AirAsia flies high in 2Q as net profit rises 147% y-o-y

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KUALA LUMPUR (Aug 30): Budget airline AirAsia Group Bhd's net profit surged nearly 2.5 times to RM361.81 million in the second quarter ended June 30, 2018 (2QFY18) from RM146.52 million a year ago, thanks to the reversal of deferred tax on the sale of aircraft.

This resulted in a higher earnings per share of 10.8 sen for 2QFY18 compared with 4.4 sen for 2QFY17.

Quarterly revenue also jumped 10.3% to RM2.62 billion from RM2.38 billion in 2QFY17 on the back of a 13% increase in total
passengers carried to 10.88 million.

In a filing with Bursa Malaysia today, AirAsia said RM47.19 million deferred tax credits arose in the current quarter under review as unabsorbed capital allowances increased in combination with the investment allowances granted.

This was despite passenger load factor being 3 percentage points lower at 86% in 2QFY18 compared with 89% in 2QFY17 due to a 17% year-on-year (y-o-y) increase in capacity.

AirAsia also said average fare fell 3% y-o-y in 2QFY18, while the overall revenue per available seat kilometre (RASK) of the airline fell 3% to 14.83 sen in 2QFY18 from 15.35 sen in 2QFY17.

"The total net operating profits of the airline also decreased 18% y-o-y to RM324.8 million from RM395.4 million in 2QFY17 as a result of higher fuel prices and increase in maintenance and leasing costs on aircraft," it added.

In a separate statement, AirAsia group CEO Tan Sri Tony Fernandes explained that in general, second quarter is a less travelled period, hence a slower season for air travels.

"There was also pressures on fare prices leading up to the 14th general election in May. On top of that, our Indonesia operations has been affected by the volcanic activities since 4QFY17 and the recent eruption by Mount Agung in 2QFY18.

"As a whole, our operating profits were largely impacted by the rising global fuel prices and hence, overall fuel related costs have gone up. Despite all adversities and circumstances, our financial performance was commendable (in 2QFY18),” he noted.

No dividend has been proposed during 2QFY18.

The strong quarterly performance lifted the airline's net profit for the cumulative six months (1HFY18) up 92.2% to RM1.5 billion from RM762.4 million a year ago, while revenue rose 12.5% to RM5.18 billion from RM4.6 billion in 1HFY17.

Going into 3QFY18, Fernandes expects the airline's group load factor to hold steady despite the added capacity.

"Many airlines have reported net operating losses for 1H2018 due to higher fuel prices. The higher fuel cost is an inevitable crisis for everyone as long as there is a need for fuel consumption.

"We will continue to remain cost discipline in all areas in order to maintain healthy profit margins," he said.

"We will emphasise our One AirAsia initiatives to further reduce costs by 5% in workforce reduction for non-airline operating divisions, while improving the overall operational efficiencies and actively monitor each route’s profitability," said Fernandes.

"We are almost reaching 14 hours a day on our daily aircraft utilisation by all aircraft operating certificates (AOCs) as one of our effecting cost saving measures. We want to further improve the turnaround time and overall performance by each affiliate.

Fernandes also said AirAsia India’s performance has been "very promising" and is targeting for it to breakeven by FY19.

Meanwhile, AirAsia said it is projecting to achieve an average load factor of 83% in 3QFY18 based on the existing forward booking trend of its operations in Malaysia, Indonesia and the Philippines.

"In Thailand, load factor in the third quarter of 2018 is forecast to be 80% based on existing forward booking trend, while the forecast load factor in India is at 82%," it said.

"In Japan, the forecast load factor for the third quarter of 2018 is forecast to be 89%. AirAsia Japan will focus on building footprint in the domestic market and connecting to the airline’s existing network within the region. The growth of Japan will depend on the speed of regulatory approval," it added.

However, AirAsia warned that while demand remains strong and load factors are healthy, it continues to face headwinds such as high fuel costs and weakening regional currencies.

"Despite this, we will continue to drive revenue and sale of ancillary services and focus on reducing costs to mitigate the (headwinds)," it said.

Barring any unforeseen circumstances, the airline remains positive that the overall results in 2018 will be favourable.

AirAsia shares closed down five sen or 1.43% at RM3.44 today, with 5.73 million shares done, for a market capitalisation of RM11.5 billion.