AirAsia’s profit margin squeezed by higher fuel, staff costs

AirAsia airplanes park at KLIA 2. for business archive.

KUALA LUMPUR: AirAsia Bhd, like its sister company AirAsia X Bhd, posted lower earnings in the first quarter (Q1) ended March 31 despite achieving higher revenue, mainly due to soaring fuel cost exacerbated by the strong US dollar.

Besides an 81% jump in fuel expenses to RM680.8mil, AirAsia also had to contend with a RM76.8mil rise in total staff costs year-on-year, mainly due to the revised staff remuneration package introduced in the fourth quarter of 2016.

In its Q1 financial report to Bursa Malaysia, AirAsia said its earnings were down 30% at RM615.81mil for the quarter although revenue surged by 31% to RM2.23bil.

The revenue growth, it said, was derived from a 6% increase in total passengers carried and a strong seat load factor of 89% in Q1 2017 compared to 85% a year earlier.

Despite of a slight reduction in the average fare of 2%, the group’s overall revenue per available seat-kilometre (RASK) gained 3% to 14.91 sen.

Nonetheless, it said, its total net operating profits fell by RM70.7mil to RM267.1mil.

“The reduction was mainly attributable to about 20% increase in average fuel price from US$56 per barrel in Q1 2016 to US$67 per barrel in Q1 2017, and strong US dollar currency during the quarter,” AirAsia said.

During the quarter, group cost of available seat-kilometre (CASK) increased 14% to 13.61 sen while group ex-fuel CASK rose by 9% to 8.6 sen.

On its prospects, AirAsia said the group was projected to achieve an average forecast load factor of 91% in the second quarter of 2017 based on the existing forward booking trend.

The strong demand was expected to be spurred by the festive Hari Raya season, in conjunction with the midterm school holidays in India as well as the expanded Korean and China network from the Philippines.

To better serve the growing demand in the region, the group also plans to add 29 more planes through a combination of finance and operating lease in 2017.

“This will be one of the fastest pace of expansion in the last few years, made possible due to the favourable competitive and operating environment of aviation in Asia,” AirASia said.

“For the remaining quarters of 2017, we remain optimistic as we continue to observe strong demand across most sectors coupled with a favourable fuel price and foreign exchange environment.”