AirAsia Group sees 3Q18 operating profit halve on higher fuel costs

• Posts 3Q18 revenue of RM2.61 billion, up 7% year-on-year from RM2.45 billion
• Declares an special dividend of 40 sen a share to be paid on Dec 28, 2018

AIRASIA Group Bhd on Nov 29 reported its results for the quarter ended Sept 30, 2018 (3Q18).

The Consolidated Group posted third quarter 2018 revenue of RM2.61 billion, up 7% year-on-year from RM2.45 billion in the same quarter in 2017. Revenue growth was supported by a healthy load factor of 82% and 9% increase in passengers carried recording 10.8 million pax as compared to the same quarter last year.

Its operating profit came in at RM253 million (US$60.5 million), compared with RM494 million a year earlier.

Its net profit for the quarter, however, soared 81.2% to RM915.87 million (US$219 million), from RM505.32 million a year ago largely on a one-off gain from the sale of a business and reversal of deferred tax liabilities.

Operating cash flow for the quarter under review was at RM1.63 billion, while net cash flow was reported at RM2.57 billion resulting from the proceeds of the aircraft disposal transaction.

AirAsia Group Bhd refers to the consolidated groups: Malaysia, Indonesia and Philippine units. PT Indonesia AirAsia and AirAsia Inc. Group of Companies (Philippines) results were consolidated with AirAsia Bhd for financial reporting purposes in accordance to MFRS 10 since Jan 1, 2017.

Revenue and financial performance

Revenue per Available Seat Kilometre (Rask) for the consolidated units of Malaysia, Indonesia and Philippines recorded at 14.70 sen in 3Q18 unchanged year-on-year as a result of 10% increase in ASK. Average fare per passenger was up by 3% recording RM177 and a load factor of 82% respectively.

AirAsia Thailand posted 3Q18 revenue of THB8.94 billion, down 2% from THB8.75 billion in the same quarter last year, on the back of 8% increase in ASK and 4% increase in passengers carried to 5.11 million pax.

The associate company of the group reported a slight decrease in average fare of 3% to THB1,420 year-on-year as a result of tighter competition and a slowdown in Chinese tourists due to China’s overall economic sentiment coupled with the Phuket ferry incident.

Seat load factor was recorded at 81%. Net operating loss was reported at THB826.7 million which led to a net loss after tax of THB655.7 million, resulted from higher fuel costs in relation to the spike in global oil prices.

AirAsia India recorded a 16% increase in revenue to INR4.58 billion in 3Q18 from INR3.95 billion in the same quarter last year.

India has reported a net operating loss of INR2.91 billion as a result of 61% increase in ASK to fulfill domestic demands as well as in accordance with our plan to start flying Indian passengers internationally to the group’s Asean destinations.

Rask was recorded at INR203.46 while fares were down by 15% to INR2,574 as compared to the same period in 2017.

Cost performance

For the Consolidated Group, overall costs were higher largely due to the impact of higher fuel prices as compared to last year this time.

The group’s airline-related costs were well contained as a result of high aircraft utilisation, active management on route rationalisation despite higher fuel and overall operating expenses.

Cost per Available Seat Kilometre (CASK) including fuel increased by 12% year-on-year to 14.30 sen in 3Q18, largely contributed by a 50% increase in average fuel price to US$95/barrel jet kerosene as compared to US$63/barrel this time last year, as well as higher aircraft operating lease expenses which was offset by a much lower aircraft depreciation during the said quarter.

CASK ex-fuel dropped by 2% year-on-year to 8.11 sen in 3Q18 as a result of tighter operating costs control across all AOCs.

CASK ex-fuel was well maintained, partially as a result of the strengthening of ringgit against the greenback by 3.7% from US$/RM4.26 in 3Q17 to US$/RM4.10 in 3Q18.

AirAsia Thailand reported a 9% increase in CASK while CASK ex-fuel improved by 4% from 3.06 US cents in 3Q17 to 2.95 US cents in 3Q18, partly due to the strengthening of the Thai Baht against US$ by 1.5% year-on-year as well as a reduction in headcount for none airline related operations.

AirAsia India also reported a slight increase in CASK by 13% due to higher operating lease expenses and aircraft fuel expenses as a result of the rapid capacity addition, whilst CASK ex-fuel improved by 5% from 2.63 US cents the same quarter last year to 2.50 US cents this quarter.

On the financial results for 3Q18, AirAsia Group CEO Tony Fernandes said: “Overall, third quarter was a leaner quarter, hence a seasonally less travelled period. As a whole, our operating profit was largely impacted by the rising global fuel prices and hence overall fuel related costs have risen.

“Malaysia recorded a commendable net operating profit of RM240.4 million despite higher fuel related costs. Philippines, Indonesia & Thailand on the other hand recorded net operating losses of PHP1.49 billion, IDR153.6 billion and THB826.7 million resulting from the closure of Boracay Island, a chain of natural disasters and fare compression in the respective markets.

“For the Consolidated Group, we managed to produce a set of positive financial results this quarter, recording a 7% increase in revenue to RM2.6 billion. We added an ASK of 10% for the three consolidated AOCs in order to serve the Asean air travel demand in 3Q18 as compared to 3Q17. We recorded a load of 82% as we grew our passenger traffic by 9% for the Consolidated Group year-on-year to 10.80 million pax and ended the quarter with 127 aircraft.

“CASK was well maintained group wide for all short-haul AOCs as a result of overall tightening of operations and increase in efficiency under our One AirAsia initiative, despite the 50% increase in average fuel price and the weakening of Asean currencies against the US dollar as compared to this time last year.

On the Group’s outlook, Fernandes said: “Going into the fourth quarter of 2018, the operating environment is seen to have improved as compared to the third quarter, coupled by the year-end holiday season being around the corner, the group load factor is holding strong.

“Our domestic market share for Malaysia is now at 58% while all the other countries have also grown domestically except for Indonesia, which remained at 2%. The overall average fares have also gone up year-on-year.

“The higher fuel cost is not within our control, however AirAsia will remain cost discipline in all areas by reducing none airline operating staff headcounts, increasing overall efficiency and remain nimble in order to maintain healthy profit margins.

“For the full year, we are on track to achieve a group load factor target of 85%. We will continue to emphasise our One AirAsia initiatives to further reduce costs, while improving the overall operational efficiencies and actively monitor each route’s profitability. Our daily aircraft utilisation is already at 13-hours a day. We want to further improve the turnaround time and overall performance by each affiliate.

“As for fuel, we will benefit in the month of December 2018 from the recent fuel prices that have come off. We are watching the fuel prices closely to increase our fuel hedge for 2019 and 2020. We have already hedged 48% for Brent at US$67.24 bbl for 1Q19 and 27% for 2Q19 at US$65.40 bbl in order to better manage the volatility of fuel prices.

“On returning value to our shareholders, we have received US$1.08 billion for the aircraft and engine deal under Asia Aviation Capital Limited (AAC) and we are pleased to announce a special dividend of 40 sen per share to be paid to the shareholders on Dec 28, 2018.”