AirAsia aims for 60-70 million passengers a year, from current 36 million

Affordable travel: Artist impression of an Airbus A320 in AirAsia colours. AirAsia has placed a new order with Airbus for 100 more A320 Family aircraft. Fernandes (inset) wants to make air travel affordable and to bring people to Asia. – EPA

BROUGHTON: AirAsia Group, which is buying 100 more Airbus aircraft valued at US$9.4bil as it transforms into an Asian airline, sees the potential to achieve the target of between 60 million and 70 million passengers.

AirAsia group chief executive officer Tan Sri Tony Fernandes said the low-cost carrier was in a fantastic part of the world, especially in South-East Asia.

“Ten years ago, we had 200,000 passengers. This year, we are carrying 36 million. The potential to go to 60 million and 70 million passengers is within easy reach,” he said during a recent visit to Broughton in Britain where he signed a deal with Airbus to buy the aircraft from Airbus in the presence of British Prime Minister David Cameron.

“We want air travel to be affordable and make Asia a smaller place by making it accessible. We want to bring people to Asia where they never thought of going at fares they never thought would be there,” he said.

Fernandes said 50% of AirAsia's destinations are those which had not been served by airlines. It has been able to open new routes and destinations.

“My ambition is that one day AirAsia will be as well-known as Coca-Cola that would be cool. That would be a massive task but if you

don't have ambition, you won't get anywhere,” he said.

To recap, the 100 Airbus A320s consist of 36 with the current engine option and 64 with the new engine option. With the latest orders, the low-cost carrier has ordered 475 single-aisle aircraft from Airbus, comprising 264 A320 new engine options and 211 A320 current engine option.

The contract reaffirms AirAsia, Asia's largest low-cost carrier, as the world's largest A320 customer. Fernandes said aircraft demand was very strong, so AirAsia had to move forward its orders to cope with demand. “We had to fill in back orders for 2013, 2014 and 2016 when the new engine options come out,” he said.

He added that AirAsia group was looking at options of either buying or leasing, but his view was that it was better to buy the aircraft.

By 2026, AirAsia would have received 475 aircraft and Fernandes does not think the 100 planes would be the last order.

“Many of our new aircraft will go to replace the first ones in 2005. By 2017, they will be about 12 years old. While it seems a huge order, I think we will be back in the market at some stage because the demand is large,” he said.

Fernandes said size was important for a low-cost carrier and Airbus had a very strong working relationship with AirAsia's engineering team on how best to utilise the aircraft including having more seats.

On financing for the 100 aircraft and whether AirAsia would look into a rights issue, he said there would not be any need to look into any rights issues.

“We will fund this by our cash and our debt. And our gearing level will remain the same. Our cash is really very strong at the moment. Four years ago, our gearing was at four times. Now our gearing is one time. For any airline growing such like us, that is unheard of,” he pointed out.

In the third quarter ended Sept 30, 2012, AirAsia Bhd had RM2.2bil in cash and bank balances with net gearing reduced to 1.03 times this quarter (net gearing was reported at 1.10 times in quarter two).

Fernandes said AirAsia was now in a position to reward shareholders with dividends after its “fantastic growth rate”. “We now have cash generating capability and these aircraft do not require any further shareholders funding,” he said.

Asked to comment that the share price recently hit fresh 52-week lows and trading a very low price-to-earnings, he said there was an overhang from news about Malindo Air starting operations in Malaysia.

“People have over-reacted. All kinds of crazy thing have come out from there but we have been there before,” he said.

He said AirAsia had always grown margins with record profits and it was making headway into Indonesia where it is much smaller than Lion Air.

“The (AirAsia) share price will go down and go up. As long as you keep delivering earnings, people will re-believe in us. It is frustrating for us. We hope they (Malindo Air) will launch quickly and get over and done with it,” he said.

Asked whether AirAsia Bhd's share price was recently suppressed by expectations that it could be excluded from the 30-stock FBM KLCI, he said he was unaware of it.

AirAsia Group's Datuk Kamarudin Meranun explained this would take effect on Dec 24, but “purely due to market capitalisation”. “It has nothing to do with performance,” said Kamarudin. AirAsia and Malaysia Marine and Heavy Engineering Bhd (MMHE) are likely to be replaced by Astro Malaysia Holdings Bhd and Felda Global Ventures Holdings Bhd.

Asked if AirAsia was talking to fund managers that though the share price had recently declined, the fundamentals remained very strong, Fernandes said:

“We are buying our shares back. We believe in it and we are putting the money where our mouth is.”

“But proof is in the numbers. We are the most profitable airline in the world. No airline delivered 17% margins with oil price (jet fuel) at US$130.

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