AirAsia Zest sets aside Europe plans, focuses on profitability

MANILA, Philippines – The Philippine affiliate of Southeast Asia’s biggest budget carrier AirAsia Berhad will set aside plans of flying to Europe as it focuses on being profitable this year.

On June 25, the aviation safety regulator of the 28-member European Union bloc lifted a 5-year ban on all Philippine airlines, including AirAsia Zest. This order allows them to fly into European airspace.

AirAsia Zest Chief Executive Officer (CEO) Joy Caneba said last week that offering flights to Europe is “not in [her airline’s] immediate plans but “is definitely something we’re on the lookout for.”

Caneba, however, said that the lifting of the ban would likely increase tourist arrivals from Europe.

Profitability before Europe

The local unit of AirAsia Berhad will focus on making a profit this year in preparation of its planned initial public offering (IPO) in 2018.

“I’m proud to say that for first half, we have achieved our load factor targets, and revenue so far is really okay. From an operations level, the growth is of course an improvement,” Caneba said, although she declined to disclose actual figures.

“What we’re trying to do now is actually float either by IPO or by bond issuance, and maybe the local stockholders would also be interested to put additional capital,” she added.

“It could be that we would have a bond issuance prior to the IPO or just an IPO – I still need to meet with the stockholders and see,” Caneba said.

Details of AirAsia Zest’s fund-raising activities have yet to be finalized, but its public debut is targeted to yield $200 million, with a public float between 20% and 30%, Caneba said.

The proceeds of the IPO will be used for working capital and expansion of the AirAsia Zest’s route network.

Turnaround plan

For its Philippine unit, the AirAsia Group CEO Anthony “Tony” Francis Fernandes said its “turnaround story is developing quite well as we see positive growth coming from the associate, especially with the 11% points improvement to its load factor at 77%.”

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.

Corporate regulator Securities and Exchange Commission approved the company’s plan to gain the remaining 51%.

Formerly known as ZestAir, the homegrown airline has been rebranded in 2013 as AirAsia Zest to reflect its partnership with AirAsia, Incorporated.

The Philippine unit recorded a net loss of 25.7 million Malaysian ringgit in the quarter ended March 2015, its Malaysian-based parent said in its latest financial report to Bursa Malaysia.

Since she assumed as CEO in 2010, Caneba has started implementing “a turnaround plan,” which includes improving the balance sheet, removing past liabilities, and “having a profit at the end of the year.” 

The growth drivers for the airline include an increase in local travel among the Filipinos because of the low fares it is offering; a lot of DOT (Department of Tourism) efforts to drive the market and increase tourist arrivals into the Philippines; and the increase in purchasing power of the Filipinos that is comparable to those in the neighboring countries. – Rappler.com