High cost of fuel doesn't deter Air Asia

High cost of fuel doesn't deter Air Asia

Sky-rocketing fuel prices are not bothering budget airline AirAsia who announced earlier this week that they could maintain profits even if fuel hit US$200 a barrel.

Chief Executive Tony Fernandes at a two-day global economic forum said AirAsia hasn't planned to raise fares or its fuel surcharges, but will concentrate on expanding their regional route network and onflight sales and seek lower airport charges to increase revenue.

"We are comfortable even with oil at US$200 (a barrel). There is a silver lining. We have taken a very different approach in that we will market ourselves out of this problem." He added, "We think that just putting your head in the sand and crying about oil and cutting routes is not the solution." Fernandes compared the spikes in oil prices to the 2003 SARS epidemic which was "a lot worse" and AirAsia could use the consolidation of the airline industry to its advantage.

"The silver lining is that everyone is going to be in a lot of pain. There will be more rational competition...there will be less people wanting to open a budget airline now." Although he admitted that if oil prices did hit the US$200 mark, AirAsia fares would have to be revised. Other carriers have already struggled under the price of US$130 a barrel, resulting in capacity and employee cuts.

AirAsia is planning to launch four more new routes over the next two months as well as expand the food menu by 12 items and sell more in-flight products and services to relieve pressure from fuel prices."We are going to sell more things, more duty free (products). We will sell washing machines if we have to. There are many things we haven't done. In a crisis like this, you become more innovative," he said.

When the region's fourth busiest Kuala Lumpur-Singapore route starts operating fully in January AirAsia will reap even more benefits, according to The Associated Press. There was an 86 percent jumped reported by AirAsia in the first quarter's net proftit, compared to the same period last year. High passenger demand and large foreign exchange gains brought the sum to 162 million ringgit (US$50 million).

Fernandes said that it would not hedge fuels any further after the April-June proposal that will save the airline US$10 million in cost savings for the quarter. "Only a lunatic will hedge fuel — it's too volatile. We will just have to ride it until there is some stability," he said. "You have to build a business that is sustainable at whatever price and the only way... is to have topline growth and good growth."

Source: www.etravelblackboardasia.com [3]