AirAsia

MAS should reconsider LCC strategy as losses continue while AirAsia reports more leading profits

Malaysian low-cost carrier AirAsia has reported another highly profitable quarter, including the highest operating margin among publicly traded Asian airlines (both LCCs and full service carriers) while restructuring flag carrier Malaysia Airlines (MAS) remains one of Asia’s most unprofitable carriers. The outlook for AirAsia Malaysia is bright, particularly if MAS fails to adjust its strategy following the unbundling earlier this month of the equity swap with AirAsia. The MAS outlook remains bleak as the group continues to push on with its new business plan, which focuses entirely on the challenging premium market just as nearly every other major airline group in Asia is investing significantly in the budget sector.

AirAsia Malaysia is the only publicly traded LCC in Southeast Asia to record an improvement in profitability for 1Q2012. The carrier reported a pre-tax net profit of MYR212 million (USD67 million), an improvement of 5%, while its after tax net profit improved by less than 1% to MYR172 million (USD54 million). Revenues at AirAsia Malaysia increased by 11% to MYR1.17 billion (USD371 million) as passenger traffic and seat capacity both increased by 12% to 4.8 million and 6.1 million, respectively.

Qantas may say Malaysia Airlines negotiations are over, but many more chapters still to be written

Qantas CEO Alan Joyce has announced the carrier has ended strategic negotiations with Malaysia Airlines (MAS) as the two were unable to reach mutually agreeable commercial terms. This is less an ultimate ending than a very public pause for an undoubtable further round of negotiations and follows MAS’ announcement that it was proceeding with its own premium airline.

Qantas had two primary strategic objectives. The first, a planned premium carrier to be based in Asia, was from the start high-profile but also faced large challenges to establish. The second, a general codeshare or further alliance to coincide with MAS joining Qantas in oneworld, was less high-profile but still strategically desirable, especially as MAS and Qantas' main local competitors, Virgin Australia and Singapore Airlines, have implemented their own tie-up.

Mr Joyce says Qantas will continue to explore joint-ventures and alliances while favouring "capital-light" options, as well as only making investments in sectors that return their cost of capital.

Singapore Changi’s decision to close budget terminal could backfire as need for third runway grows

Singapore Changi Airport has taken the unusual decision to demolish its relatively new low-cost carrier terminal and build a larger hybrid terminal in its place. The closure of Changi’s Budget Terminal in Sep-2012 will result in the airport’s total handling capability shrinking by 10% during what could prove to be a challenging four-year period before the new hybrid Terminal 4 opens. Singapore also faces a pressing need to decide on the opening of Changi’s third runway, which is now only available to military aircraft, if it wants to stay ahead of the growth curve. Growing LCC operations have seen aircraft movements grow higher than passenger numbers.

A third runway and even a fifth terminal will eventually be needed for Singapore to maintain its status as a leading hub. Singapore and Changi have always made the investments to ensure there is plenty of space for growth and first class facilities for passengers. But the highly profitable airport has come under scrutiny over the last year: first for its unusual decision to start charging a tax for transit passengers and now for its decision to close its Budget Terminal only six years after it opened.

Bullish AirAsia reports 2011 profit and accelerates expansion

AirAsia has posted another year of profits across all three of its short-haul operations as the group continues to outperform nearly every low-cost and full-service carrier in Southeast Asia. AirAsia Group’s outlook for 2012 is again bright despite high fuel prices and challenging economic conditions. With IPOs planned for its Indonesian and Thai affiliates plus the launch of two new affiliates in the Philippines and Japan, 2012 promises to be another big year for AirAsia. Another milestone will also be reached this year as the group’s all-Airbus A320 fleet surpasses 100 aircraft.

AirAsia Malaysia, Thai AirAsia and Indonesia AirAsia all ended 2011 in the black from both an operating and net perspective. The Malaysian carrier posted “core net income” of MYR881 million (USD291 million), an increase of 18% from 2010, as revenues increased 13% to MYR4.47 billion (USD1.48 billion). Thai AirAsia turned a core net profit of THB1.909 billion (USD623 million), an increase of 14%, as revenues surged 33% to THB15.87 billion (USD520 million). Indonesia AirAsia recorded a core net profit of IDR149.654 billion (USD17 million), which represented a 53% drop compared to 2010 as revenues soared by 34% to IDR3.705 trillion (USD411 million) (see Background information).

Jetstar Pacific to become Vietnam Airlines’ low-cost carrier in salutary move to both

The nascent and, at times, challenging Vietnamese market will undergo a positive structural shift following Vietnam Airlines taking over a majority 70% shareholding in Jetstar Pacific, the Qantas Group’s Ho Chi Minh-based low-cost subsidiary. Qantas at the same time is increasing its share in the carrier, which was previously majority owned by the Vietnamese State Capital Investment Corporation (SCIC), from 27% to 30%. Jetstar Pacific is expected to become Vietnam Airlines’ only LCC brand/subsidiary, replicating in Vietnam the Qantas-Jetstar dual brand strategy pioneered in Australia and the new dual brand strategy at Japan Airlines – which also has turned to Jetstar to launch an LCC brand/subsidiary.

Vietnam Airlines had been planning to launch its own LCC in 2014, but is now expected to instead piggyback on the established LCC Jetstar Pacific and be able to grow its presence in the budget sector in a faster time frame. The Qantas Group will contribute AUD7.5 million (USD8 million) as part of a wider AUD25 million (USD26.7 million) capital injection at Jetstar Pacific. The capital will be used in part to accelerate Jetstar Pacific’s long-delayed fleet renewal programme. The carrier's four remaining ageing Boeing 737-400s will finally be replaced with A320s this year and its A320 fleet, which now stands at only two aircraft, is expected to grow to 15 aircraft within the next few years.

Thai AirAsia aims to accelerate expansion following late March IPO

Thai AirAsia aims to complete an initial public offering (IPO) by the end of next month that should raise capital to help fund the next phase of its expansion programme. The Bangkok-based low-cost carrier is an affiliate of the AirAsia Group and expects to expand its fleet of Airbus A320s to 40 aircraft within five years, at which point it may look at adding widebody aircraft.

Thai AirAsia CEO Tassapon Bijleveld told CAPA at last week’s Low Cost Airlines World Asia Pacific conference in Singapore that the company is “about to file” with the Stock Exchange of Thailand its long-planned IPO. He says the filing, which would be submitted “very soon”, will lead to a 45-day quiet period which would culminate in the sale of shares. Mr Tassapon expects the IPO will be completed by the end of 1Q2012, which would require a filing in mid-February.