This article first appeared in The Edge Financial Daily on November 30, 2018

KUALA LUMPUR: Asia’s largest low-cost carrier AirAsia Group Bhd reported yesterday that its operating profit for the third quarter ended Sept 30, 2018 (3QFY18) halved to RM252.72 million from RM494.34 million a year ago, because of higher fuel expenses.

However, the budget airline still recorded an impressive 81.2% jump in net profit to RM915.88 million — its highest quarterly net profit in six years — from RM505.33 million last year, thanks to a one-off gain from the sale of Expedia of RM170.88 million, and the recognition of a deferred tax asset of RM515.43 million that arose from aircraft disposals.

The group declared a special dividend of 40 sen per share for FY18 — which amounts to a payout of about RM1.34 billion — to be paid on Dec 28, its filing with Bursa Malaysia showed.

Quarterly revenue grew 6.6% year-on-year (y-o-y) to RM2.61 billion from RM2.45 billion, due to a 9% rise in total passengers carried, and as overall unit passenger revenue grew 1% as a result of an increase in average fare. Load factor was at 82% in 3QFY18 versus 87% in 3QFY17, as the increase in passengers carried was less than the group’s 16% capacity growth.

Excluding the fuel expenses, AirAsia said its costs were fairly well controlled, with a reduction of 2% in cost per available seat kilometre, ex-fuel.

With the 3QFY18 results, the group’s net profit for the cumulative first nine months of FY18 shot up 90.9% y-o-y to RM2.42 billion from RM1.27 billion, while revenue rose 10.3% to RM7.78 billion from RM7.05 billion. Cumulative operating profit rose to RM1.44 billion from RM1.4 billion.

On prospects, AirAsia said its board is cautious about its results in FY18, as it has been impacted by higher fuel prices. “However, the drop in fuel price in December is expected to contribute positively to December’s operational results and in the year 2019,” it said.

As such, and with operating environment in 4QFY18 seen to have improved compared with 3QFY18, coupled with the year-end holiday season, further efforts to reduce costs, and continued growth in its affiliates, the airline’s directors are confident FY18 will be a profitable year.

“We are watching the fuel prices closely to increase our fuel hedge for 2019 and 2020. We have already hedged 48% for Brent at US$67.24 (RM281.74) bbl (per barrel) for 1QFY19 and 27% for 2QFY19 at US$65.40 bbl in order to better manage the volatility of fuel prices,” said group chief executive officer Tan Sri Tony Fernandes in a separate statement.

“Our domestic market share for Malaysia is now at 58% while all the other countries have also grown domestically except for Indonesia, which remained at 2% ... For the full year, we are on track to achieve a group load factor target of 85%,” he added.

The group is also expanding beyond air transport and digitalising its operations and processes to become more efficient, like via its partnership with Google Cloud, which it believes will impact further revenue generation with the use of accurate data forecasting and targeted marketing to drive stronger demand.

AirAsia shares slid one sen, or 0.33%, to close at RM2.98 yesterday, valuing the stock at RM9.96 billion.