AirAsia Q2 operating profit up by 328%
AirAsia has recorded a core operating profit of RM128 million for the quarter period ending 30 June 2009, a 328% increase compared to the same period the year before.
Group CEO Tony Fernandes explained, “Revenue for the quarter grew by 8% to RM657 million, driven by robust passenger growth and ancillary income. The core operating profit of RM128 million was more than quadruple the profits achieved in the same period last year.
“Our results stand in stark contrast to those of most legacy carriers in these troubled economic times. While major legacy carriers are cutting flights, grounding planes, retrenching staff and reporting massive losses, AirAsia is, on the contrary, seeing rising demand, adding more routes, increasing frequency and securing higher profits,” Fernandes added.
“Passenger numbers for the period grew by 24% to 3.5 million, largely in response to our three-prong strategy of lowering fares, stimulating travel with innovative and creative marketing and capturing market share. Despite lowering fares by an average of 19%, we still managed to produce strong profit growth with industry leading margins.”
Fernandes noted that AirAsia has been able to maintain a load factor of 75% despite the lingering fear of the influenza A/H1-N1 pandemic. While yield (revenue per ASK) was lower by 12% to 11.9 sen per ASK (largely due to 19% lower average fare of RM160) the company's unit cost – at 8.0 sen per ASK – fell by 31% compared with the same period last year.
Also highlighted was the growing importance of ancillary income. “Ancillary income grew by 89% to RM95 million," Fernandes noted. "The average ancillary spend per passenger has increased by 52% to RM27. Ancillary income now represents 14.5% of total revenue, a 6 percentage-point increase from the same period last year.
“With new products and services, this business unit is expected to grow – unearthing new revenue streams for the company. We have launched a low-cost courier service and AirAsia Savers Account (co-branded savings account with CIMB) in July. There are six more ancillary income initiatives in the pipeline waiting to be launched within the year.”
On its overseas operations, Fernandes said: “AirAsia Thailand had performed well despite the weakened consumer sentiment caused by the domestic political situation, exacerbated by the second quarter being a seasonally weak quarter for Thailand. Yet AirAsia Thailand managed to contain losses to THB81 million (RM8.2 million) for the period. The outlook for Thailand is positive, the passenger growth numbers looks satisfactory and TAA has captured significant market share. In addition, the Thai operation is enjoying the cost benefits of the increased number of Airbus A320 aircraft in its fleet.
“AirAsia Indonesia’s operation has made commendable progress to improve its cost structure and narrow down losses to IDR65 billion (RM21.8 million)," he continued. "We have added a significant capacity addition of 56% in the period and this necessitated lower fare in order to drive high traffic growth. This strategy has proven to be successful; we have carried 47% more passengers and maintained load factors of 75%. Despite the loss incurred in the second quarter, the third quarter looks very promising. Response to the new Bali–Perth route exceeded expectations and we have increased the frequency from once a day to twice a day even before the launch of the maiden flight. This will help underpin a sustained profitable performance going forward.”
Looking ahead, Fernandes remarked, “The current economic climate is well-suited for a low-cost airline as consumers have become more price conscious and look for the best value. With our lowest unit cost base, we have the flexibility to reduce our already low fares without hurting our bottom line. Other airlines are offering aggressive pricing just to try and maintain their existing passenger base but in this intensely competitive market, the only sure winner is the one with the lowest unit cost base.
“To simplify and make our products more irresistible, we have abolished administrative fees and now have a simple 'all-in fare' pricing structure. This strategy has already proven successful in driving strong traffic growth and expanding market share. Based on forward booking trend in the third quarter, the underlying passenger demand remains positive and the company should be able to maintain a similar growth momentum enjoyed in the first half of the year.”