Like many people, I've booked quite a few flights on Air Asia in the last few days. There were some jaw-droppingly low prices in their "Big Sale".
However, we are in the middle of a financial recession which is hitting the travel industry quite hard so while I was buying the flights, at the back of my mind I was wondering whether this latest special offer was in fact a desperate attempt to keep Air Asia afloat financially. Usually the most seats on offer is one million... this one had three million extraordinarily cheap seats up for grabs and there were still quite a few available yesterday when I checked.
It wouldn't be the first time a budget airline has gone bust.
Here is a list I found of airlines that went out of business in 2008
08/01/2008 BRTJ BritishJet.com
23/01/2008 CST Coast Air
14/01/2008 FFP Prima Charter
11/02/2008 VID Aviaprad Airlines
18/03/2008 DHI Adam Air
25/03/2008 QSC African Safari Airways
31/03/2008 JAA Japan Asia Airways
29/04/2008 NTW Nationwide Airlines
28/04/2008 AAH Aloha Airlines
02/04/2008 AMT ATA Airlines
27/04/2008 ESS Eos Airlines
09/04/2008 OHK Oasis Hong Kong Airlines
20/04/2008 VCX Ocean Airlines
07/04/2008 SKB Skybus Airlines
05/04/2008 SYW Skyway Airlines
11/04/2008 SWX Swazi Express Airways
13/05/2008 AOL Angkor Airways
09/05/2008 EMX Euromanx
13/05/2008 FEA Far Eastern Air Transport
30/05/2008 SLR Silverjet
31/05/2008 CCP Champion Air
13/08/2008 GCO Gemini Air Cargo
04/08/2008 SER Aerocalifornia
28/08/2008 OOM Zoom Airlines
28/08/2008 UKZ Zoom Airlines (UK)
09/09/2008 FUA Futura International Airways
09/09/2008 FGL Futura Gael
12/092008 XLA XL Airways UK
15/09/2008 APKX Air Pack Express
17/09/2008 Dalavia Russia
06/10/2008 Galaxy Airlines (Japan)
09/10/2008 Lagunair Spain
16/10/2008 Flysur Spain
17/10/2008 LTE Spain
18/10/2008 Hansung Airlines
21/10/2008 Aladia (Mexico)
29/10/2008 Sterling Airways
31/10/2008 Air Comet (Chile)
31/10/2008 Kras Air
08/11/2008 Alma (Mexico)
11/11/2008 Inter Airlines (Turkey)
01/12/2008 Siem Reap Airways Intnl
01/12/2008 European Air Charter (UK)
03/12/2008 Flightline (UK)
11/12/2008 Yeongnam Air (South Korea)
A few days ago there was an article in the Wall Street Journal which said:
The low-cost carrier said its net profit rose to 139.2 million ringgit ($39.7 million) in the three months ended June 30 from 9.4 million ringgit a year earlier.
Revenue rose 8% to 657.4 million ringgit amid increased passenger volume, a higher contribution from ancillary income and the write-back on certain provisions previously made, the airline said.
Sounds pretty reassuring, doesn't it?
Well, maybe not. Other analysts aren't quite so optimistic.
Air Asia Profit Up, Warning Around The Corner
Thursday, August 13, 2009
* Analysis by: GLG Expert Contributor
* Analysis of: AirAsia net profit soars to RM139.2m | www.btimes.com.my
* Source: www.glgroup.com
Big profits should translate into fewer fears. If that’s the case, then why is Air Asia slamming the brakes on its growth?
There’s no question that during the latter half of 2008 through to date, low cost carriers have been dominating headlines around the globe.
Air Asia’s prominence in its home of Malaysia has certainly given food for thought to the transitioning Malaysia Airlines – but the petty excuse of not having adequate terminal or ramp space to “grow” means that even the fastest growing and profitable airlines have to reel in their expectations.
That’s precisely what’s happening at Air Asia.
The deferral of eight Airbus A320’s next year with a potential to defer a further eight more signals the (temporary) end to its flamboyant expansion plans while the airline faces the prospect of a significant drop in bookings into Q4 of this year and Q1 next year.
Just perusing the comments from the earnings release and you get the feeling that Air Asia is almost in “denial” about admitting a slowdown is right around the corner.
Phrases like the “new [Airbus A320] delivery schedule is more conducive for current environment” gives you the distinct impression that the expanding bubble waistline is on the verge of a serious rupture.
Air Asia’s underlying load factor fell, despite the headline PBT figures they want you to see. Yields actually fell, offset only by an increase in non-core activities – and revenue per seat kilometre also dropped.
Funny thing growth is…
That Air Asia’s debt burden is a question no one seems to have an answer for is concerning.
In raising money to fund borrowing repayments and working capital, Air Asia’s projected assumptions for reducing its debt mountain seem distinctly off-track. Not least because they’re assuming a 75% load factor alongside decreased yields through FY13 and also because they fail to take into account the fleet re-energizing at Malaysia Airlines when they start taking delivery of their superior Boeing 737-800’s that will invariably cut demand for all things Air Asia.
Throw in the untold number of A320 orders that have yet to be financed and this big profit and Kingfisher Airlines-styled debt-mountain, and you can see that the storm is brewing.
Tony Fernandes certainly thinks he can plot a course out of the debt-mess Air Asia has created for itself – recent moves to align its international arm of Air Asia X with a Middle East carrier is particularly ridiculous since not a single one of the big three Arab carriers (Emirates, Etihad and “me-too” Qatar Airways) have ever seriously considered meaningful alliance partnerships with anyone.
Air Asia X cannot filter existing Gulf O&D traffic onto its sardine-can packed A330’s for onward connection(s) to Europe. The Arab carriers just have too much to offer in contrast and will not have to fear losing out.
Air Asia may be smart in deferring in readiness of a slowdown – but to suggest that these deferrals may be the end of such strategic moves is highly premature.
Don't know about you, but I'd be pretty devastated if Air Asia went under. They have revolutionized travel in SE Asia making it easy and affordable to go and check out places that were previously very expensive and complicated to get to.
What do you think the likelihood is of Air Asia hitting the dust within the next year or so?
You've done a lot of research. Like you I've had my concerns about Air Asia (and have posted such previously) so I don't buy tickets beyond a 3 month window. Air Asia is a god-send for their cheap flights but I've wondered if their business model may not be built somewhat on a ponzi scheme with advance purchases so far out in advance. I hope not since they are terrific and I use them regularly but I prefer to buy my tickets 1-2 months in advance. Let's hope the 2 of us don't create a reverse pyschology. They've really made travel in SEA so much cheaper and easier. Let's hope that they're around for a long long time. It'd be terrific if they offered flights between SEA and the west coast of the USA. I remember reading somewhere that it's part so some future aspirations
#2 seagypsy has been a member since 5/2/2009. Posts: 136
Since airAsiaX has been coming to the Gold Coast (here in sunny Qld), I've also flown frequently, and had concerns. Interestingly, nearly every time I visit KL on the way through, I've read sour grapes stories about how AirAsia was about to fold.
Nowadays, I don't bother, I buy annual travel insurance, so if they went belly up my travel insurance would cover (within the actual year of insurance).
There are worse things that could happen than losing an airfare.
I'm not so much worried about losing the airfare as losing the service Air Asia provides generally.
My hunch is that some routes may get axed. Maybe they will reimburse people who've already paid for flights too ... but if you've planned a trip round a cheap Air Asia flight you don't get reimbursed for the inconvenience or the extra cost of finding alternative transport nearer the departure date.
Working in the same sector as the person who wrote this guff I've learned to take most of this with a pinch of salt. That profile was written by an "expert contributor",..whatever than means. Some spotty newly graduated student perhaps? Still, doesn't mean they are wrong.
But Air Asia would be mad not to postpone delivery of new aircraft in this current enviroment. Also, interesting to note that they have launched additional slots on some routes (starting Sept).