AirAsia to start a new airline despite fuel crisis

The announcement comes after a recent US$19 billion purchase of 150 Airbus A220 planes

AirAsia X co-founder Tony Fernandes is preparing to launch a new airline, betting that expanding amid the aviation industry’s turmoil from high oil prices will pay off in the future, Bloomberg reported.

The new airline will be announced in the next month or two, Fernandes said in a video interview from Montreal late Wed (May 6). The low-cost Southeast Asian carrier group is already moving planes for the venture, though he declined to share further details.

The expansion follows AirAsia’s US$19 billion order for Canadian-made commercial aircraft—what Prime Minister Mark Carney called the largest such purchase ever. The order covers 150 Airbus A220 planes. These are smaller, nimbler jets Fernandes plans to deploy across all corners of Asia.

“Why waste a crisis? There are opportunities in a crisis,” Fernandes said.

We can’t control what happens in the Middle East, but we have to take a view that it’s not going to last for two years.

Tony Fernandes

It’s a bold bet, even by AirAsia’s unconventional standards. The carrier’s refusal to hedge fuel costs has helped send shares tumbling roughly 35% since the Iran war began, making it the worst performer on the Bloomberg World Airlines index during the period.

Fernandes remained defiant on hedging fuel costs, predicting oil prices will eventually come back down.

“Obviously people who hedge now are in the money, but over a longer period, hedging never really works,” Fernandes said. “So we continue to not hedge like many American airlines, and we feel oil is bearish.”

To fund expansion, AirAsia is preparing to sell up to US$600 million in bonds and is negotiating with Malaysian banks for a “quite a large” refinancing loan to cut interest costs, Fernandes said. 

He’s also planning to meet with Canadian pension funds to attract investors, he said. 

Currently, the airline is expecting short-term pain. Fernandes said the company will soon announce it will miss its initial profit target, though revenue should land “more or less” where predicted.

AirAsia has also explored expanding in Vietnam, people familiar with the matter have said.

The group currently operates across Malaysia, Thailand, and Indonesia with a fleet of roughly 250 mostly single-aisle Airbus aircraft. The latest order will grow its backlog to around 550 single-aisle jets.

On another note, AirAsia has announced it’s going to launch flights from Bahrain, with the goal of launching a local unit based in the Gulf island nation.

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