AirAsia's Fernandes says travel demand remains strong, current crisis 'far' less severe than Covid

Tony Fernandes, co-founder of AirAsia, stated on Friday that the airline's current challenges stemming from increased jet fuel costs are significantly less severe compared to the difficulties they encountered during the Covid-19 pandemic. Addressing investors during a media briefing, Fernandes emphasized AirAsia's strong liquidity and proficiency in managing cash reserves.

He further clarified that the ongoing crisis was primarily caused by geopolitical tensions, along with the surge in fuel prices. Travel demand, however, he noted, remained robust.

This statement followed a report by Reuters, based on undisclosed sources, that Malaysia's government had inquired about the possibility of Malaysia Airlines and Batik Air absorbing a portion of AirAsia's domestic market share. The sources suggested that this was part of scenario planning by authorities to monitor the financial stability of Southeast Asia's leading low-cost carrier.

As of June 30, AirAsia's current liabilities were recorded at 18.4 billion ringgit ($4.52 billion), against cash and bank balances totaling 954 million ringgit.

Fernandes indicated that the second quarter presented the most challenging period for the airline, which commands approximately 60% of Malaysia's domestic market. He projected an improvement in conditions as AirAsia adjusts its fares to accommodate the higher fuel costs. The airline has been affected by soaring jet fuel costs, triggered by the US-Israeli conflict on Iran, which surged by 66% in the second quarter to an average of $183 per barrel.

AirAsia's shares experienced a 21% decline on Thursday following the Reuters report, and they were trading 2% lower on Friday after peaking at a drop of 5% earlier. The stock has witnessed a loss of over 70% of its value this year.

Fernandes highlighted that AirAsia's extensive market presence in Malaysia, marking a significant concern for the government, would not be easily replaced within the country overnight. The group's load factor, which indicates the utilization of available seats, stood at 80% during the third quarter. Fernandes expressed optimism about the company's operations in Indonesia, the Philippines, and Thailand.

AirAsia disclosed a net loss of 831 million ringgit for the second quarter ended June 30, driven by escalating jet fuel expenses and substantial foreign-exchange losses amounting to 331 million ringgit.