Caught in the red, is AirAsia making the best use of its 171 aircraft?

Kuala Lumpur: AirAsia’s rapid network expansion and huge plane orders aimed at meeting what CEO Tony Fernandes once described as “amazing” demand are in the spotlight after the carrier fell into the red for the first time since 2008.[caption id=“attachment_2036191” align=“alignleft” width=“380”]  Facing a tough road ahead. Reuters[/caption] Malaysia-based AirAsia, Asia’s biggest budget airline by passenger volume, posted a net loss for October-December due to a weaker ringgit and higher costs despite lower fuel prices. It hasn’t helped that a jet operated by its Indonesia affiliate crashed in December, killing 162 people on board. The carrier will be releasing its first-quarter results on Thursday. In one sign of AirAsia’s increasingly inefficient deployment of its assets in its expansion across Southeast Asia, return on assets (ROA) has fallen over the past decade. ROA, which measures how well assets are used to generate profit, was almost zero towards the end of last year, the worst since returns turned negative after the 2008 global crisis. Fernandes said in February that over the next few years AirAsia will try to preserve cash by slowing down the delivery of Airbus jets it has ordered. Hafriz Hezry, an analyst with Kuala Lumpur-based AmResearch, expects things to get better for AirAsia this year. “It has been cutting back on its capacity expansion plan, so basically the asset side is not going to grow that much. On the earnings side, you got lower oil prices which will start to be reflecting in earnings from the first quarter,” he said. Fernandes, a Malaysian entrepreneur, bought two aircraft and founded AirAsia in 2001. It challenged the influence of flag carrier Malaysia Airlines and ushered in the age of low-cost air travel in Asia. Its fleet has since grown to 171 Airbus jets serving destinations in Thailand, Indonesia, the Philippines and India. At one point, it placed orders for almost 500 jets. Rivals including Jetstar Asia, Tiger Airways and Lion Air stepped up their capacity, eventually creating an oversupply in a very competitive and well-served market. In Asia, 75 percent of air traffic is served by more than three airlines, according to Spanish information technology provider Amadeus IT. In Europe, it’s just 55 percent. With European cities relatively close to one another, no-frills carriers such as Ryanair and easyJet have deployed their fleets more productively, allowing the carriers to enjoy relatively stable ROAs. Reuters