This article first appeared in The Edge Financial Daily on November 24, 2017

KUALA LUMPUR: AirAsia X Bhd (AAX), which slipped back into the red in the third quarter ended Sept 30, 2017 (3QFY17) after six consecutive profitable quarters, still makes a very compelling story in the longer term, group chief executive officer (CEO) Datuk Kamarudin Meranun said.

He said the long-haul, low-fare affiliate of AirAsia Bhd believes that it can end 2017 on a “high note as we are confident that the fourth quarter of 2017 (4Q17) will be a good quarter for us”.

“Looking ahead, we continue to fine-tune our network and introduce new markets that strengthen our network, as well as support our revenue and profitability targets. Earlier this month, we launched the Kuala Lumpur-Jeju and Kuala Lumpur-Jaipur flights, which will commence inaugural flights in December 2017 and February 2018 respectively,” Kamarudin said in a statement yesterday.

“Our bookings for 4Q17 and 1Q18 are ahead of last year’s, showing that demand to fly remains strong and reflects [a] growing evidence that consumers are prioritising expenditure on flights and holidays above other non-essential items,” he added.

The airline also plans to add third-party leased, all-economy-class Airbus A330s in 2018 to focus on shorter China routes and redeploy its existing fleet to new markets.

“Despite the tougher operating environment in the seasonally weaker third quarter of the year, we managed to serve more passengers and posted higher load factor across all markets we operate in,” said Kamarudin.

AAX posted a net loss of RM43.3 million in 3QFY17 compared to a net profit of RM11.03 million a year ago. Operating expenses jumped 25.1% to RM1.17 billion in 3QFY17 from RM934.13 million.

It recorded a loss per share of one sen versus an earnings per share of 0.3 sen in 3QFY16.

Quarterly revenue, however, grew 14.5% to RM1.12 billion in 3QFY17 from RM982.4 million in 3QFY16, supported by a 23% year-on-year growth in passenger volume.

AAX CEO for Malaysia Benyamin Ismail said the airline did well operationally in 3QFY17, but blamed higher operating expenses on the one-off provision for bad debts, which fell under the “other operating expenses” category.

“It is a necessary action that has to be taken as we move on from past management’s business decisions. With the observed booking trends, we are in line with expectations for a recovery in 4Q17,” he added.

The weak quarterly results dragged down the airline’s net profit for the cumulative nine months ended Sept 30, 2017 (9MFY17), which fell 92.4% to RM14.47 million from RM191.53 million a year ago, despite revenue growing 17.8% to RM3.34 billion from RM2.84 billion in 9MFY16.

In a filing with Bursa Malaysia yesterday, AAX expects its prospects to remain positive based on the current forward booking trend, forward loads and average fares, which are trending better than the previous year.

However, it warned that the depreciation of the ringgit remains a key concern as a large portion of the airline’s borrowings and operating costs are denominated in US dollars.

As at the end of 3QFY17, the airline’s US dollar-denominated borrowings had reduced by 6.5% to US$220.4 million (RM905.84 million) from US$235.7 million in 2QFY17.

AAX shares closed 0.5 sen or 1.3% lower at 38 sen yesterday, with a market capitalisation of RM1.6 billion.