AirAsia's $100m China hub deal collapses as bilateral relations cool
China once contributed about 40% of sales across the group, even though Chinese cities account for only about 15% of AirAsia's destinations.
A deal for an AirAsia hub in China supported by Malaysia's previous government has ended with no prospect for renewal, the budget carrier said on Thursday.
Malaysia-based AirAsia gave no reason for the new development other than to say the estimated $100 million deal "has now lapsed as per the terms of the MOU [memorandum of understanding] and will not be extended," according to a stock exchange filing.
China has always been on AirAsia's radar as it eyes the untapped low-cost market to diversify away from competition in Southeast Asia. China once contributed about 40% of sales across the group, even though Chinese cities account for only about 15% of AirAsia's destinations. The airline also has operations in India, Indonesia, Japan, the Philippines and Thailand.
The carrier said Thursday that net profit swelled 147% on the year to 361.8 million ringgit ($88 million) for the April-June period. Revenue grew 10% to 2.6 billion ringgit on 13% growth in passenger traffic, even as the load factor -- a measurement of the number of seats sold -- declined by 3 percentage points to 86%.
AirAsia carried 10.8 million travelers during the second quarter, over two-thirds of them through its operation in Malaysia. Load factor for each unit in the region declined or stayed flat amid a 17% increase in seat capacity, suggesting strong competition in the company's six markets as fuel costs rose 28%.
For the first half of 2017, group net profit nearly doubled to 1.5 billion ringgit on revenue of 5.2 billion ringgit.
But AirAsia warned of "headwinds" approaching in the form of high fuel prices and weaker regional currencies, even as demand remains strong. The airline projected a lower load factor of 83% in the third quarter based on booking trends in Malaysia, Indonesia and the Philippines.
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