AirAsia earnings

I was looking at the following news article published on Star Business: AirAsia profit rises to RM246mil

• PETALING JAYA: AirAsia Bhd’s net profit for the quarter ended Dec 31 expanded 73% to RM245.72mil from RM142.05mil in the previous corresponding quarter due to higher yields and contained unit cost.
  
  Revenue rose 43% to RM632.72mil from RM442.84mil previously. This was attributed to 21% growth in passenger volume, 17% higher average ticket sales and 49% growth in ancillary income.
  
  Group chief executive officer Datuk Tony Fernandes said demand for low fares remained strong and load factors were at high levels despite significant capacity addition of 40%.
  
  “Ancillary income rose 49% to RM41.53mil. This reflects the increased service penetration and the success of our travel insurance and greater number of hotel rooms booked through our website.
  
  “Due to the higher average fares and ancillary income, yield was 11% higher than the previous corresponding period,” he said in a statement.
  
  Unit cost was 3.43 US cents per available seat kilometre, which was 7% higher due to unit fuel price increasing 31% to US$101 per barrel in the period.
  
  Fernandes said fuel hedge had partially mitigated the impact of rising fuel prices with a net contribution of RM17mil in the quarter.
  
  The budget carrier also recorded its highest profit margin so far in comparison with other airlines worldwide. Based on revenue of RM1.92bil and earnings before interest, taxes, depreciation/amortisation and rent (Ebitdar) of RM671.02mil for the full 12 months of 2007, margin was 34.9%.
  
  In comparison, airlines such as VirginBlue, EasyJet and Ryanair had Ebitdar margin of 25.3%, 16.6% and 29.3% respectively.
  
  Beginning this year, AirAsia changed its financial year-end to Dec 31 from June 30.
  
  Fernandes forecast 20% growth in passenger volume for 2008.
  
  “The bulk of new capacity will be injected into international routes, which are relatively longer-distance sectors. Based on the expectation that some routes will mature and continuous strong contribution from ancillary income, we expect yields to remain largely flat for the year.
  
  “Cost items, excluding fuel, are expected to reduce further due to the induction of cost-efficient Airbus A320 aircraft into the fleet and productivity drivers,” he said.
  
  With the assumption that WTI oil prices remained above US$90 per barrel, 30% of AirAsia’s fuel requirements were hedged from January to June at an equivalent price of US$79.50 per barrel.
  
  Despite worry of a slowdown in the world economy, tightening credit and rising cost of aircraft and fuel, Fernandes remained “bullish and optimistic” of the airline industry for the next five years.
  
  “These factors are seen as doom and gloom for airlines but it is an opportunity for AirAsia. If there is an economic recession, airlines such as us, which focus on value and low fares, would benefit,” he told StarBiz.
  
  On the possibility of AirAsia consolidating or forming partnership with local or foreign airlines, Fernandes said he believed in organic growth as the airline had grown without acquisition.

So I decided to have a look at their earnings report posted on Bursa Malaysia website. Here's a screen shot of their earnings.

Look at the candies placed in the screen shot.

Was I impressed? I mean if I were to compare to what's published, I wasn't hardly impressed at all.

Firstly, look at the Financial Income line. It showed a +75.799 million. And if you read the financial income, you would see the following reasoning.

See the massive gain caused by forex exchange? You see, currently Air Asia has around 3.4 billion in debt securities. And they are all denominated in USD and Euro. Hence the massive forex gain recorded.

And then you have the deferred tax gains. (Ahem!)

And if I add up gains from these two issues, Air Asia profits were boosted by some 219 million this fiscal year.

Now let's look at the very first line of that news article again.

• AirAsia Bhd’s net profit for the quarter ended Dec 31 expanded 73% to RM245.72mil from RM142.05mil in the previous corresponding quarter due to higher yields and contained unit cost.

See why I am hardly impressed?