Wednesday, 2 March 2016

Collapse In Oil Prices Encourages AirAsia To Expand Philippines And Vietnam

A collapse in oil prices offers AirAsia room to further expand in the Philippines and in Vietnam as Asia's largest budget carrier by fleet seeks to bolster its operations in the Southeast Asian market where it already dominates.

The proposed move, which was first reported by Reuters citing AirAsia group chief executive Tony Fernandes in the U.S., was confirmed by the company.

AirAsia, despite giving up some gains accruing from low-fuel costs to weaker currencies in some of its key markets, views the current environment "an opportunity to expand, to regrow, to put capital investment in."

Through the recent years, airlines across Asia have aggressively added capacities buoyed by hopes of brisk traffic growth on the back of fast expanding economies. But, in some markets passenger growth failed to keep pace with expectations and intense competition hurt aviation business.

AirAsia too slowed its pace of expansion in the past year as it awaited a rebound in demand for air travel in its key markets of Malaysia, Thailand and Indonesia. While Malaysia grappled with a plunge in ringgit's value last year, consumer sentiment shrivelled following the launch of so-called goods and services tax that crimped discretionary spending.

AirAsia reported a net loss of 405.73 million ringgit ($95.9 million) in the third quarter ended September 30, compared with net profit of 5.4 million ringgit during the same quarter a year earlier as borrowing costs swelled following the U.S. dollar's gain against the Malaysian ringgit.

The Malaysian ringgit shed more than 23% of its value against the greenback last year, making it Asia's worst performing currency.

However, the carrier's traffic load rose 12% annually in the final three months of 2015 - a usually busy season - and operations in India recorded rapid volume growth.

AirAsia's recent goal to expand in the Philippines and Vietnam would allow it to tap into a combined market of 200 million people, many of who are first-time fliers, analysts said.

Economies of these Southeast Asian nations are growing at a steady pace, which have helped raise income levels of tens of thousands of consumers who can now afford air travel.

MIDF Amanah Investment Bank analyst Tay Yow Ken said apart from demographics, a successful expansion would allow AirAsia to enlarge its network to connect Southeast Asia and cement its position in the region.

But Fernandes has cautioned that securing route approvals was a problem, and limited room for operations at Manila's Ninoy Aquino International Airport also weigh on the company's growth plan.

Although Clark International Airport offers a favourable alternative in the Philippines, a high-speed rail system linking it to Manila is essential to make the expansion work.

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