AirAsia to freeze launches for next 3 years barring Vietnam
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Malaysian discount carrier AirAsia Group won’t open any new airline in the next three years and will focus on current operations after its proposed Vietnam launch, Group CEO Tony Fernandes said Wednesday. “After Vietnam, we will focus on what we have,” Fernandes said in a twitter post. “Focus this year is to make Indonesia and Philippines very profitable.” Fernandes said he is confident of India and Japan operations turning profitable in 2021, noting that the company’s strong franchise in Southeast Asian markets such as Indonesia, Malaysia, Thailand, Philippines and Vietnam will help fuel growth.
According to September data, AirAsia operated 127 planes flying to over 130 destinations. The Southeast Asia’s largest budget carrier by fleet has also placed orders for 100 Airbus A330neo wide-body jets for long-haul flights. The company most recently signed a pact “reaffirming” its intention to set up a low-cost carrier in Vietnam with its local partner Tran Trong Kien in his capacity as CEO of Thien Minh Travel Joint Stock Company and General Director of Hai Au Aviation Joint Stock Company.
Analysts doubt certainty of Indonesian and Philippines operations turning profitable this year as intense competition in both the markets amid highly-volatile fuel prices will continue to weigh on AirAsia’s operations. While Indonesia AirAsia could be slightly profitable in 2019 thanks to robust demand, the company’s Philippines unit will likely remain in the red, said Nomura analyst Ahmad Maghfur Usman. Fallout from a recent crash of Lion Air flight could help drive traffic to AirAsia Indonesia, he said. It is possible for AirAsia’s Indian operations to turn in a profit as early as next year although its business in Japan could remain in the red until the end of
2020, he said. Global airlines have grappled with fickle input costs in 2018 as crude oil swung between a gain of nearly 30% and loss of 23% before ending the year at $66.73 a barrel. Jet fuel price averaged $86.8 per barrel for 2018, according to the International Air Transport Association.
“Although profitability of Thailand, Philippines and Indonesia is a concern, it would not change valuation of the company significantly,”
Every one dollar increase in crude oil prices could potentially lower AirAsia’s profit by as much as 47.5 million ringgit, according to Nomura’s Ahmad’s estimates.
Fuel cost will largely determine whether Indonesia and Philippines operations would be profitable for AirAsia, said TA Securities research analyst Tan Kam Meng. Among the risks facing AirAsia is a rebound in crude oil prices to $70 a barrel, he flagged. Still, Malaysia remains key for AirAsia, said Tan. “Although profitability of Thailand, Philippines and Indonesia is a concern, it would not change valuation of the company significantly,” Tan said. Shares of AirAsia, which have added 6.94% over the past year, are currently trading 0.34% lower at 2.96 ringgit apiece.
Questions & Answers
Q.Which markets are predicted to become profitable in 2021 for AirAsia?
Which markets are predicted to become profitable in 2021 for AirAsia?
Tony Fernandes is confident that operations in India and Japan will become profitable in 2021. However, one analyst suggests India could profit next year, but Japan might remain in the red until the end of 2020.
Q.What specifically could impact AirAsia's profits by 47.5 million ringgit?
What specifically could impact AirAsia's profits by 47.5 million ringgit?
According to Nomura's estimates, every one dollar increase in crude oil prices could potentially lower AirAsia's profit by as much as 47.5 million ringgit.
Q.Who is AirAsia's local partner for the proposed low-cost carrier in Vietnam?
Who is AirAsia's local partner for the proposed low-cost carrier in Vietnam?
AirAsia's local partner in Vietnam is Tran Trong Kien, who is the CEO of Thien Minh Travel Joint Stock Company and General Director of Hai Au Aviation Joint Stock Company.
Q.Why do analysts doubt the profitability of Indonesian and Philippines operations this year?
Why do analysts doubt the profitability of Indonesian and Philippines operations this year?
Analysts doubt profitability due to intense competition in both markets and highly-volatile fuel prices. They predict Indonesia could be slightly profitable, but the Philippines unit will likely remain unprofitable.