SEPANG: An environment of rising competition in the airlines sector forcing the players to reduce prices works well for AirAsia Bhd.
Group chief executive officer Tan Sri Tony Fernandes said that the low-cost carrier (LCC) had already hedged the bulk of its operating cost.
The airline, according to him, will thrive on competition that is expected to see players being forced to operate under higher operating cost and lower revenue due to tickets being sold at discounts.
AirAsia has hedged 76% of jet fuel requirements for this year, its interest rates were fixed and 66% of its airplane purchases were hedged.
Fernandes also said that the weak ringgit worked in its favour and the real battle was between its domestic competitors – Malaysia Airlines Bhd and Malindo Air – both of which are operating out of the Kuala Lumpur International Airport (KLIA).
AirAsia is largely operating at KLIA2, which is a dedicated low-cost terminal.
“Our model is robust...we made good profits when fuel was at US$130 a barrel and will make good margins with ringgit at RM4.50 to the US dollar.
“We will use ancillary income to fight higher costs and the battle is really at KLIA between Malaysia Airlines Bhd and Malindo Air...good luck to the winner.
“The bonus for us is that the weak ringgit has made Malaysia a cheaper place and that has given us an immense boost to grow and become like the Dubai of the region where people transit here to other destinations,” he said in an interview.
Fernandes said that the LCC would want to grow its ancillary income from RM50 per passenger to RM60 and would be more aggressive in this area to counter the increases in cost due to the weak ringgit.
“Our revenue is higher due to higher loads. So the risk is minimal as we have fixed a lot of our cost,” he said.
Last December the airline had reduced food prices by 30% to 40% and it had seen higher demand and more than 90% in passenger load.
Of the 28 new planes the airline will add to its fleet this year, eight will be deployed for Malaysia and the rest for its other operations including those in Japan and India.
“I am shocked how some analysts look at things, but we will have record growth this year.
“Our first quarter sales are positive, ahead of the same quarter in 2016,” he added.