Posted on: 26 February 2016 by Mark Howells
AirAsia has reported fourth quarter 2015 (4Q15) revenue of RM2.17 billion, up 47% from the revenue reported in the same quarter last year.
The strong revenue recorded was on the back of a 10% year-on-year (YoY) growth in the number of passengers carried at 6.47 million which was ahead of the 1% capacity growth, allowing the company to record a high load factor of 85%, YoY growth of 7 percentage points (pp).
In 4Q15, AirAsia recorded strong operating profit of RM800.69 million (up 276% YoY) and net operating profit of RM694.33 million (up 620% YoY). During the quarter, the company posted revenue per available seat kilometre (RASK) of 22.29 sen (up 40% YoY). RASK held up positively despite the company’s decision to remove its fuel surcharge on 26 January 2015 and passing on the benefit of lower fuel price to consumers.
The average fare also witnessed an increase to RM177 (up 4% YoY) on the back of demand. Excluding fuel surcharge, RASK for 4Q15 would have been up further at 59% YoY while average fare would have been up by around 26% YoY. Meanwhile, 4Q15 profit after tax was a record breaking RM554.20 million (up 229% YoY).
AirAsia Berhad CEO, Aireen Omar commented, “It was a very good quarter indeed for the Malaysian operations. The increase in RASK (including and excluding fuel surcharge) proved that lower fares stimulate the market as seen by the significant increase in the number of passengers that travelled with AirAsia who also received a windfall due to the removal of fuel surcharge.
“Meanwhile, ancillary revenue as a whole has increased by 14% YoY with the highest contributor coming from baggage (43% of total ancillary revenue) followed by cargo (10% of total ancillary revenue) and insurance (7% of total ancillary revenue),” Omar added. “The highest growth seen among our ancillary products are AirAsia Insure (up 43% YoY) and connecting fees for our ‘Flythru’ service (up 56% YoY). These led to the company recording an ancillary income per pax of RM49 this quarter (up 4%), close to our near term target of RM50.”
The company’s cost per available seat kilometre (CASK) was reported at 14.06 sen, up by 4% YoY. The slight increase in CASK was due to an additional 16 sale and leaseback aircraft undertaken throughout 2015 which led to an increase in aircraft operating lease expenses of 148% YoY.
Meanwhile, maintenance and overhaul expenses increased by 53% YoY. As expected, the company was a big beneficiary of lower fuel prices. The decline in overall fuel expense by 15% YoY was on the back of 21% lower average fuel price at $75 per barrel as compared to $95 during the same period last year. This was despite the 7% increase in fuel consumption due to the increased number of flights and longer average stage length.
Segment reporting of associates has been included in AirAsia’s quarterly Bursa Announcement, identified by each Air Operating Certificate (AOC) held within the AirAsia Group and are categorised as Malaysia, Thailand, Indonesia, Philippines, India and Japan.
The Group posted 4Q15 revenue of RM3.38 billion while operating profit for the Group was recorded at RM805.54 million and net operating profit for 4Q15 was RM675.90 million. The Group’s profit before taxation for the quarter under review was RM332.44 million.
For the next quarter onwards, the company plans to disclose year-to-date segment reporting in addition to the current quarterly segment reporting in the notes section of the Bursa Announcement.
Thai AirAsia (TAA) posted revenue of THB7.68 billion in 4Q15, a decrease of 3% from the same period last year while operating profit decreased by 32% YoY to THB585.19 million. This led TAA to post a profit after tax of THB542.96 million (down 32% YoY) in 4Q15.
AirAsia Group CEO, Tony Fernandes commented on TAA’s performance. “During the quarter, TAA recorded 17% YoY increase in passenger numbers with load factor increasing by 3 pp to 82%. Revenue was slightly down YoY due to the drop in international passengers impacted by the explosion at the Ratchaprasong intersection on top of the bad haze situation in Southern Thailand. This led to a 12% decrease in RASK at THB1.59. Meanwhile, CASK reduced by 8% YoY to THB1.47 due to 21% drop in fuel expenses.
“Besides the impact of the depreciation in Baht, the increase in other costs such as maintenance and user charges are expected from a fast growing airline like TAA due to the increased number of flights and aircraft in operation,” Fernandes added.
Indonesia AirAsia (IAA) recorded revenue of IDR1.10 trillion in 4Q15, down 37% YoY which is in-line with the planned 34% decrease in capacity that led to the 33% decrease in the number of passengers carried. The load factor in general was recorded at a healthy level of 80%.
During 4Q15, IAA recorded an operating loss of IDR41.87 billion which led to a loss after tax of IDR1.09 trillion, mainly due to a foreign exchange loss on weaker Rupiah YoY. “IAA’s turnaround plan is showing good signs especially on the cost side,” noted Fernandes. “Costs decreased 35% from a year ago mainly on lower fuel cost, aircraft lease rentals, maintenance and staff cost. The underlying strategy behind the turnaround plan in Indonesia is to remove in total seven aircraft from IAA’s fleet size and redeploy them to the other associates which need the aircraft more.
“In 4Q15, three additional aircraft managed to be redeployed to MAA and AAI. To date, four aircraft have been redeployed and taken out of IAA’s fleet and the benefits of this can be seen in the quarter under review where aircraft operating lease expense has reduced by 36% and maintenance and overhaul cost have decreased by 26%,” Fernandes remarked.
Philippines’ AirAsia (PAA) posted a 51% increase in revenue at PHP2.29 billion and strong growth in the number of passenger (up 47% YoY). Capacity grew by 30% that has led to a 9 pp increase in load factor. In addition to the 47% increase in ticket revenue, total ancillary revenue also experienced a 1% growth while cargo increased by 13%. This led to a double digit growth of 21% in RASK at PHP2.01. CASK decreased by 25% to PHP2.11 on the back of lower aircraft related costs.
Further guided by the management’s turnaround plan, operating losses reduced to PHP110.64 million. “The cost reduction and refleeting exercise has enabled us to successfully almost break even this quarter. As a result operating losses came in 90% lower than the previous year and PAA experienced profitability in November and December while still posting a loss in 4Q15,” Fernandes commented. “Operational improvement has significantly lowered total losses which came in at PHP118.8 million or 91% lower than losses in 4Q2014.”
AirAsia India (AAI) recorded a 232% increase in revenue at INR2.08 billion and strong capacity growth of 133% YoY. Meanwhile, the average fare increased steadily by 12% to INR3,626 while ancillary revenue per passenger grew by 133% to INR492.
“Our operations in India are geared to grow further after a year in service as we believe our low fares and excellent product appeals to travellers in India who remain underserved by air travel,” Fernandes reported. “The load factor improved to 84% amid heightened competition by other players while total passengers carried increased 134% YoY to 0.51 million passengers carried.” During the quarter, AAI posted an operating loss of INR256.57 million.
Commenting on the Group’s outlook, Fernandes said, “In Malaysia, we are benefitting from the weaker currency environment that has led to local consumers trading down when going on their travel and other nationalities looking at Malaysia as a value for money holiday destination. Regional destinations are also more appealing as compared to higher currency destinations such as Europe and North America.
“Meanwhile, we will continue to introduce new routes that primarily connect secondary airports across our vast network. Through our newly launched hub in Langkawi, we intend to introduce more ‘unique routes’ which no other airlines fly and to improve connectivity across the region, giving travellers greater options,” he continued. “Adding on, demand from Chinese travellers has remained resilient and with the visa waiver initiative for Chinese nationals intending to visit Malaysia throughout 2016, this will significantly boost arrivals in the coming quarters. Similarly, fuel trended lower in the quarter which undoubtedly remains favourable for all airlines. We saw a great end to 2015 with record profitability and look to 2016 with a positive light.”
Adding on the outlook of cost environment, Fernandes said, “As seen in 4Q15, we are the beneficiary of the low fuel price. As of now, the Group has hedged 52% of its fuel requirement for 2016 at an average cost of $59 per barrel on jet kerosene. Passing on this benefit to our passengers through the removal of the fuel surcharge earlier last year proved to be rewarding with demand increasing by double digits in 4Q15.”
On the associates’ operations, Fernandes highlighted, “Our Thai operation continues to deliver results within expectations and is expected to sustain this strong growth as political stability has brought about the return of international travellers and reinvigorated the tourism industry. We will continue to see strong growth and numbers coming from TAA which is performing ahead of the industry and will sustain its leadership in the market.”
Commenting on Indonesia, Fernandes stressed, “IAA will continue to right-size its fleet and network to minimise operational losses and stabilise the business, including the closure of underperforming hubs. The load factor is on target for January and has surpassed expectations in February. We are on track to reach a load factor of 77% in the first quarter of the year and forecasting to sustain above 80% for the second quarter.
“Meanwhile, in the Philippines, we are proud to have turnaround our operations in this quarter and achieved figures close to breakeven. Looking forward, we anticipate a similar trend with revenue improvement of 25%-30% projected for 1Q16 versus 1Q15,” Fernandes continued. “In addition, our forecast shows a high load factor in the current quarter, which coupled with low oil prices, is expected to allow us to continue achieving breakeven or even profitability in our Philippines’ operations in the coming months. We will be disciplined and continue with our planned retirement of two remaining inefficient aircraft in 1Q16 as well as matching capacity growth with demand while pushing forward with our plans to market the Philippines as an untapped tourist destination with great potential as part of the governments campaign to ‘Visit the Philippines Again 2016’.”
On India and Japan, Fernandes added, “AAI will witness a new phase of growth. The associate will work towards keeping its cost under check, with increased focus on ancillary revenue. On top of these, we look forward to the re-launch of AirAsia Japan (AAJ) which has obtained its AOC and will officially re-commence operation by the first half of 2016. Japan will contribute significantly to our existing extensive network across Asia and will further cement AirAsia as the biggest low cost carrier in Asia.”