AirAsia Can Stay Profitable Even If Oil Hits $200

Malaysia: Budget Airline AirAsia Can Stay Profitable Even If Oil Hits $200 A Barrel, CEO Says

16 June, 2008

KUALA LUMPUR, MALAYSIA: AirAsia, the region's biggest budget airline, can remain profitable even if world oil prices hit US$200 a barrel, Chief Executive Tony Fernandes said Monday (16 June), allaying concerns that it may be hit by rising fuel costs.

AirAsia has no plans now to raise fares or fuel surcharge, but it will stick with plans to grow its regional route network, expand onflight sales to boost income and seek lower charges from airports, he said.

"We are comfortable even with oil at US$200 (a barrel). There is a silver lining. We have taken a very different approach in that we will market ourselves out of this problem," Fernandes told reporters on the sidelines of a two-day global economic forum.

"We think that just putting your head in the sand and crying about oil and cutting routes is not the solution."

After surviving the 2003 SARS epidemic, which he described as "a lot worse" that the current oil crisis, Fernandes said AirAsia can benefit from a consolidation in the airline industry.

"The silver lining is that everyone is going to be in a lot of pain. There will be more rational competition...there will be less people wanting to open a budget airline now," he said.

He acknowledged, however that AirAsia may have to revise fares if oil prices breach US$200 a barrel.

Airlines have been struggling to contain costs this year as oil prices stay above US$130 a barrel. Scores of startup carriers have gone out of business and several major carriers have raised fuel surcharges, cut capacity and deferred plane orders or shed jobs.

Fernandes said AirAsia will launch four more new routes over the next two months.

To ease the fuel price burden, he said the company will expand its food menu and sell more in-flight products and services to its 22 million annual passengers.

"You can use your mobile phones on the plane soon, send SMS," he said.

"We are going to sell more things, more duty free (products). We will sell washing machines if we have to. There are many things we haven't done. In a crisis like this, you become more innovative," Fernandes said.

AirAsia will also benefit once the lucrative Kuala Lumpur-Singapore route, the fourth-busiest route in the region, is fully liberalized in January, he said. The carrier now only has limited flights on the route, which is dominated by national carriers Malaysia Airlines and Singapore Airline.

AirAsia reported an 86 percent jump in its January-March net profit from a year ago to 162 million ringgit (US$50 million), buoyed by higher passenger demand and large foreign exchange gains.

It said it has hedged part of its fuel requirement for April-June, which will lead to US$10 million in cost savings for the quarter. But Fernandes ruled out plans to further hedge the company's fuel requirement.

"Only a lunatic will hedge fuel _ it's too volatile. We will just have to ride it until there is some stability," he said. "You have to build a business that is sustainable at whatever price and the only way... is to have topline growth and good growth." (By EILEEN NG/ AP)