AirAsia’s Hunt for Cheaper Debt Won’t Be Easy With Oil Near $100

The soaring price of oil above US$100 a barrel is posing significant challenges for budget airlines like AirAsia, making it difficult for them to generate profits and reduce costly debt. AirAsia's co-founder, Tony Fernandes, has expressed his reluctance to take on additional private credit debt due to its high interest rates. While the airline is seeking a US$1 billion refinancing package to refinance existing debt and lower interest payments, the high oil prices and strained financial situation may make it challenging to secure cheaper financing.

AirAsia's liabilities now exceed its assets, and it has a cash-to-revenue ratio that falls below industry standards. The airline has lost money and experienced two consecutive quarterly losses since the Iran war intensified. To mitigate the impact of rising fuel costs, AirAsia needs either improved operating cash flow or credit enhancement, but without these, securing cheaper financing remains difficult.