Profit at Malaysia’s AirAsia X fell sharply in the first quarter, with a weak ringgit and higher fuel costs overshadowing higher revenue at the long-haul budget airline.
AirAsia X’s fuel and aircraft operating lease expenses are denominated in US dollars, as is much of its debt.
Some analysts had forecast that AirAsia X’s headline earnings for the quarter could underperform largely due to a 122 million ringgit foreign exchange gain a year ago.
But the airline’s chief executive Kamarudin Meranun said in a statement that it was worth taking the short-term pain.
“We believe the short-term earnings pressure arising from weakening ringgit against the US dollar as well as newly introduced capacity will be well worth the long-term strategic value as yields will rise as this new capacity matures.”
The budget long haul airline said on Tuesday (23/05) that for the quarter ending in March, net profit was 10.3 million ringgit ($2.4 million), down 94.2 percent from 179.5 million ringgit a year ago. However, AirAsia X said revenue rose 22 percent to 1.2 billion ringgit.
“The relative weakness of the Malaysian ringgit remains a key concern as a large portion of the company’s borrowings and operating costs are denominated in US dollars,” AirAsia X said in a statement late Tuesday.
The airline noted that fuel prices have gone up from US$64 per barrel in the last quarter of 2016 to US$66 per barrel in the first quarter this year.
While competition is set to mount in 2017 with regional players expanding aggressively, analysts expect AirAsia X to be able to weather the pressure given its cost competitiveness. The company, which posted a record profit last year after two years in the red, remains upbeat about its booking trends.
AirAsia X carried 1.4 million passengers over the three months, 33 percent up from a year ago and ahead of a capacity increase of 28 percent, as travel demand to Malaysia remained firm given a cheap ringgit.
The airline has been adding capacity and is increasing frequency on other routes where demand is high to shore up its results. Just last week, parent company AirAsia Bhd signed a joint venture agreement with China to establish a low cost carrier.
AirAsia X’s load factor – a measure of how full planes are – edged up two percentage points to 84 percent from a year ago in the first quarter.
AirAsia X shares closed 0.94 percent higher at 0.535 ringgit.