In the past few days the media, both in Malaysia and abroad, was full of reports that AirAsia X, the longhaul budget arm of AirAsia, is facing financial constraints and having problems paying salaries and allowances, in addition to an imminent management shakeup.
Tony Fernandes: Confident AirAsia X will fly back to profitability by full financial year 2015. (Image credit: AirAsia)
In response AirAsia group chief executive officer, Tan Sri Tony Fernandes, rubbished these reports, labelling them as “irresponsible, speculative and wrong”.
He also dismissed talks of a management shakeup in the carrier, reaffirming chief executive officer Azran Osman-Rani would continue with his existing management team. But he and Datuk Kamarudin Meranun, AirAsia executive chairman, would be lending an “added hand”.
The faltering carrier will be “re-strategising” for 2015 to get back to a strong financial standing in the face of a net loss of RM210.95 million (US$63 million) for the third quarter ended 30 September 2014, compared with a net profit of RM26.44 million a year ago. It added the steep loss was impacted by higher operating expenses, which rose by 43.1%.
For the first nine months of the year, the airline posted a net loss of RM350.92 million from a net profit of RM44.34 million in the same period in 2013.
This was despite a higher revenue of RM698.8 million for 3Q14, 16.2% year-on-year growth from RM601.5 million, and revenue of RM2.1 billion for the first nine months, 30.2% y-o-y growth during the same period under review.
AirAsia X CEO Azran said the airline would enter into a “consolidation phase” next year, where no new aircraft capacity would to be allocated to core routes in Malaysia’s network.
Azran Osman-Rani: AirAsia X will enter into a “consolidation phase” next year.
“In light of the changing market landscape in Malaysia, where travel demand has softened and the industry capacity is moderating, we see less need to continue expansion in our core Malaysian route network in 2015,” he added.
Capacity allocation in 2015 will see a drop in the number of flights to Australia, while North Asia and other regions will see an increase in number of flights, but no specifics were given.
The airline will also slow its aircraft deliveries and allocate the majority of its new planes to its budget associates in Indonesia and Thailand.
“A majority of the six aircraft deliveries will be allocated to associates in Thailand and Indonesia, which are generating positive cash flow and have more growth upside,” revealed Azran.
AirAsia X listed the following fleet changes to slow down aircraft capacity growth:
- 2015: From a planned delivery of 8 aircraft, reduce to 6 with two planned outright sale.
- 2016: From a planned delivery of 8 aircraft, reduce to 4, with deferrals to NEO models from 2018 onward
- 2017: From a planned delivery of 8 aircraft, reduce to 5, with deferrals to NEO models from 2018 onwards
Apart from the deferment of new plane deliveries, the airline is also looking at greater operational consolidation of several departments between AirAsia and AirAsia X where there is not a need for additional staff.
Despite the poor Q3 performance, group chief Fernandes said there were signs of AirAsia X’s flight yield improving, and was confident the airline would fly back to profitability in the full financial year 2015 ending December 31, helped by the fall in global oil prices and rebound in travel demand from countries like China.
Added Azran: “Oil price declines since the current quarter will be a big advantage, as every US$10/barrel drop in fuel price will give us a savings of about RM120 million in 2015.”
AirAsia X reports a steep net loss of RM210.95 million (US$63 million) for 3Q14. (Image credit: AirAsia X)
To further maintain its “financial integrity” the airline has implemented a number of key initiatives to deliver positive cash growth in 2014, and strengthen its liquidity position and balance sheet.
One of these initiatives is the sale-and-lease back of two A330-300 aircraft from its operating fleet, currently on its balance sheet on a finance lease to AirCastle Limited. This will see the early retirement of RM420 million of debt, and generate net proceeds of approximately RM150 million from the sale. The two aircraft will remain part of AirAsia X’s operating fleet.
Additionally, there is another series of aircraft and engine related transactions currently being finalised this quarter that will have a similar positive cash accretion. This includes expected cash gains from net proceeds of sale-and-leaseback of two additional new aircraft next week and another in mid-December. On top of this, the company has also raised RM84 million through its recent schedule extension sale.
“These various cash raising initiatives, together with any additional increases in working capital and debt facilities that will be raised on the back of these additional cash injection, will increase the company’s cash position in the current quarter, and put the company on track to complete the full year with positive free cash flow,” said Azran.
In the current competitive aviation industry, AirAsia X may not be the only airline facing some cash flow crunch. As Fernandes noted, the entire aviation industry was affected adversely from the twin disasters of the disappearance of Malaysia Airlines flights MH370 and the downing of MH17 this year.
He reiterated that the future of AirAsia X lies in its own hand. “It’s for us to fix, to sort out, and I’m saying today, we can do it.”
