AirAsia says demand remains strong despite fuel costs, seeks funding for restructuring

AirAsia co-founder Tony Fernandes said on Friday that the challenges from soaring jet fuel costs were "far, far" less severe than those faced during the COVID-19 pandemic, and that strong demand for air travel continued to support the business. He forecast improving conditions as AirAsia adjusts fares to reflect higher fuel costs, noting that the second quarter marked the toughest period for the airline. The airline has been hit by soaring jet fuel costs, which surged 66 percent in the second quarter from the prior quarter to an average of US$183 a barrel. Reuters reported, citing sources, that Malaysia's government had asked Malaysia Airlines and Batik Air whether they could absorb AirAsia’s domestic market share, as part of scenario planning while authorities monitor the financial health of Southeast Asia’s largest low-cost carrier. However, Malaysia Airlines and Batik Air have indicated to the government that they would only take over AirAsia’s operations on a large scale if they could also assume its aircraft leases, as absorbing its routes and passenger volumes without the aircraft would be far more difficult. Both carriers have expressed willingness to expand organically to absorb AirAsia’s routes and passengers rather than acquire its whole business. AirAsia commands about 40 percent of Malaysia’s overall aviation market and 60 percent of domestic flying, making its financial challenges a significant concern for the government. The airline stated it remains focused on maintaining business continuity and stable operations across all its markets and continues to see strong underlying demand across its network. The airline is advancing discussions with financial institutions, targeting up to US$1 billion from international debt markets and RM700 million in local credit facilities, primarily to restructure its debt. As of June 30, AirAsia had cash and bank balances of RM954 million. The carrier reported a net loss of RM831 million for the second quarter ended June 30, hit by rising jet fuel costs and heavy foreign-exchange losses. AirAsia has been restructuring aggressively, cutting underperforming routes, returning 25 older aircraft to lessors, and renegotiating contracts with vendors to reduce costs. The Malaysian finance ministry has reportedly hired a consultancy to assess AirAsia’s funding needs.