AirAsia Reports Q1 Net Loss of RM 953 Million

The AirAsia Group, which includes Malaysia, Indonesia and Philippines, posted Q1 2020 revenue of RM2.3 billion, down 15% from RM2.7 billion in Q1 2019.

Despite kickstarting the year with a strong performance in January 2020, the uncertainty of the ongoing global COVID19 pandemic as well as increasing travel restrictions and border controls in regards to COVID19 has led to weaker air travel demand in February and March.

The reduction in Available Seat Kilometre (ASK) by 19% was primarily due to proactive capacity management to mitigate the impact. Q1 2020 ancillary revenue also decreased by 16% year-on-year to RM556 million, dragged by airline ancillary which declined 28% mainly due to removal of processing fees and 22% less passengers carried. Non-airline ancillary revenue grew 27% y-o-y.

The group posted a breakeven in Q1 2020 EBITDA in comparison to EBITDA of RM565 million in Q1 2019, as EBITDA losses incurred in MAA and IAA was cushioned by PAA’s positive EBITDA for the quarter. Teleport’s EBITDA grew 22% to RM63 million in Q1 2020.

The net loss for the period was RM953 million (approximately US$ 222.6 million), compared to RM102 million in profit in the previous corresponding quarter. The loss was attributed to a shortfall in revenue amidst impacted travel demand, higher maintenance and overhaul costs by 54% due to the accounting impact from the change in aircraft ownership (MFRS137), loss on settlement from fuel hedging amounting to RM110 million and fair value loss on derivatives of RM270 million.

Operating & Market Share Performance

RASK for the group increased by 2% to 15.33 sen in Q1 2020, attributed to a better pricing strategy adopted since Q4 2019. Load factor was within expectations at 77%. In terms of domestic market dominance, AirAsia Philippines grew the most by 4 percentage points to 22% in Q1 2020. AirAsia Indonesia and AirAsia India also gained market share by 2 ppts each to 4% and 8% respectively.

Cost Performance

Cost per Available Seat Kilometre (CASK) including fuel increased by 36% to 19.81 sen in Q1 2020. Maintenance and overhaul costs increased by 54% y-o-y due to the accounting impact from the change in aircraft ownership. Loss on settlement from fuel hedging amounted to RM110 million in the quarter. CASK excluding fuel increased by 51%.

Bo Lingam, President (Airlines) of AirAsia Group Berhad, said, “Our market position remained strong in Q1 2020 despite the challenges faced. We are pleased to see domestic market share gain in three of our Air Operator Certificates (AOC), the highest being AirAsia Philippines which was up 4 ppts. Malaysia remains our strongest domestic market at 61% market share. AirAsia Malaysia’s RASK grew 2% attributed to improved pricing strategy, while AirAsia Indonesia’s RASK increased by 3%. Though AirAsia Philippines saw a dip in passengers carried by 9%, load factor remained healthy at 84%.

“For each of our operating markets, we have restarted operations in phases and are focusing domestically for now, before opening up to ASEAN and then the rest of Asia when border restrictions are lifted. We continuously engage with stakeholders especially local governments and airports, among others, on collective efforts in reviving air travel.

“Since beginning domestic operations in late April, we are encouraged by the increase in load factors week by week. Competition has also remained rational. We are aiming to increase our flight frequencies to around 50% of our pre-COVID19 operations and we look forward to resuming all domestic routes in the coming weeks and months to cater to the increasing demand. Currently, we are operating 365 daily flights across the region. We look forward to the reopening of international borders in recognition of the fact that air transport provides the connectivity that is essential for the resumption of economic activities.”

DIGITAL

On the digital platforms’ performance and outlook, Aireen Omar, President (RedBeat Ventures) of AirAsia Group Berhad, said, “Q1 2020 demonstrated positive growth performance in our digital businesses. Our logistics arm, Teleport, recorded a higher revenue y-o-y by 49% to RM150 million. During the quarter, Teleport has successfully completed its cargo consolidation across our ASEAN AOCs. Our fintech arm, BigPay reported 161% growth in revenue in Q1 2020, gaining further traction with the expansion of remittance corridors to include India, Bangladesh and Nepal. Australia is the latest addition in June, making up nine countries currently available for international bank transfer.

“Latest in the portfolio is OURFARM, which is a new business-to-business (B2B) e-commerce platform to digitalise and transform the agribusiness supply chain by directly connecting agriculture producers and businesses such as hotels and restaurants and boosting their profit through the elimination of middlemen costs. OURFARM covers the end-to-end process from sourcing to delivery, leveraging on our logistics network and airline connectivity. We have already received orders on OURFARM since our launch in June 2020.

“We also launched a complete food ordering solution called OURFOOD. OURFOOD is perfect for food and beverage (F&B) businesses (Partner Outlets) that take orders directly on WhatsApp, Facebook and Instagram. Partner Outlets only need to share a customised menu link to their customers to check out for a pre-order or to receive the food delivery instantly. In return, customers can easily pay, check out and track their food order status in real-time with just a single link.”

AirAsia.com

On AirAsia.com performance, AirAsia.com CEO, Karen Chan, said, “We are positive over AirAsia.com’s Q1 2020 revenue which was up 118%. As flights are resumed, we are rolling out new offers and promotions in stages to further stimulate demand, focusing on domestic at this point. We received overwhelming response for our recent innovative product, AirAsia Unlimited Pass for AirAsia X, domestic Malaysia and domestic Thailand. We will be rolling this out in other markets soon.

“We remain focused on our vision to evolve AirAsia.com into a travel and lifestyle platform and competing with existing online travel agents. We made our breakthrough in December 2019 by expanding to include non-AirAsia flights on our website, as well as rolling out AirAsia Deals, which is essentially everyday lifestyle deals from haircuts to F&B, to encourage consumers to actively engage with our platform. We continue to analyse trends in consumers’ appetite and preferences while ramping up our existing product offerings. At the same time, we are working tirelessly to introduce more exciting products, promotions and collaborations in the near future.”

GROUP OUTLOOK

Tan Sri Tony Fernandes, AirAsia Group Berhad CEO, said, “This is by far the toughest challenge we have faced since we began in 2001. Every crisis is an obstacle to overcome, and we have restructured the group into a leaner and tighter ship. We are positive in the strides we have made in bringing cash expenses down by at least 50% this year, and this will make us even stronger as the leading low-cost carrier in the region.

“On the airline operations, we are encouraged by the strong rebound demand seen since resuming operations in late April 2020 and we foresee this will continue in the coming months. Our innovative product, the AirAsia Unlimited Pass, sold out quickly. Competition is pricing rationally. This bodes well for us to compete in the post-COVID19 world.

“Our past sale and leaseback deals serve to be beneficial in the current situation, as leasing provides us the flexibility and room for renegotiating contracts with our supportive lessors and suppliers. To ensure sufficient working capital during these challenging times, we have sought payment deferrals from our suppliers and lenders. We have also restructured a major portion of the fuel hedges with our supportive counterparties and are still in the process of restructuring the remaining exposure. This will help deal with the excess of hedged volume against expected fuel consumption post-COVID19 and reduce the hedging losses if fuel price remains at today’s prices. Further measures in managing and containing cost include both the management and senior employees of AirAsia Group volunteering a salary sacrifice, re-negotiating contracts and deferring all non-essential expenditures.

“We have applied for bank loans in our operating countries to shore up our liquidity. We have also been presented with proposals to raise capital to strengthen our equity base and/or liquidity from a number of investment bankers, lenders as well as potential investors to help the Company weather the storm caused by the COVID19 pandemic. In addition, AirAsia has ongoing deliberations with a number of parties for joint-ventures and collaborations that may result in additional investments in specific segments of the group's business.

“With the group reorganisation completed in 2019 into two pillars, the group continues to push further to enhance the AirAsia way of life ecosystem. Other than the airline group of companies, AirAsia Group has a strong and growing digital pillar which brings together all our digital businesses under RedBeat Ventures (RBV). RBV is positioned to be an Asean triple play business covering e-commerce, logistics and finance, leveraging our extensive reach on AirAsia.com and its low customer acquisition cost.”

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