AirAsia to maintain growth plans despite spike in fuel price


Posted at Jun 16 2008 12:02 AM | Updated as of Jun 16 2008 08:02 AM

AirAsia, the region's largest low-cost carrier, said Sunday that despite surging fuel prices it will not scale back growth plans and will press ahead with an ambitious route expansion program.

AirAsia's chief executive officer Tony Fernandes said the budget airline will bank on fuel efficiency of newly bought aircrafts to keep costs down.

Air Asia is one of the budget airlines that operate in Clark Airbase in Pampanga. It has daily 11:45am flights to Kuala Lumpur and daily 4:45pm flights to Kota Kinabalu.

"We will continue to put on new routes. As long as we can make a profit from our operations, we will not hold back our growth plans," Fernandes told AFP.

"I am taking a contrarian view. There is a limit to how much I can cut costs. If I cut my routes, where is my growth going to come from? In our case, we still can make money from our routes," he said.

Airlines worldwide including Virgin Blue, Qantas Airways and US Airways have cut back their growth plans and axed loss-making routes to weather spiralling fuel prices.

AirAsia recently launched three new routes--one to Kuantan in central Pahang state, Malaysia and to Haikou (China) and to Hong Kong.

"By year-end we will fly to south India, new destinations in India and mount more flights to Singapore," the aviation tycoon said.

Fernandes also said the carrier's new A320 Airbus jets were more efficient.
"Our operational costs has come down due to the Airbus's better fuel burn," he said.

The Kuala Lumpur-based carrier's fuel cost represents 50 percent of total operational costs.

Fernandes said the carrier has frozen the hiring of new staff who are not related to fleet growth, but that it would not reschedule the delivery of the A320 Airbus aircraft.

The carrier has to date received about 67 A320s and is phasing out its old Boeing 737s. It has agreed to buy a total of 175 aircraft. Each A320 aircraft carries a catalogue price of 60 million dollars.

Fernandes remained upbeat about the carrier's performance amid economic uncertainties due to escalating food and fuel prices worldwide.

"We are seeing a slight increase in passenger volume. Our business is still good. I expect our revenue to be better than budgeted in 2008," he said.

In May, AirAsia said its net profits defied escalating fuel prices to leap 86 percent in the first quarter.

Profits rose to 161.3 million ringgit (50 million dollars) in the three months to March, from 86.9 million ringgit in the same period a year ago, on revenue growth of 31.8 percent to 535 million ringgit.

"The airline industry is presently facing one of the toughest challenges, with record jet fuel prices, tightening of the credit market and slower world economic growth," Fernandes said at the time.

"The escalating and volatile fuel price remains the principal challenge for the industry in 2008," he said.

The firm, which launched as a budget carrier in December 2001 with just two aircraft, has become a significant player in the industry.

It is now Southeast Asia's biggest low-cost carrier in terms of fleet size and derives much of its business within Malaysia. Aside from Clark in the Philippines, it also operates in Singapore, Thailand, Indonesia, and China.