AirAsia PH to be profitable in Q2 2015, think tank says

MANILA, Philippines – The Philippine unit of Asia’s biggest budget carrier AirAsia Berhad will likely mark its first profitable quarter this year, think tank Center for Asia-Pacific Aviation (CAPA) said on Thursday, May 7.

CAPA noted that AirAsia’s 2014 restructuring program helped the airline reduce operational costs and increase its revenue.

After AirAsia Berhad’s local unit incurred losses in its first 3 years, CAPA said it expects the company to be profitable in the second quarter of the year, as “costs have been reduced and unit revenues have improved through a combination of load factor and yield improvements.”

Last year, AirAsia Berhad restructured its Philippine operations, cutting overall capacity and reducing the size of its fleet.

AirAsia Berhad operates in the Philippines through Filipino-registered company AirAsia Incorporated, where it has a 40% stake. AirAsia Incorporated owns 49% of homegrown airline Zest Airways Incorporated – which goes by the brand AirAsia Zest – through an alliance signed in May 2013.

Philippine Congress approved on December 2, 2014, that significant stake in the airline formerly controlled by businessman Alfredo Yao, according to Zest Airways’ regulatory filing.

Corporate regulator Securities and Exchange Commission approved the company’s plan to gain the remaining 51%, said Josephine Joy Cañeba, Zest Airways president, in February.

CAPA said that AirAsia Berhad’s local unit “likely remained in the red in the first quarter of the year, but [is] expected to be profitable in the second quarter.”

“This would mark the first profitable quarter for AirAsia in the Philippines,” the international aviation think tank said in its report.

Target profitability in Q2

While a profit for AirAsia’s Philippine unit would be meaningful, the second quarter is “typically by far the strongest quarter in the Philippine market,” CAPA said.

Most of the profits generated by its rivals Cebu Pacific Air and Philippine Airlines, Incorporated in 2014 were booked during the second quarter, the CAPA report stated.

For the aviation think tank, “AirAsia will need to show its operation is profitable for the full year before any turnaround is deemed complete.”

“AirAsia still faces challenges in the Philippines market,” which it has to overcome for its local unit to “become profitable on a sustainable basis and for IPO (initial public offering) ambitions to become realistic,” CAPA said.

Its chief executive officer Anthony “Tony” Francis Fernandes in April announced via Twitter that the Philippine and Indonesian units of his airline group plan to go public in 2016.

“We can confirm today that AirAsia Indonesia and AirAsia Philippines will be IPO. Subject to respective board approvals,” Fernandes said via his Twitter handle @tonyfernandes.

“Business in both Philippines and Indonesia doing real well,” he said in his Twitter account.

In February, Fernandes said in a disclosure to Bursa Malaysia that the airline group’s capacity management strategy for 2015 would allow “operations in Indonesia and the Philippines execute turnaround plans.”

“As for PAA [Philippine unit], it is on a good recovery track especially since the move to Terminal 3, and the setting up of hubs in Cebu and Kalibo,” Fernandes was quoted in the corporate filing.

“We’ll also capitalize on the AirAsia brand and focus on bringing in more tourists and aligning strategy with the Visit Philippines 2015 campaign.”

According to a February 26 filing with Bursa Malaysia, its local unit registered a net loss of MYR19.3 million ($5.37 million) in the quarter ending December 2013.

However, Fernandes said the Philippine business “is turning around quite well as we are seeing increase in yield and losses narrowing quite substantially.”

AirAsia’s Philippine unit now services 9 domestic and 4 international routes from the Ninoy Aquino International Airport (NAIA) using a fleet of 13 Airbus aircraft.

It is, thus far, the Philippine carrier with most flights to and from Kalibo, the gateway to the popular resort island of Boracay.

Fernandes, who transformed a floundering carrier into Asia’s biggest budget airline, faced his first major crisis after an AirAsia plane went missing in 2014.

AirAsia Flight QZ8501 went down in stormy weather on December 28, 2014, killing all 162 people on board. Rescuers called off the hunt for the remaining passengers on March 17 this year – Rappler.com

US$1 = MYR3.59