Friday 29 Mar 2024
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KUALA LUMPUR: AirAsia X Bhd is “furiously” cutting costs to simplify its business model, said AirAsia Bhd founder and group chief executive officer (CEO) Tan Sri Tony Fernandes, as the long-haul budget airline looks to return to profitability amid falling global fuel prices.

Fernandes is now seen to be in the driver’s seat at AirAsia X, following a report by The Edge Financial Daily last month, quoting sources, that he will take on a more prominent role in the management to revive the airline.

“2015 will be a fantastic year for AirAsia X. We are furiously cutting cost, simplifying the model, and with fuel costs dropping, that’s a huge bonus,” Fernandes said when contacted.

“With that in mind we have temporarily cut the Adelaide route,” he said.

Recent foreign reports indicated that the airline will temporarily discontinue its Kuala Lumpur-Adelaide route from Jan 25 next year.

But Fernandes said the airline will return to new routes in 2016 with possible destinations like London and Hawaii, adding that the capacity will be wet leased from Saudi Arabia involving two planes.

A wet lease is to hire an aircraft with a crew, which is typically utilised during peak traffic seasons or annual heavy maintenance checks, or to initiate new routes.

AirAsia X previously served London’s Stansted Airport first and then London Gatwick, after withdrawing from the European long-haul market in 2012.

Fernandes said the remaining planes are being used for existing routes, and for Indonesia AirAsia X and Thai AirAsia X.

AirAsia X CEO Azran Osman-Rani told The Edge Financial Daily that specifically for the Australian market, “as [has] been said, the airline needs to trim capacity given the overcapacity in that market”.

“We are a lot stronger now compared with [our position as at] Sept 30, having completed various cash-raising initiatives, including aircraft and engine sale leasebacks.

“We are also starting to benefit from low oil prices,” he said.

The other Australian routes to Sydney, Melbourne, Gold Coast, Perth and Darwin are to remain, Azran added.

AirAsia X’s third-quarter ended Sept 30, 2014 (3QFY14) earnings were dragged down by higher operating, finance expenses and foreign exchange losses.

The airline posted a net loss of RM210.85 million for 3QFY14 compared to a net profit of RM26.44 million a year earlier. It was its fourth quarterly loss since 4QFY13.

Affin Hwang Capital, in a note on Monday, raised its target price for AirAsia to RM3.25 from RM2.74 on Dec 5.

The research house also raised AirAsia’s 2015/2016 earnings by 5% to 12% in view of lower jet fuel price assumption.

“The positive is partially mitigated by a stronger US dollar as well as an anticipation of lower fare, as we take a view that airlines will likely compromise yields to garner market share. All in, we remain positive on the outlook,” it said.

Meanwhile, airline stocks are seeing a resurgence in investor interest, Maybank Investment Bank aviation analyst Mohshin Aziz said in a note on Monday.

The research house upgraded the sector to “overweight” as direct fuel cost savings will propel near-term strong profit growth, and that earnings forecast revisions will be dynamic, due to the volatility of oil prices.

“Airline stocks are back in demand again, after a long hibernation period, and all thanks to the declining fuel price trend.

“The Bloomberg Asia Pacific Airline Index has soared 21% since November 2014, 27% year-to-date, and the momentum continues to be strong,” said Mohshin, adding that trading volumes of Asia-Pacific airline stocks are at their highest levels since 2003.

AirAsia shares closed up 1.09% yesterday to RM2.77, giving it a market capitalisation of RM7.71 billion. AirAsia X’s share price was 5.34% higher at 69 sen, with a market capitalisation of RM1.62 billion.

 

This article first appeared in The Edge Financial Daily, on December 10, 2014.

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