AirAsia X Sees Better 2016 After Oil, Ringgit Buoy Earnings

  • Swings to profit for second quarter on passenger demand
  • Fuel needs for rest of the year hedged at average $54 a barrel

AirAsia X Bhd., the long-haul arm of Southeast Asia’s biggest budget carrier, is optimistic about its 2016 earnings after swinging back to profit for a second straight quarter.

Better fares, a strengthening ringgit and lower fuel costs during the quarter helped boost earnings, Chief Executive Officer Benyamin Ismail said in a phone interview Tuesday. The Kuala Lumpur-based airline, which had reported eight consecutive quarters of losses before the turnaround, is counting on rising incomes in the region to spur air travel.

“We’ve spent quite a bit on branding and visibility in China and Australia,” Benyamin said. “Japan is our next target to build. It’s going to be a good year.”

Shares of the company founded Tony Fernandes have more than doubled this year, outperforming the Bloomberg Intelligence Airlines Valuation Peers index as analysts forecast strong passenger demand, higher yields and favorable fuel prices. The carrier is likely to report robust earnings probably in the current quarter as well, taking first-half earnings to a record high, Raymond Yap, an analyst at CIMB Group Holdings Ltd. wrote in a report earlier this month.

The airline on Tuesday reported a net income of 179.5 million ringgit ($44 million) for the three months through March, compared with a loss of 125.9 million ringgit a year ago. Revenue rose 25 percent to 970.7 million ringgit in the first quarter.

After the earnings, the stock was downgraded to neutral from buy at MIDF Amanah Investment Bank Bhd. on Wednesday. Most of the positives have been priced in, and investors should lock in the gains after the stock rally this year, MIDF analyst Tay Yow Ken, wrote in a research report.

AirAsia X shares fell 1.3 percent to 39.5 sen as of 11:11 a.m. in Kuala Lumpur.

The ringgit’s 10 percent gain against the dollar in the quarter, the best performance among the most traded currencies in Asia, helped boost earnings during the period. A 67 percent crash in the prices of Brent crude to an average of about $35 a barrel in the three months, from $108 two years earlier, also contributed to the earnings.

Passenger fares may remain at current levels or have the potential to rise, Benyamin said.

AirAsia X has hedged all of its remaining 2016 fuel needs at an average of $54 a barrel on planned existing routes, the company said. The carrier plans to increase its presence in China with new routes from Malaysia and Thailand this year, the company said.

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