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Author: Tan KW   |   Latest post: Fri, 23 Aug 2019, 6:48 PM


AirAsia reacts to current volatile market, aims to mitigate earnings pressure

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SEPANG: AirAsia Group Bhd will continue to lease its aircraft fleet and put more emphasis on its digital and ancillary businesses in its aim to achieve its focus on being an 'asset-light' business model.

Founder and group chief executive officer Tan Sri Tony Fernandes said the low-cost carrier had made a change in its aircraft orders from CEO (classic engine options) to NEO (new engine options).


To note, NEO incorporates Airbus’ Sharklet wingtip devices and two new engine choices.


It delivers per seat fuel improvements of 20 per cent by 2020, while offering additional range of up to 500 nautical miles/900 km or two tonnes of extra payload.


Typically, airline’s aircraft orders would largely depend on its network expansion and cost-saving (fuel-efficient model), with the intention of fully utilising its fleet for longer range.


"We are asset-light airline at the moment, but that doesn’t mean we are going to do that forever. I hope in years to come, our digital and ancillary businesses would contribute 70 per cent and 30 per cent of our earnings,” he told New Straits Times on the sidelines of the launching ceremony of Malaysia’s first plane spotter in Sepang, today.


According to news report, AirAsia was said to be shifting from its traditional model of owning an aircraft to become an asset-light airline.


The airline also had plans to fully transform its new business model by disposing its aircraft to reduce its financial liabilities.


Fernandes said the airline had previously bought many plane because it was much cheaper than leasing.


“But now we are an asset-light, only because the market makes it feasible to lease cheaper than owning plane. We have ‘virtually’ disposed all of our aircraft, except for Thailand,” he added.


On a broader aspect, Fernandes said if the US Federal Reserve interest rate to get cut (which might be), the rate will become cheaper for airlines to buy plane.


However, Fernandes said disposing AirAsia’s aircraft would be a good way of getting rid of residual risk.


“We sold it (aircraft) at a very high price in the market, then paid dividends to our shareholders,” he said, adding that it was a very neat solution.


Fernandes reckoned although the airline is an asset-light now but that does not mean AirAsia will be an asset-light forever.


“If interest rate change, then we will start buying aircraft again,” he said adding that the volatile global market and fluctuations in foreign exchange and fuel prices would also impact the airline's operations.


Fernandes said the airline’s ambitious target of achieving about 70 per cent earnings contribution from its digital business would become clearer in the next six months.


“We are making good progress on our digital business. People think that we are becoming an asset-light airline because we are going to become a digital company. However, that is not the case!”




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