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Asia300

AirAsia has put itself on a new trajectory

An AirAsia plane at Senai International Airport in Malaysia in March 2015 (Photo by Keiichiro Asahara)

KUALA LUMPUR -- More than 14 months after flight 8501 crashed into the Java Sea, AirAsia shares are showing signs of bottoming out, largely due to strategic changes that began in 2015.

     On Feb. 29, one day after the budget carrier announced it had returned to the black for the fourth quarter of 2015, the company's shares opened 5% higher at 1.46 ringgit ($0.35).

     Net profit reached 554 million ringgit for the period, a reversal from the 428 million ringgit net loss of a year earlier. For the full year, net profit swelled 558% to 5.4 billion ringgit on revenue of 6.29 billion ringgit, up 16%.

     AirAsia shares closed at 1.73 ringgit on Friday, 2.3 times higher than their August low. At the time, a Hong Kong-based research firm was accusing the airline of irregular accounting practices. AirAsia denied the accusation.

     Although shares remain far below the 2.90 ringgit they were fetching before the crash, their current trajectory shows that investors are returning to what is the region's largest budget airline by number of planes.

     Analysts are also on board. On Feb. 29, AllianceDBS Research raised AirAsia to a "buy" rating.

     Maybank Research, meanwhile, says AirAsia's strong performance, especially in the final quarter, may be an "inflection point" for the group. Its analyst pointed out "momentum should build going forward," thanks to today's low jet fuel costs. The agency is maintaining its current "buy" rating on the group.

     AirAsia hedges its fuel costs and will pay $59 per barrel for 52% of the fuel it expects to burn in 2016, down from last year's $75.

     As for those strategic changes, AirAsia's Indonesian business in the fourth quarter cut the number of flights by 34% from a year earlier. In addition, the carrier had 142 planes for its three core markets of Malaysia, Thailand and Indonesia at the end of 2015, a reduction of nine from 12 months before.

     Despite downsizing, the group in 2015 carried 50.7 million passengers, 11% more than in 2014.

     "I am not going to go crazy on capacity," Tony Fernandes, the group's chief executive told the Nikkei Asian Review on Friday during a rare interview in Singapore.

     Fernandes has shied away from reporters since the flight 8501 disaster.

     AirAsia was also more efficient in 2015. Its seats flown improved 9% during the year, almost at par with the preceding year and inline with Southeast Asia's budget airline industry. The increase, however, was far below the 26% growth recorded in 2013.

     Fernandes said he deliberately kept this gauge from a higher reading "because there is a lot of uncertainty in" the region.

     The number of budget airlines and flights above Asia has spiked in recent years, saturating the market. Fernandes chose to cut back.

     "With [the] LCC penetration rate on short-haul routes within the region already approaching 60%, the market overall is now relatively mature," the Centre for Aviation, an Australia-based research firm, said in a recent report, using the industry acronym for low-cost carrier.

     Last year, CAPA continued, the region's budget airline penetration rate dipped for the first time.

Second phase

Still, the cost-conscious Fernandes wants to further expand.

     On Jan. 23, AirAsia's inaugural flight from Wuhan, in the central Chinese province of Hubei, landed in Kota Kinabalu, in the Malaysian state of Sabah. Despite an arrival time in the wee hours, the flight was nearly full.

     The Wuhan-Kota Kinabalu flight is part of AirAsia's expansion into second-tier cities that began in the final quarter of last year. It is a departure from AirAsia's earlier phase of expansion, before the tragic crash on Dec. 28, 2014, that claimed the lives of 162 passengers and crew flying from from Surabaya, in the Indonesian state of East Java, to Singapore.

     AirAsia first took to the skies in 2001 with two planes. Its fleet now counts 170 aircraft. AirAsia's existing flights are typically less than five hours. Once a plane lands, it has little turnaround time before it's back in the air. The airline has also been using the hub-and-spoke model.

     Its new strategy prioritizes linking smaller cities in countries such as Indonesia, Malaysia and Thailand to one another.

     In the first quarter of 2016, the carrier plans to begin three more of these routes. There will be flights between:

  • Guangzhou, in China's Guangdong Province, and Langkawi, in Malaysia's Kedah state;
  • Shantou, Guangdong, and Kuala Lumpur;
  • Yangon, Myanmar, and Penang, Malaysia.

     More routes and destinations are expected. "India is a big priority for me," Fernandes said when the NAR caught up with him in Singapore. "So are Indonesia, the Philippines and, obviously, Japan." He also reiterated the importance of maintaining "careful capacity management" while AirAsia adjusts to the industry's new environment.

     The chief executive was in Singapore to give a talk organized by the Nanyang Business School.

     Last month, Fernandes received a business award in San Francisco for his "extraordinary contribution" to relationship between the U.S. and Southeast Asia's 10-member political bloc. There, he called for governments to adopt global aviation standards.

     "We will continue to lobby and spearhead ASEAN integration, especially but not limited to the aviation, travel and tourism industries," he said in a speech at the ceremony, referring to the Association of Southeast Asian Nations.

AirAsia Group CEO Tony Fernandes attends a press conference at Juanda International Airport in Surabaya on Dec. 29, 2014. (Photo by Keiichiro Asahara)

     Meanwhile, he is also giving the demanding Northeast Asian market another go by relaunching AirAsia Japan, which had been a joint venture with All Nippon Airways until it was terminated in 2013.

     "We had a very good board meeting [on Thursday]," Fernandes said, adding that an AirAsia Japan CEO has been appointed and that operations will begin by June. The airline has already obtained its Air Operator's Certificate.

     When asked about the outlook for this year, Fernandes said he is "feeling better." His airline will continue with nearly the same capacity as last year.

     Plus, the tragedy of 2014 is further in the past. The number of negative news reports have dwindled. And the airline expects its first Airbus A320neo -- a wider, lighter aircraft that burns less fuel -- in October.

     "In 2017, Fernandes said, "we will grow again."

Staff writer Mayuko Tani in Singapore contributed to this article.

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