AirAsia eyes sharp growth

business February 28, 2017 01:00

By  THE STAR
ASIA NEWS NETWORK
PETALING JAYA, MALAYSIA

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AIRASIA GROUP says it will push for higher passenger loads while keeping a tight lid on costs to sustain earnings this year and mitigate the effects from rising oil prices and volatility in currencies.



Chief executive officer Tony Fernandes said he was forecasting 10-per-cent revenue growth this year after a similar jump to 6.9 billion ringgit (Bt54 billion) last year.

“Our strategy of investing in technology three years ago will give us a huge advantage in the next five years, and it will be a big help in reducing costs and growing revenue.

“We think we are finally moving towards our ancillary income target of 60 ringgit per person this year. 

“Ancillary continues to be an engine of growth and revenue will grow this year,’’ he said.

AirAsia, which recorded 2.03 billion ringgit in net profit last year, is seeing forward loads this quarter at 89 per cent. 

Last year, passenger loads rose 10 percentage points to 86 per cent and the group flew 56.5 million passengers.

In its presentation to analysts last week, AirAsia said it was targeting ancillary income of 60 ringgit next year after reporting 50 ringgit last year, but Fernandes wants to achieve 60 ringgit this year.

“We see big areas of growth, led by the boom in data. We will be able to offer more personalised and more conversion on our websites, leading to more sales.

“Our mobile strategy is for AirAsia to be the first choice of travel to buy products led by ease and lowest fares, more so with our express pay, which is equivalent to amazon one click,” he said.

AirAsia said at least 70 per cent of its sales came directly via airasia.com. 

There was more room for growth in the conversion rate, which is now at 5 per cent. A single percentage-point increase translates to additional sales of 1 billion ringgit.

“Indonesia and the Philippines are new engines of growth. Asean inter-travel is booming as long as costs are low,” he said. 

With the rising demand for air travel, “I had to use other airlines in the last few weeks, as I could not get into our own flights. That has happened the first time to me since the past 16 years.”

For the past two years, AirAsia reported 2 billion ringgit in net profit, largely from higher sales, lower fuel cost and with its rivals, mainly Malaysia Airlines, still in recovery mode. 

But analysts have said the playing field will get tougher this year, something that Fernandes is not overly concerned about.

CIMB Research, in a note, said Malindo Air’s remarkable capacity expansion last year and planned growth this year meant AirAsia would face more competition this year. 

AirAsia is also planning to expand capacity by eight aircraft this year, after shrinking the fleet last year.

It added that with the weaker ringgit and higher oil price, it expected AirAsia’s core earnings per share for financial 2017 to fall by 52 per cent.

“The group plans to increase available seat kilometres by 10 per cent. It is willing to sacrifice yields to maintain loads, which suggests a potential decline in revenue available seat kilometre,” Morgan Stanley Research said in a report.

“Fuel costs should remain stable, with 75 per cent of fuel requirements hedged at US$60 per jet barrel. We expect 2017 operating margins to remain healthy at 23 per cent.” 

To Fernandes, his biggest challenge is to get regulators to understand the difficulties that airlines face in growing markets.

“What we have been doing for 16 years shows us that we are competitive, in fact we are durable to competition. 

“There has been competition for 16 years but we have continually grown margins and profits and our main secret is low cost, great people and huge networks. We made money when oil was at $140 a barrel.