Wednesday, August 10, 2005

AirAsia may consider raising airfares

Kuala Lumpur: AirAsia Bhd may consider increasing its fares to deal with the current rise in oil price, said chief executive officer, Datuk Tony Fernandes, here Wednesday.

"A RM1 or RM2 rise doesn't change much in elasticity. Our fare is still very low but it (fare hike) will help us very much in covering the extra cost," he told reporters when met at an award presentation to RHB Bank for the RHB AirAsia MasterCard Programme.

The bank received a Gold Award for the Best Chip Card Programme.

Jet fuel represents 43 percent of total operation cost for AsiaAsia.

Oil prices hit an all time high of US$64 (RM242) per barrel on Monday.

"We are pro-active in cutting cost. We want to keep the fares low as that is very important for us. It is getting tougher and tougher to keep the fares down with fuel (prices) where it is now," he said.

"For us a RM5 or RM10 rise will make a big different. We can cover a lot of our cost and I don't think it will affect our demand so much. Even at this high fuel prices, we still can give very attractive fares.. so we have just continued doing it," he said.

Besides increasing the airfare, Fernandes said that there were many other ways of covering fuel surcharges.

"We can sell more seats at low fares. Our load factor is now about 70 percent. If we can go up to 80 to 90 percent, it will cover a lot of the cost even if the fare is low," he said.

Fernandes is confident that the budget carrier could deal with the current higher fuel prices.

"We have to be more aggressive in advertising and promotion. We are spending about two to three percent of our sales but depending on the markets and routes," he said.

Asked on possible margin squeeze, Fernandes said "not necessarily."

"Obviously, if we have a high load-factor, if we can up the prices a little bit, it won't make a huge difference to the consumers but a big difference to us," he said.

Looking forward, Fernandes said there will be a lot of upside in AirAsia. "Most of our routes are brand new routes and the routes take time to develop. We have another 30 percent seats to sell," he said.

As for further acquisition, Fernandes said that if there are such opportunities the company will look at it but "we have our hand pretty full at the moment."

Pertaining to the Valuair deal, he said that AirAsia did not see any value in it "so we did not go for it."

And on new destinations, Fernandes said that AirAsia hoped to fly to Brunei, Cambodia and Vietnam within the next six months.

Fernandes expects the carrier to fly about 8.0 million passengers next year.

Courtesy of Bernama

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