Fernandes: $500 Million for Air Asia Philippines

Tony Fernandes, CEO of AirAsia Group, has revealed that Asia's largest low-cost carrier plans to expand its Philippine affiliate with an infusion of $500 million over the next four years. Fernandes has been cautiously optimistic about the Philippine market after his carrier got off to a sluggish start when it entered the market in 2012. But with the consolidation of Air Asia and Zest Air well under way, Fernandes is now ready to look to the future. 

Copyright Photo: Adrian Alzaga/PPSG

"We've put in $100 million already in cash terms, excluding the planes," said Fernandes. "We are committing another $500 million once we get the franchise approval. That's over a period of three to four years."

AirAsia Philippines and AirAsia Zest were forced to scale back operations in the last two years after suffering heavy losses. However, market conditions in the Philippines are improving and AirAsia is poised to expand once again upon receiving congressional approval for consolidation of its two Philippine affiliates.

"As soon as we get the franchise, we should be able to get 15 aircraft," said Fernandes. "Then I hope we can add about five aircraft a year." AirAsia's Philippine operations were previously retracted by 30 percent after consecutive years of losses. In the first half of 2014, the carrier recorded a loss of $14 million. 

However, Fernandes remains optimistic that 2015 will be a turning point and that the carrier will post a profit by the first half of next year as it increases the utilisation of its existing fleet of fifteen Airbus A320-200 aircraft. Air Asia is currently operating its flights out of Manila and Kalibo, with plans to develop Cebu and Davao next month. The carrier was forced to pull out of Clark International Airport due to poor passenger loads, but AirAsia hopes to return at some point in the future. 

Pending the consolidation of domestic flights, Fernandes indicates that Air Asia will be able to double its fleet, particularly in anticipation of new flights to Korea and Japan. The two countries are the Philippines' top sources of foreign tourist arrivals and AirAsia would like to capitalise on the opportunity to help build tourism between the respective countries but Fernandes says that the carrier cannot launch more flights until the Philippines has resolved regulatory issues with Japan and Korea.

Meanwhile, Air Asia will continue to wait for congressional approval to complete its consolidation, which is part of the carrier's strategy to establish profitability within the next few years. Fernandes has made it no secret that he intends to become the industry leader in the Philippines competing head to head with established carriers, Cebu Pacific and Philippine Airlines. 

"My aim is to grow Philippines AirAsia in the international market," said Fernandes. "We are adding more flights in Korea, eventually China, Japan, and Asean, bringing more people to the Philippines like we've done in Indonesia and Thailand." Fernandes added that he feels a strong optimism that his Philippine affiliate has been through the worst. "Our backs have been against the wall and that's actually when we're best. In many ways, we are like the boxer on the ropes."