AirAsia reports discouraging results as it exits India; will Singapore-KL travel lane improve its outlook?

By Lee Kah Whye
Singapore, November 29 : Last week, AirAsia reported a disappointing set of results for the quarter which ended September 30. Consolidated Group revenue for the third quarter of 2021 was down 37 per cent compared with the same quarter last year at MYR 296 million (USD 70 million).
Net loss for the financial period was MYR 1,110 million (USD 262 million) which is a touch higher than the loss of MYR 1,084 million it suffered for the same period last year.
AirAsia said that "travel demand was constrained by limited available flights caused by the lockdown imposed in Malaysia, since January 2021" was the reason for the poor business performance.
The results came in just after media reports started circulating that AirAsia was giving up its remaining 16.33 per cent stake in AirAsia India through the exercise of a call option by its joint venture partner Tata Sons. Last December, the Tata group had just increased its stake in AirAsia India from 51 per cent to 83.67 per cent at a cost of USD 37.68 million.
On a positive note, the carrier managed to narrow losses at the operating level by 22 per cent from MYR 1,162 million last year to MYR 899 million for the same period this year.
EBITDA (earnings before interest, tax, depreciation and amortisation) loss for the quarter was also reduced by 38 per cent to MYR 281 million. Cumulative losses for the one-year period ending September 2021 came in at MYR 2,406 million compared with MYR 3,206 million last year.
This was mainly attributed to tightening costs throughout the Group. Fixed costs were successfully reduced by 23 per cent year-on-year, due to lower staff costs and a decrease in other operating expenses.
The Consolidated Group ended the quarter with an improved cash position of MYR 401 million due to cash proceeds from the Fly Leasing divestment, funds from the convertible loan note into BigPay (AirAsia's e-wallet) and tight ongoing control of costs. Net operating cash flow burn was lower year-on-year, averaging MYR 68 million per month in Q32021.
The bright spot in AirAsia's Q3 results report is that the growth in its non-aviation business.
Digital businesses reported stronger revenue, up 141 per cent to MYR 178 million from MYR 73.5 million a year ago led by contributions from Teleport, driven by strategic growth in its cargo network. Teleport is AirAsia air freight and logistics solutions arm.
The AirAsia Super App reported seven per cent year-on-year revenue growth, attributed to new product offerings and commissions. BigPay posted significant growth in revenue, up 26 per cent year-on-year powered by payments and remittances.
Other measures taken by the carrier to mitigate the dramatic business slow-down due to the pandemic include active capacity management and concentration on flying the most profitable routes as well as lease restructuring, asset optimisation, and targeted cost control.
In addition, the absence of any fuel swap loss, resulted in a 65 per cent reduction in aviation operating expenses year-on-year. However, there was a foreign exchange loss of MYR 217 million in the current reporting quarter compared with a foreign exchange gain of MYR 44 million in Q3 2020.
The outstanding performer in Q3 among its AirAsia branded entities was AirAsia Philippines. It posted a 167 per cent growth in the number of passengers carried year-on-year and a five per cent increase quarter-on-quarter. Load factor was a healthy 77 per cent, which the company attributed to active capacity management.
Going forward, AirAsia is optimistic that travel demand will gradually recover as domestic travel as well as international travel picks up with vaccination rates around the region rising.
In Malaysia, it carried twice the number of passengers in September compared with August resulting in a 13-percentage point improvement in load factor, mainly due to the opening of the Langkawi travel bubble from September 16. It has also seen an improvement in general bookings in October and expect that the upcoming year-end holiday season will further spur air travel demand.
"Aside from Malaysia, recent positive developments for air travel across Thailand, Indonesia and the Philippines have contributed to a significant increase in seats sold for immediate and near-term travel, in line with our expectation of stronger bookings for spontaneous travel due to pent-up demand," said Group CEO of AirAsia Aviation, Bo Lingam. "We expect to see a continuation of this upward trend throughout 4Q and well into 2022 as global travel restrictions continue to ease. Our aim is to fly 60 per cent of our pre-Covid domestic flight capacity by December 2021."
Another encouraging development is the Singapore-Malaysia vaccinated travel lane (VTL) announced by both countries' governments earlier in November. AirAsia is one of six airlines allowed to fly between Singapore Changi Airport and Kuala Lumpur International Airport (KLIA) starting November 29. The other airlines are Jetstar Asia, Malaysia Airlines, Malindo Air, Scoot and Singapore Airlines.
At launch, there will be six daily designated VTL services between Changi Airport and KLIA.
Pre-COVID, the 296 km Singapore-KL route was named by airline industry consultancy OAG as the world's busiest international air link. Eight carriers operated on the route with an average of 82 flights per day.
Singapore and Malaysia which were once part of the same country, enjoy very close people to people ties with many families on both sides of the border. There are also many related businesses and business links in both countries. Re-opening borders will allow families to reunite and facilitate economic activity.
Last Friday, Singapore added another six countries to its VTL scheme. These are Cambodia, Fiji, Maldives, Sri Lanka, Thailand, and Turkey. This brings to 27 the total number of countries which it is opening its borders to vaccinated travellers. Pre-COVID, these 27 countries contributed to about 60 per cent of the total daily arrivals at Changi.
AirAsia Aviation CEO Lingam added, "We look forward to kick-starting our Kuala Lumpur-Singapore flights at the end of this month and we are hopeful of the establishment of similar initiatives in other key markets in the near future."