MANILA, Philippines–Malaysia’s AirAsia Berhad, one of the largest budget carriers in the region, extended an $18-million loan (P788 million) to its Philippine unit, which it said would post a profit by the second half of 2014, according to a top official and regulatory filings.
AiraAsia Bhd. told the Malaysian stock exchange that the loan—which it described as a form of financial assistance—would allow Philippine unit AirAsia Inc. to facilitate its “ordinary course of business.”
“This is to support our operations,” Alfredo Yao, the founder and majority stockholder of AirAsia Zest, told the Inquirer in an interview Wednesday. “We hope to be black in the back by the last quarter of 2014.”
AirAsia Inc., which is 40 percent owned by AirAsia Bhd., owns 49 percent of Air Asia Zest. Yao earlier expressed his willingness to sell his stake following the approval of the Senate. Yao cited the increase in demand for travel in the low-cost segment as well as the rationalizing competition in the domestic aviation sector.
“It’s good for the industry as a whole. We don’t have to make a killing [in profits] but we can still make a little and not lose money,” Yao said, describing how the pricing strategy in the Philippines is shifting.
AirAsia’s Philippine operations have been struggling, partly due to competition with flag carrier Philippine Airlines and budget airline Cebu Pacific Air in the domestic market. AirAsia Bhd. owner Tony Fernandes said in statement to the Malaysian stock exchange that the unit’s return to profit would come sooner than expected.
“I have spent considerable time on a turnaround plan for Indonesia and Philippines operations which will be rolling out from the third quarter of 2014 onward, and I believe both will return to the black in the second half of the year,” Fernandes said.
“We are investing a lot on marketing our brand locally and internationally to ensure we push passenger demand into the Philippines,” he said. “We have revised our network and I believe this will push fares even higher in the second half of 2014. I am very optimistic the worse is over as our turnaround plan has been put into place.”
Fernandes earlier said in an interview that he expected AirAsia Inc. to become profitable by next year. AirAsia’s Philippine unit recorded a net loss of 24 million ringgit (P332 million) in the quarter ending June 30, AirAsia Bhd. noted in its filing.
It said the group would only start recognizing profits, however, once a total of 80.6 million ringgit (P1.1 billion) of “unrecognized losses” have been reversed.
AirAsia Bhd. noted in its financial filing that its Philippine operation’s forward loads for the remaining months of the third quarter are slightly higher than the same period in 2013.
AirAsia Zest and AirAsia Philippines, which roughly control a tenth of the local market, currently operate a combined fleet of 18 aircraft servicing domestic destinations of Kalibo (Boracay), Puerto Princesa (Palawan), Tagbilaran (Bohol), Cebu and Tacloban with international destinations in Asia, China and Korea.
AirAsia’s Philippine units also plan to mount flights to Japan within the year.
AirAsia Inc. operates from Manila’s Ninoy Aquino International Airport, Kalibo International Airport and Mactan Cebu International Airport.