This article first appeared in The Edge Financial Daily on November 22, 2018

KUALA LUMPUR: AirAsia X Bhd (AAX) was hit by a RM138.2 million impairment on an amount due from a joint venture in its third quarter ended Sept 30, 2018 (3QFY18), which caused its net loss to widen to RM197.47 million from RM43.3 million in the same period last year.

Also contributing to the decline was higher average fuel price in the quarter under review at US$91 (RM302.20)/barrel (bbl), against US$65/bbl recorded in 3QFY17, AAX said in a Bursa Malaysia filing yesterday. Consequently, its quarterly loss per share widened to 4.8 sen, from one sen previously.

Quarterly revenue slid 4% year-on-year (y-o-y) to RM1.08 billion from RM1.12 billion, on decreased scheduled flight revenue following a 5% drop in average base fare to RM473 per passenger due to the introduction of new routes and capacity building on established ones.

“The increase of load factor from 79% in 3QFY17 to 80% in 3QFY18 [was] mitigated by the reduction of average passenger fare,” said the budget airline.

The company’s cost, as measured by cost per available seat-kilometre (CASK), grew 12% y-o-y to 14.62 sen due to the increase in average fuel price, and a provision for doubtful debts provided for AirAsia X Indonesia. CASK ex-fuel grew 0.5% from 9.17 sen to 9.21 sen.

For the nine-month period ended Sept 30 (9MFY18), AAX incurred a net loss of RM213.43 million versus a net profit of RM14.47 million a year ago, despite higher revenue — up 2% to RM3.4 billion from RM3.34 billion.

The company said it recognises the challenges posed by the recent rise in fuel prices, and efforts are being made to mitigate this by boosting ancillary revenue and capacity.

It said a new fare structure is now in place and it is actively driving up ancillary revenue, which will improve yields, while management monitors operating expenses to achieve better cost-efficiencies to offset fuel price uncertainties.

“The company expects operational cost ex-fuel to be lower in the coming quarters as it starts to see the fruits from its cost-saving initiatives mainly driven by lower aircraft lease rates, cheaper ground handling at foreign stations, and from unlocking operational network synergies with short-haul affiliates,” it said.

However, average base fare may be under pressure due to the expected increase in capacity on core established routes, in addition to new ones, it said.

On the slowing of the China market segment, which currently contributes a quarter of the group’s total revenue, AAX said it will shift future capacity to “other core markets” such as Japan, South Korea and India.

While AAX Thailand is expected to be profitable for the rest of the year, AAX Indonesia will cease scheduled service flights beginning next year and will only operate non-scheduled service flights.

“Based on the current forward booking trend, forward loads are ahead of the previous year. Bookings in the coming months are expected to be stronger year-on-year,” AAX said, not discounting headwinds like fuel cost pressures and intensified competition.

“Notwithstanding concerns over global trade tensions, demand in the short term is expected to remain healthy,” it added.

AAX shares lost half a sen or 2.04% with 22.14 million shares traded to close at 24 sen, giving it a market capitalisation of RM995.56 million.