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AirAsia's long term plans will not suffer due to missing plane, say aviation experts

Safety record and strong demand for budget travel will help AirAsia

Aneesh Phadnis  |  Mumbai 

AirAsia is facing challenges in the South East Asia region, and the disappearance of its Airbus A320 aircraft on Sunday will add to its woes and impact its earnings. However, the incident will not significantly impact its long-term growth, say aviation analysts.

Their optimism is based on two factors — AirAsia’s safety record (it has not suffered a crash till now) and the strong demand for budget travel in the region. AirAsia runs airlines in Malaysia, Thailand, Indonesia, Philippines and now in India. AirAsia’s consolidated results includes income from the parent airline in Malaysia and the share of profit or loss from its airlines (treated as associate companies) in Thailand, Indonesia and the Philippines.

The last few months and the year have not been encouraging for the airline. Its consolidated profit ($110 million) in 2013 was the lowest since 2009. Profitability was impacted due to intense competition in Malaysia, a slump in demand because of political crisis in Thailand and the impact of currency depreciation.

AirAsia shares fell 7.8 per cent on Monday the biggest single-day drop in three years and analysts expect yields to decline.

“AirAsia Indonesia is set to face a tougher operating environment in 2015 on top of the cost pressure from the weakening of the rupiah. We believe the airline would reduce airfares in 2015 to sustain demand and this will likely affect the overall yield,” said a research note from Malaysia-based broking house TA Securities.

However, while the disappearance of the jet will impact the airline in short-term, its long-term growth and expansion will not be hit, feel experts. AirAsia has a fleet of 171 Airbus A320 planes, divided among airlines in Malaysia and other countries. It has an order of over 300 planes, including 200 A320neo.

“In my view the loss of Airbus A320 aircraft is unlikely to have a significant impact on AirAsia’s growth and expansion plans in Southeast Asia and beyond. This is because the airline has had a very good safety record since its inception in late 2001 and that this latest incident appears to be weather-related. While there has been immense pressure on AirAsia and its long-haul subsidiary, AirAsia X, the company remains strong fundamentally as a result of the continuous demand for budget travel in Asia,” said Malaysia-based analyst Shukor Yosuf.

He, however, feels the incident will have a bearing on the earnings of the company in the near term. Daniel Tsang of Aspire Aviation said, “It would be hard to imagine AirAsia’s ambitious growth being derailed by a single accident.”

“While it is true that Asia-Pacific is plagued by overcapacity and AirAsia has postponed 19 A320 aircraft deliveries, it is a matter of time before demand catches up. Given Indonesia’s huge growth potential, Indonesia AirAsia would be wrong to slow its growth,” Tsang said.

“I do not believe Sunday’s incident is the result of a systemic problem at AirAsia or for that matter in the region. The high growth rates continue to put pressure on regulatory oversight and in filling key positions. But, as we have seen in recent upgrades of local civil aviation authorities in the Philippines and Indonesia, it is moving in the right direction,” said aviation consultant and former regional sales head of Bombardier Torbjorn Karlsson.

Karlsson, however, feels the incident will put AirAsia under scrutiny and could impact planned growth.

Shashank Nigam, CEO of Singapore-based aviation brand strategy firm SimpliFlying, feels having strong personality like Tony Fernandes as its leader will help the airline overcome negative perception quickly.

“Fernandes is leading the airline and is engaging directly with consumers. This creates brand trust. There will be a short term pressure on the airline because of the incident, but I do not see a long-term impact. However, in general I see far greater demand for safety-related disclosures by airlines and move towards implementation of live flight tracking.”

First Published: Mon, December 29 2014. 23:53 IST