South Korea

UPDATE 1-Malaysia AirAsia profits hit by rising fuel costs

* Higher fuel prices, dollar offset better operating results

* Passengers up 6%, load factor up 4 percentage points

* Aircraft lease unit sold ‘soon’ (adds comment, details on results)

KUALA LUMPUR, May 25 (Reuters) – Malaysian low-cost carrier AirAsia Bhd reported a 30 percent drop in its quarterly net profit as higher fuel bills overshadowed higher passenger numbers and improved load factors.

Asia’s largest budget carrier is expanding and expects double-digit fleet growth this year to meet growing demand for cheap travel in Asia.

Net profit for the first quarter ended March 30 fell year-on-year to 615.8 million ringgit ($144 million), while revenue rose 31 percent to 2.2 billion ringgit.

From January to March, AirAsia carried 9.15 million passengers, an increase of 6% year-on-year, and seat capacity increased by 1%. The airline’s reported load factor — a measure of how full planes are — was 89% during the period, 4 percentage points higher than a year ago.

The airline said in a statement on Thursday that despite the revenue growth, the drop in net operating profit was largely due to average fuel prices rising about 20% to $67 a barrel in the quarter from $56 a barrel a year ago. Profits in the quarter were also hit by a strong dollar.

In addition, total staff costs increased by RM76.8 million compared to a year ago due to the introduction of a revised staff compensation package in 4Q16.

Group chief executive Tony Fernandez said the group’s plans to sell non-core assets were on track.

“We are currently in final negotiations and will soon realize the sale of our leasing arm, Asia Aviation Capital,” he said.

Reuters reported in March that a little-known South Korean group had been picked as the preferred bidder for a deal valuing the leasing unit at $900 million.

Fernandez said AirAsia’s plans to go public in the Philippines and Indonesia, as well as its training center, the AirAsia Center of Excellence, are still ongoing.

Last month, AirAsia announced plans to launch a low-cost carrier in China, a move that comes months after AirAsia signed an agreement to form a joint venture in Vietnam.

Affin Hwang Capital Research said in a report last week that the LCC “should be a long-term positive for AirAsia, although the upfront costs and gestation period may weigh on near-term earnings”.

Net profit at AirAsia’s long-haul budget subsidiary AirAsia X fell 94% in the January-March period, despite a 22% rise in revenue.

AirAsia shares rose 6.5% to RM3.13 on Thursday. ($1 = RM4.2770) (Reporting by Liz Lee; Editing by Alexander Smith)

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