What Lah! Didn't AirAsia Said No More Oil Bets?

11th January 2008. Published on the Business Times.

• AirAsia: No more bets on oil price
  
  There has been significant selling from AirAsia's foreign shareholders and this is 'related to AirAsia's fuel-hedging policy', says an analyst
  
  Published: 2008/01/11
  
  AIRASIA Bhd, Asia's biggest discount carrier by fleet size, will stop making bets on the price of oil, after incorrect forecasts contributed to a 16 per cent slide in shares over the last month.
  
  "It's a nightmare because the volatility is crazy," chief executive officer Datuk Tony Fernandes said in a Bloomberg Television interview on Thursday. "We took a bet that oil won't go above US$90 a barrel and it has and it's staying there."
  
  Crude oil rose to a record US$100 a barrel earlier this month instead of falling as AirAsia had predicted. If the price of oil remains at that level, earnings could fall by RM8.45 million a month because of speculative hedging, according to Christopher Eng, an analyst at OSK Research Sdn. in Kuala Lumpur.
  
  There has been significant selling from AirAsia's foreign shareholders," Eng wrote in a January 9 report. The drop is "related to AirAsia's fuel-hedging policy, which some parties considered excessively speculative."
  
  Fidelity International cut its stake by 9.8 million shares as of December 24, according to Bloomberg data.
  
  The Sepang, Malaysia-based carrier also said it will keep ticket prices unchanged even as the cost of fuel rises.
  
  "The danger for low-cost carriers is that it will impact demand," Fernandes said in Singapore. "You can't keep raising prices all the time. Oil inflation doesn't move in line with salary inflation."
  
  Fernandes is counting on higher ticket sales and revenue from selling food, drinks and other services to offset higher expenses.
  
  The price of jet fuel, the biggest expense at most Asian airlines, fell one per cent to US$108.50 a barrel in Singapore yesterday, according to data compiled by Bloomberg.
  
  That is 53 per cent higher than a year earlier. Crude oil futures reached a record US$100.09 a barrel on January 3.
  
  AirAsia fell one sen, or 0.6 per cent, to RM1.58 at the 5pm close of trading in Kuala Lumpur yesterday.
  
  AirAsia has ordered 175 single-aisle A320s from Airbus SAS, worth at least RM39.33 billion at list prices, as it wins permission to start new routes, including flights between Kuala Lumpur and neighbouring Singapore.
  
  For now, it has enough aircraft to expand operations and will not need to exercise options to purchase another 50 planes of the same model "for the next few years," Fernandes said.
  The carrier, which will begin services between Singapore and Kuala Lumpur on February 1, plans to operate as many as 20 daily return flights between the two capitals by 2013, carrying as many as seven million passengers, he said. - Bloomberg

( See blog posting: AirAsia: Lunatics And Cheap Talks? )

In yet another twist, the following was published on Business Times today.

• Strong bookings to fuel AirAsia's revenue
  By Presenna Nambiar
  
  Published: 2008/11/20
  
  AirAsia Bhd (5099) is poised for a record fourth-quarter revenue, driven by a blistering pace of bookings for its flights.
  
  "I think bookings are at a record pace ... it's such a record pace that our computer systems crashed on the first day," AirAsia chief executive officer Datuk Seri Tony Fernandes told Business Times in Kuala Lumpur yesterday.
  
  The airline industry is not in good shape as a slowing global economy has hurt demand for travel amid high fuel prices.
  
  Although this is changing, falling fuel prices present another problem as airlines had locked in prices with hedging contracts to deal with price volatility. This means that carriers could be stuck with hedging losses.
  
  AirAsia's second-quarter net profit plunged almost 95 per cent due mainly to foreign exchange losses and its third-quarter numbers are not out yet.
  Fernandes, however, expects the airline to remain profitable this year, despite provisions and costs which will be incurred.
  
  AirAsia will make provision for losses from the collapse of Lehman Brothers investment bank.
  
  "We had a trade (on fuel) with them (Lehman Brothers) and some money outstanding, I don't think we are going to get it back, but we would have paid for it anyway," he said.
  
  That, together with hedging losses, which even Fernandes admits will be heavy, will be quite a sum. However, he declined to reveal any figures.
  
  "We'll take the loss now to be clean in 2009. Over the next two to three months we will recover it," he said.
  
  On the budget carrier's position on hedging, Fernandes said its principle has always been that if the airline can hedge 100 per cent, it will do it to take the risk out.
  
  "It's at what point you hedge really ... it's a very tricky situation now, because people are saying oil might go down to US$30 (RM108.30) a barrel, logically it should be US$40 to US$50 (RM144.40 to RM180.50) per barrel but I really don't know, because recession hasn't really even started yet," he said.
  
  Meanwhile, in a separate statement, AirAsia announced that BNP Paribas and Natixis Transport Finance, the lead arrangers, global coordinators and book runners of AirAsia, have been able to secure a US$336 million (RM1.2 billion) syariah-compliant French Single Investor Ijarah, for the financing of up to eight Airbus 320-200 aircraft.
  
  This is the first Islamic French-Malaysian optimised transaction of its kind.
  
  Purchase of each aircraft is through a mix of euro-denominated equity, a US dollar-denominated investment agency agreement, Wakala from Islamic financiers and a US dollar-denominated Wakala granted by AirAsia and refinanced by a ringgit-denominated commodity - Murabaha.
  
  Above a cost-efficient 100 per cent financing structure, the Islamic Ijarah ensures that AirAsia's capital and investment allowances are preserved.
  
  "This unique structure has not only allowed us to continue to enjoy overall competitive financing terms for our aircraft purchases, especially under the current market situation, but also encouraged the innovation and creativity in structuring Islamic products and promote the development of aircraft financing in Malaysia with the participation of RHB Islamic and Bank Rakyat.
  
  "AirAsia is privileged to have this partnership with BNP Paribas and Natixis. Their commitment and support is evident from the very first A320 delivery in 2005, which was also arranged and financed by them," said AirAsia deputy group chief executive officer Datuk Kamarudin Meranun.

I had a chuckle. Record revenue?

Since when did revenue ever counted for anything in the investing world?

Strong revenue WILL NOT seduce any investors to invest in a stock!

Strong net profits, yes!

Anyway what's shocking is the statement about hedging losses!

• AirAsia will make provision for losses from the collapse of Lehman Brothers investment bank. "We had a trade (on fuel) with them (Lehman Brothers) and some money outstanding, I don't think we are going to get it back, but we would have paid for it anyway," he said. That, together with hedging losses, which even Fernandes admits will be heavy, will be quite a sum.

It was just in January when AirAsia publicly announced that there will be no more oil bets.

And now, heavy hedging losses????????????????????????

What lah!