AirAsia Q2 operating profit down 17% on Thai troubles

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AirAsia Group saw its operating profit decline 17% to MYR174 million ($54.8 million) for its 2014 second quarter owing to weakness at its Thai AirAsia affiliate.

AirAsia’s profit after tax for the quarter ended 30 June rose six-fold to MYR367 million owing to foreign exchange gains on borrowings, says the carrier in a statement. Revenues for the quarter were up 5% to MYR1.3 billion on the back of a 1% growth in passenger traffic to 5.6 million, matching capacity growth of 1%.

Load factors were unchanged at 80%.

AirAsia says that excluding its share of Thai AirAsia operating profits would have been flat. Moreover, average fares declined just 1% to MYR157 in the first six months of 2014. AirAsia says that the “irrational pricing of competitors is diminishing.”

“Despite the fall in average fare, ancillary income continued to outperform adding to the Company’s first positive performance in Revenue per Available Seat Kilometre (“RASK”), since the start of irrational pricing same quarter last year.” RASK for the quarter came in at MYR 0.154, up 2% from a year earlier.

The carrier’s cost per available seat kilometre (CASK) was MYR 0.133, up from MYR 0.125 in 2Q2013, mainly due to a 9% higher average fuel price. Non-fuel costs were flat.

“AirAsia continues to be disciplined in an industry where irrational competition exists,” carrier chief executive Aireen Omar says. “ With our lean operations and cost conscious culture that aims to optimise profitability, the Company embarked on a route rationalisation exercise in 2Q14, cancelling and cutting down frequencies on selected routes where the Company felt were diluting yields.”

The carrier's cash as of 30 June stood at MYR1.4 billion, up from MYR1.3 billion at the end of March. This was offset, however, by net debt of MYR11.5 billion, giving the carrier a net debt of MYR10.1 billion, up from MYR9.1 billion at the end of March.

Affiliate Thai AirAsia posted an operating loss of Baht 465 billion($14.5 million), during the quarter mainly due to lower fares and reduced air travel owing to Thailand’s political travails. Still, the Thai affiliate was able to record a 78% load factor.

Indonesia AirAsia saw an operating loss of RP272 billion ($23 million), swinging from an operating profit a year earlier of RP88 billion.

“The decline in operating profit was mainly driven by the weakening of the Rupiah currency and the increase in dollar-denominated cost such as fuel, maintenance and its lease expense which led to a 33% increase in CASK at RP606.16 from RP456.19 year-on-year,” says AirAsia group chief executive Tony Fernandes. “ We are now embarking on a route rationalisation programme, terminating loss making routes to ensure we optimise profitability at lower operational cost.”

He adds that the AirAsia Philippines is still a work in progress, with the company spending “a lot” on marketing the AirAsia brand locally and internationally. The carrier did not provide financial figures for the Philippine unit.

“I am very optimistic the worse is over as our turnaround plan has been put into place,” says Fernandes of the Philippine unit. “We are also in the midst of getting government to support us on the development of airports around the country to support our growth.”