AirAsia Remains Confident Despite 60% Drop In Q2 Net Profit

Photo: Lauren Fievet / AFP

Earlier this week shares in AirAsia fell by 1% on the release of disappointing Q2 net returns, with a 60% drop in net profit compared to Q2 2016.

This result was mainly due to higher operating costs, predominantly 60% higher staff costs and 82% higher aircraft fuel expenses.

Despite this result, the Kuala Lumpur-based Malaysian low-cost carrier remains confident, with revenue over the April-to-June period increasing 47% year-on-year to MYR2.38 billion. Net operating profit (after taking into account net finance costs) rose 59% year-on-year on a pro-forma basis in 2Q17 despite fuel prices rising this year.

AirAsia’s net profit shrank 53% year-on-year on a pro-forma basis predominantly because of the M$212m deferred tax charge booked by Indonesia AirAsia after it participated in the Indonesia Tax Amnesty Program which was a one-off.

Excluding this adjustment, net profit rose 18% year-on-year to MYR 352m on a pro-forma basis and core profit margin fell 3ppts year-on-year to 15% in 2Q17 despite fuel costs rising 30% year on year.

Corrine Png, an analyst at Crucial Perspective, has indicated that the decline in net profit masks the marked improvement in its core operating profit.

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She also says the proposed reorganization of the company is a positive step forward:

“The proposed internal reorganization of AirAsia Group, with one holding company directly controlling the 6 airlines (AirAsia Malaysia, Thailand, Indonesia, Philippines, Japan and India) in operation (and possibly another 2 in Vietnam and China) plus the related businesses will help streamline and centralize the business functions and potentially optimize aircraft utilization. Management expects to reap cost savings of US$45m by the end of 2018.” (US$1.00 = MYR4,27 at time of publication.)