With barely two aircraft and RM40 million debt on its balance sheet — that was how AirAsia Bhd co-founders Tan Sri Tony Fernandes and Datuk Kamarudin Meranun started Asia’s first low-cost carrier, facing off against well-established national airlines with stronger financial resources and bigger fleets.
Were you among the sceptics who thought the fledgling airline would not survive for five years or even three? If you said, yes, you were probably in the majority.
You can be forgiven for your scepticism, considering there were no no-frills airlines in this part of the world in 2001. Malaysians just couldn’t imagine that people would want to fly with AirAsia when you had to purchase meals and drinks on board, unlike the free flow of coke or pineapple juice passengers on full-service airlines enjoyed.
However, the low fares proved irresistible — and that remains the case until now. Jaws dropped when fares as low as 99 sen were announced for flights from Kuala Lumpur to Penang.
Fast forward to 2017, and AirAsia has not only survived but is now the largest airline in Asean in terms of the number of passengers carried, and one of the biggest in Asia.
Over the years, the airline has spread its wings to other countries, setting up PT AirAsia Indonesia, AirAsia (India) Ltd, Air Asia Philippines Inc, Thai AirAsia Co Ltd, and AirAsia Japan Co Ltd with local partners. Its sister company, AirAsia X Bhd, focuses on long-haul flights.
The low-cost carrier now brings in the highest number of passengers to airports in Malaysia. Indeed, it has grown so rapidly that it has left local airports striving to keep pace in terms of Capacity.
AirAsia has been named The Edge Billion Ringgit Club Company of the Year 2017, scoring high on earnings growth, returns to shareholders as well as corporate responsibility initiatives.
On top of that, the airline bagged two more awards — highest growth in profit after tax (PAT) over three years, under the Big Cap Companies category, and in the Trading/Services, Hotels, IPC and Technology sector.
Fernandes, who is the CEO, is thrilled with the recognition. In a Facebook posting, he says he is “super proud” of the budget airline for bagging the award.
“Super proud. The Edge, a newspaper I super respect, has just named AirAsia as Company of the Year,” Fernandes says.
Giving incumbents a good fight
The airline’s lean and mean business model, with an emphasis on cost efficiency and productivity that enables it to offer competitive fares, has changed the landsCape of the aviation industry in Asia to a large extent.
As its slogan — “Everyone can fly” — proclaims, AirAsia has made air travel much more affordable. As air tickets become cheaper, people are travelling more frequently. As at end-2016, AirAsia had carried 369 million passengers since its launch, or more than 10 times the population of Malaysia. Its fleet has expanded to 174 aircraft, and it flies 225 routes, connecting 109 destinations in 18 countries.
In 2016, AirAsia carried 26.4 million passengers, with an 87% load factor.
AirAsia celebrated its 15th anniversary last year and there was good reason to celebrate the milestone.
“We were able to do so (celebrate the 15th anniversary) with a record performance across the group in terms of revenue, profit and load factor. The past 15 years have been an exciting, though sometimes also daunting, journey. Yet we have managed to overcome many challenges by persevering with our lean business model, which we knew to be effective,” says Kamarudin, the executive chairman, in the airline’s 2016 annual report.
Bumpy ride but still growing
The fluctuation of the ringgit has resulted in more volatility for AirAsia’s earnings due to foreign exchange gains or losses.
AirAsia’s net profit soared to a record of RM2.047 billion in the financial year ended Dec 31, 2016 (FY2016), a big jump from RM541 million in FY2015, and RM83 million in FY2014.
This translates into a three-year compound annual growth rate of 78.2% — the highest among the Big Cap Companies with a market Capitalisation of RM10 billion to RM40 billion (based on a June 30, 2017, closing) as well as for the Trading/Services, Hotels, IPC and Technology sector.
PAT in FY2016 was substantially lifted by a forex gain of RM484.68 million and share of the results of associates of RM134.7 million, compared with a forex loss of RM331.3 million and share of loss of associates amounting to RM825.5 million the year before.
The airline also achieved a higher operating profit of RM2.11 billion versus RM1.59 billion in FY2015. Annual revenue grew to RM6.84 billion from RM6.29 billion the year before.
Like its earnings trend, AirAsia’s share price has had a bumpy ride between April 1, 2014, and June 30, 2017.
The stock nosedived to a low of 74 sen on Aug 26, 2015, from above the RM2 level after Hong Kong-based GMT Research issued a report questioning the airline’s accounting practices, and accused it of using transactions with associate companies to boost its earnings.
Nonetheless, the counter has since regained lost ground. Investors who had picked up the stock at the trough should be smiling now.