KOMPAS.com - Rising fuel prices and increasing regional competition aren't stopping the ambitious expansion plans of Malaysia's AirAsia Bhd., Southeast Asia's biggest budget carrier in fleet size, said the company's chief executive, Tony Fernandes.
The carrier plans to raise money in the Indonesian and Thai stock markets soon and create new hubs in countries including the Philippines, Vietnam and Singapore. In the next month it is considering a big order of new planes that could put it on the path to more than triple its fleet to as many as 500 planes within the next 10 years, he said. That would make it one of the largest budget carriers in the world.
“We are in a nice little playground of Southeast Asia, China and India,“ Fernandes told the Wall Street Journal in a telephone interview Wednesday. “We created the (budget airline) business model here.“
Fernandes's plans in what has been tough times for many airlines illustrates the optimism that there is still an untapped pool of millions of cost-conscious consumers in Asia who are waiting for more cheap flights to land at airports near them.
Also on Wednesday, Singapore Airlines Ltd. said it will establish a no-frills low fare airline catering to budget-conscious travelers on longer distance routes. The proposed new airline, which will use wide-body aircraft to fly medium and long-haul routes, will be wholly owned by Singapore Airlines but will be operated independently and managed separately from SIA, the carrier said in a statement to the Singapore Exchange. The new carrier is expected to start operations within a year, it said.
The new carrier will likely compete with Jetstar Airways, the low-cost unit of Australia's Qantas Airways Ltd., and AirAsiaX, the longer-haul unit of AirAsia Bhd., for routes beyond the reach of traditional low-cost airlines that don't fly for more than five hours.
On Tuesday, AirAsia said its net profit fell 23% in the first quarter to 172 million ringgit ($56.3 million) as it was hurt by rising fuel and staff costs. Its revenue increased 20% to MYR1.05 billion from MYR870.6 million a year earlier. It carried 4.32 million passengers during the quarter, up from 3.69 million a year earlier.
The airline is doing better than the slide in profits suggested, analysts said, as its profit a year ago was inflated due to a one-time gain from foreign exchange movements. Once the company's foreign exchange gains and derivative trading are stripped out, its core profits climbed more than 70% during the quarter, said John Rachmat, a Singapore-based aviation analyst for The Royal Bank of Scotland Asia Securities. The company held up its profit by raising its prices.
“AirAsia is one of the rare airlines that are capable of raising their average selling price and grow sales volume at the same time,“ Rachmat said. Fernandes said that while higher fuel prices squeeze profits for airlines, they can actually help the strongest budget carriers in the long run.
“Oil affects everybody,“ often hurting the big legacy airlines more than the budget airlines, he said. “Whenever oil (prices rise) we become stronger because those others are weaker.“
To provide more capital for expansion, the company's joint ventures in Indonesia and Thailand aim to list their shares “we hope this year,“ Fernandes said. It also plans to expand its network to Philippines and Vietnam. It will start flying out of Clarke International Airport in the Philippines, also known as Diosdado Macapagal International Airport, in December, he said. He would not say when operations in Vietnam might start.
To send more flights to more destinations the airline, which currently has about 100 planes and 75 on order, may be announcing a new large order of Airbus airplanes soon, he said. “Things are coming to a head and we should be making an announcement one way or another within the next month.“
While other low-cost carriers, including Indonesia's Lion Air and Cebu Pacific in the Philippines, are also raising money and expanding in the region, there is enough business out there for multiple players, Fernandes said.
“In Asia if you add all the low-cost carriers together, it may be only 250 aircraft,“ which is small compared with the U.S. and Europe, he said. Meanwhile demand could eventually be higher here, he said, because “we have something called the sea in between most countries. You can't drive and you can't take a train like in Europe and the U.S.“
