Air Asia Q4 245mil loss due to 426 mil unwinding of derivatives.

From The Star Online:

NO-FRILLS airline AirAsia Bhd reported a net loss of RM176.9mil for the fourth quarter ended Dec 31 compared with a profit of RM245.7mil in the previous corresponding period due to an exceptional item of RM426mil related to the unwinding of its derivative structures.

Core operating profit, however, more than doubled to RM194mil for the quarter under review against RM94mil a year earlier. There was a translation gain of RM11mil from the ringgit recovery against the greenback.

Revenue jumped 32% to RM838.2mil from RM632.8mil a year earlier on improved passenger volume and higher ancillary income.

In a filing with Bursa Malaysia yesterday, the airline said passenger volume grew 21% while the average fare was 7% higher at RM229 from RM214 a year ago. Load factor improved to 78.4% from 77.8% previously.

Air Asia looks do be doing well based on its business model, but here is my problem with airlines. Investors aren't really buying just an airline business. They are buying into a commodity hedge fund as well. Sort of a Dr. Jekyll and Mr. Hyde. And worse, the two are really hard to tell apart until after the damage has already occurred.

It used to be simple, once oil prices come down, airlines will make money. In most cases with airlines around the world, this is false. They employed risky hedging practices to save their company from going bankrupt during the high oil price era. They may not have had a choice. But the bottom line is no one really knows when they are acting more like an airline or more like a hedge fund.

But even more ironic is that now with oil prices coming down, airlines who try to unwind their contracts early may see themselves being hit badly from the very same hedging practices that saved them in the first place when oil was getting insanely expensive.