. Our response is not to wring our hands and moan, but to use our creativity to address the issue and find ways to overcome this challenge. And our Q1 results indicate that we are on the right path,” said Fernandes.

 

He added: “We maintained our strong load factor at 80%; we increased our RASK by 12% y-o-y; we grew our EBITDAR margins by 3 percentage points to 38% year-on-year; and we increased our cash balance to RM1.8 billion.” The company saw a decline in profit after tax of 23%, largely due to lower unrealised foreign exchange gains in this quarter

 

In terms of actual numbers for the Group, Q1 2011 registered revenue of RM 1.05 billion; Profit After Tax of RM 171.93 million; load factor of 80% (up from 74% y-o-y); Revenue/ASK up 12% (y-o-y) for MAA, up 13% for TAA and 10% for IAA. EBITDAR margins for MAA, TAA and IAA rose to 38%, 22% and 37% y-o-y, respectively.

 

Fernandes said that a deliberate “load active” strategy meant that while average fares declined, the payoff came in the form of higher passenger load factors of 80%, up 17% y-o-y. “At AirAsia, our focus is on keeping operating costs the lowest in the industry, and on growing ancillary income. Thus, we are not as dependent on our fares as others are. The strategy is to increase passenger loads, and monetize this increase. This helped us push RASK for MAA by 12%. Our unit revenue is up 2%, showing that our strategy is working and this proves that AirAsia has a very robust operating model,” he said.

 

On ancillary, Fernandes said that every RM spent per passenger helps offset approximately USD 1 per barrel increase. “We have raised our ancillary charges on certain products and that has been able to offset much of the pressures on margins. Our ancillary revenue per pax is up in all three operations: MAA at RM 50 per pax ( up 31% from RM38 y-o-y); TAA at THB 368 per pax (up 34% from THB 274 y-o-y); IAA at IDR 152,052 per pax (up 57% from IDR 96,666).”

 

He said that ancillary income will continue to be the catalyst for AirAsia to grow further, especially with a lot of exciting initiatives announced in Q1 2011, such as the AirAsia and Expedia joint venture. “We are focused on growing our ancillary income and explore any opportunities to further monetize these businesses so AirAsia can ride on its upside benefits”.

 

Fernandes also highlighted the first quarter performances of TAA and IAA. On TAA, Fernandes said TAA performance was strong as they weathered the difficult 1Q11 by generating THB 4,086 million, recording a growth of 33% year-on-year; Profit after tax was also up 30%. This 1Q11 was contributed a lot by a seasonally strong first quarter especially with a 23% growth in passengers carried and together with the newly introduced Indian routes performing well. TAA also took delivery of one new Airbus A320 in their current fleet which consists of 20 in total.

 

As for IAA, the affiliate posted a good 38% rise in revenue of IDR 774,846 million, with ancillary revenue continuing to grow by 57%. Load factor was at 79% (up from 72% y-o-y). This performance can be supported with the Profit before tax of IDR31,943 million which rose 588% year-on-year. They have also managed to increase their average fares by 12% as they ramp up going to their traditionally strongest 2nd and 3rd quarters. Indonesia also took two new deliveries of the Airbus A320 in 1st quarter which brings their total fleet to 20 aircraft in operation.

 

Outlook

 

On the outlook for the rest of 2011, Fernandes emphasized the Group’s laser-like focus on keeping costs down. “This is what ultimately helps us to offer the low fares that we do,” he said. With the fuel surcharges helping defray some of the rising cost of fuel, there is also a determined effort throughout the Group “in pushing load factors higher on key profitable routes and capturing further market share from competitors,” he said.

 

“We are still anticipating the launch of our AirAsia Philippines in the second half and I am just excited on the progress to get this venture started. We are also re-looking into Vietnam and hopefully an exciting announcement will follow suit soon. These moves will further strengthen our presence in the ASEAN skies,” Fernandes said.

 

On fuel hedges, Fernandes said the Group had hedged approximately 17% of its fuel requirements for the second half so far for this year. “We are monitoring oil prices very closely and the moment we perceive an opportunity, we will not hesitate to add to our hedges,” he said.

 

Fernandes also acknowledged that the company has recently rewarded its loyal shareholders with its maiden dividend payout on 3 cents per ordinary share. This is in line with company’s vision to give back to shareholders for their support since the company’s listing and anticipate to be in a better position in the near term to reward more.

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The Group will not take delivery any A320 aircraft in the second quarter of the year. Three deliveries will made in the third quarter and four in the final quarter of the year, of which three will be deployed in Malaysia, two in Thailand and two in the Philippines.

 

Two new routes are planned across the network in the second quarter of the year, in combination with additions and reductions in frequency on existing routes, while in the third and fourth quarters of the year there will be three new routes operated out of Malaysia, two from Thailand and five from the Philippines, if all regulatory approvals are received as anticipated.

 

In Thailand, demand is growing at a stronger than ever rate for both domestic and international sectors. The new hub in Chiang Mai is performing well and operating new routes where demand has exceeded expectations. Performance for the rest of the year is expected to remain good driven by higher loads and yields, though these will be tempered by the higher average fuel prices expected in the second quarter.

 

In Indonesia, the next quarter will see the launch of Airbus A320 operations from Bandung which will improve brand awareness of AirAsia at the Bandung hub. The Medan hub is also exhibiting strong growth, while the abolition of the travel tax for Indonesians flying abroad continues to boost demand on international sectors.

Bursa Malaysia Statement

Edited May 24, 2011 by flee

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AirAsia Bhd. (AIRA), Southeast Asia’s biggest discount airline, said first-quarter profit fell 23 percent due to higher fuel, maintenance and staffing costs as it added flights amid a surge in global oil prices.

 

Net income in the three months through March slid to 171.9 million ringgit ($56 million), or 6.2 sen a share, from 224.1 million ringgit, or 9.1 sen a share, a year earlier, the Sepang, Malaysia-based carrier said in a statement late yesterday. Sales rose 20 percent to 1.05 billion ringgit.

 

“We are very proud of the results despite high fuel prices,” Chief Executive Officer Tony Fernandes said on a conference call late yesterday. “We are confident that we can still maintain growth this year compared with last year.”

 

AirAsia may face tougher quarters ahead as rival low-cost carriers like Tiger Airways Holdings Ltd. add capacity to compete for budget travelers in Southeast Asia while airlines around the world continue to grapple with surging oil costs. Ryanair Holdings Plc (RYA) on May 23 predicted that annual earnings this fiscal year will be “similar” to last year’s level as higher fuel bill hurts profit.

 

Its shares have risen 21 percent this year, outpacing the 0.9 percent gain in the benchmark FTSE Bursa Malaysia KLCI Index.

 

Malaysian Airline System Bhd. (MAS), which has fallen 24 percent this year, may report a first-quarter loss today due to higher fuel prices and reduced travel demand, Wong Chew Hann, an analyst at Maybank Investment Bank Bhd. on May 23.

 

Switch Capacity

 

AirAsia’s fuel bill jumped 22 percent to 376.5 million ringgit in the first quarter, while staff costs surged 31 percent to 118.5 million ringgit, the statement said. Maintenance, overhaul and other related charges climbed 33 percent to 146.7 million ringgit during the period, it said.

 

The carrier plans to transfer some capacity on its long- haul routes to short-haul destinations including Singapore, Penang and Langkawi to help counter the impact of higher fuel costs, Fernandes said. It may lift fuel surcharges if oil prices stabilize at the current level, he added.

 

Airlines stand to earn almost 50 percent less this year than in 2010 as rising oil prices limit the benefits of a rebounding economy, the International Air Transport Association predicted in March. IATA cut its forecast for industry profit to $8.6 billion from the $9.1 billion projected earlier.

 

Source: http://www.bloomberg.com/news/2011-05-24/airasia-profit-falls-on-fuel-staff-costs-as-airline-expands.html

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Long and detailed report from CAPA: http://www.centreforaviation.com/news/2011/05/25/airasia-optimistic-for-further-asean-growth-following-profitable-1q2011/page1

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Just to complete this announcement, the AirAsia presentation slides:

http://www.airasia.com/iwov-resources/my/common/pdf/AirAsia/IR/AA_1Q11_Analyst_Presentation.pdf