Monday, February 10, 2014

Indonesia AirAsia plans to offset rising costs

Indonesia AirAsia (IAA) plans to strengthen international flights to offset rising costs from the depreciation of the rupiah.

"This year is a bit tough for the airline industry because of the weak currency," Ridzki Kramadibrata, IAA's chief operating officer, said last Tuesday.

He added that around 70 per cent to 80 per cent of the airline's expenses were in US dollars, including for fuel, maintenance and aircraft leasing.

Currently, international and domestic flights contribute equally to the revenue.


"We plan to change the ratio to 60-40 (per cent between international and domestic routes)," said Ridzki.

IAA, which was operating 30 Airbus aircraft as of the end of last year, offers 38 domestic flights and 58 international flights to its destinations.

Ridzki said routes like Bangkok, Singapore, Kuala Lumpur and Australia were profitable even though all the operational costs were denominated in dollars.

At the same time, he said, revenue was also in dollars.

"Things like holding and queuing charges at airports can be reduced. We use so much fuel during those times," Ridzki said.

The rupiah, which declined 26 per cent against the dollar last year, was trading at 12,248 in Jakarta last Tuesday, according to data from the central bank. It has lost 0.5 per cent since the start of the year.

Some of IAA's international routes are Denpasar-Perth (four daily flights), Denpasar-Darwin (one), Jakarta-Bangkok (two) and Surabaya-Bangkok (one). It also flies to Singapore, Kuala Lumpur, Penang and Johor Baru.

IAA, which competes directly with low-cost carriers like Lion Air, Citilink and Tiger Mandala, experienced rapid growth in revenue last year, thanks to strong growth in passenger numbers.

Last year, it booked 5.8 trillion rupiah (RM1.58 billion) in revenue, up from 4.8 trillion rupiah in 2012, according to Ridzki. It flew 7.8 million passengers last year, up from 5.8 million in 2012.

Ridzki said that this year IAA plans to operate six more aircraft to support its domestic and international expansion. He said he remains upbeat about growth in the airline industry in Indonesia this year, despite blips like the weaker rupiah and elections that could sap investor confidence.

"The rule of thumb for the airline industry is it can grow around two to three times national economic growth. So, if our economy grows at around five to six per cent, the airline industry can grow twice that much."(btimes)

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