Airasia euphoria next week ?

AirAsia Bhd, which expects to release its best ever quarterly results for the three months to Dec 31, 2006, is reaping the benefits of the strengthening ringgit and lower world oil prices, its chief executive officer Datuk Tony Fernandes said.

He said the two primary factors had resulted in tremendous cost savings as the low cost carrier was mainly a "US dollar-based business."

“There are two major things going in favour of AirAsia: one is oil, the other is the ringgit, which has had a phenomenal appreciation," he told reporters after AirAsia’s AGM in Sepang on Dec 28.

Fernandes said many industry analysts had failed to pick up on the fact that the ringgit had appreciated 6% to 7%.

"About 70% of our cost is in US dollars and 6% to 7% makes a huge impact to our bottom line.

"We also never hedged our currencies because we felt the ringgit would strengthen and we are now benefiting from a stronger ringgit,” he said.

"We pay for our oil and planes in US dollars,” he said, adding that AirAsia had hedged almost 100% of its fuel requirements for the rest of the financial year ending June 30, 2007.

Nonetheless, he did not expect fuel to be a problem. “We believe fuel will oscillate between US$55 and US$65 and, no matter what OPEC is doing, oil is going down," he added.

On its current performance, Fernandes said AirAsia was "excited" about its performance in terms of passenger numbers for the first half of the current financial year.

"This will translate to the bottom line. It is our best ever quarter and I want to stress that this is the first quarter that AirAsia has operated really on a level playing field.

“The performance will be a mark of what investors should expect going forward. It’s the first true reflection of the company. Our load factors have never been so high and it bodes well for the future,” he said.

To a question on whether AirAsia would face falling revenue per passenger, Fernandes said its business model depended more on passenger traffic rather than yield, which was the focus of the premium airlines.

He said AirAsia's strategy for next year would be to focus on consolidation rather than expansion, particularly on improving its services, driving down costs and increasing flight frequencies.

“Now it’s to build frequency and focus on airport costs,” he said in reference to AirAsia's request to Malaysia Airports Holdings Bhd to lower airport charges for the low cost carrier vis-a-vis the premium carriers.

“We don’t think the security charge should be the same for different terminals. There’s a lot more X-ray machines in the main terminal than there are in the low cost terminal.

“We encourage differentiated pricing. You don’t pay Mandarin Oriental rates for a three-star hotel,” he added.

On the government's plan to allow other low cost carriers to fly to the country, Fernandes welcomed competition. “We don’t believe in protection. We welcome more and more low cost carriers to come.”

He believed that KL International Airport could play an important role in making Malaysia a regional low cost carrier hub.

“On the premium side, Changi has won and Bangkok is strong but in low cost travel, KLIA is the biggest by far.

"We have the potential to carry 40 million passengers (per year) at the low cost carrier terminal), which is 10 times to 20 times bigger than the Budget Terminal in Singapore," he said.

Meanwhile, Bloomberg reported that AirAsia Bhd said flight bookings through the Internet slowed on Wednesday after earthquakes off Taiwan damaged undersea cables and disrupted Internet services in Asia.

AirAsia isn't expecting any "major impact'' on sales, the carrier, said in a statement. The carrier increased the number of call centers to help facilitate bookings, Fernandes said.

"While our Internet booking have gone down, our call centres are up,'' Fernandes told Bloomberg in a telephone interview yesterday. "Surprisingly, it has no impact on the total bookings.''

About 65% of bookings are normally made through the Internet, the carrier said.

Malaysian Airline System Bhd and SilkAir, the regional unit of Singapore Airlines Ltd, also faced similar disruptions to their online services, the companies said in separate e-mail statements.

"We are experiencing a temporary slowdown and intermittent disruptions to online services on our Web site,'' SilkAir said.

"We are working with our technical vendors to mitigate impact, for example, minimising site congestion by boosting our connection bandwidth.''