Air Asia posts better than expected results, not to speculate in oil markets for now.

From the Edge Malaysia:

Air Asia has beaten expectations in its second-quarter (2Q) results, posting a net profit of RM139.18 million in an operating environment where many airlines are in the red.

Its chief executive officer Datuk Seri Tony Fernandes anticipates even stronger earnings in the current third quarter ending Sept 30, in view of the robust sales in July and August.

Yesterday, the low-cost carrier announced its 2Q net profit, which was significantly higher than the RM9.42 million in the previous corresponding period. Its core operating profit soared to RM128.42 million, up 328% year-on-year (y-o-y) from RM29.98 million.

Fernandes said via teleconference that the performance actually exceeded his own expectation.

“I am very pleased with the results. In the first half (of 2009), we are one of the few airlines around the world that posted true operational profit,” he added.

AirAsia’s operational profit rose to RM399.96 million, up more than twice the RM154.47 million reported for the same period last year.

He added that the dramatic increase in its earnings was largely due to AirAsia’s strategy of cutting passenger fares, which were offset by higher volumes. Cost cutting such as the removal of administrative fees also helped, he noted.

Fernandes said that average passenger volume had grown 24% to 3.52 million passengers from 2.84 million y-o-y, while fares had come down by 19%. Its load factor remained unchanged at 75%.

Meanwhile, ancillary income had increased by 3% to account for about 14% of its profits. AirAsia’s margins, he added, were an industry-leading 21%.

“This shows that our strategy of lowering the price works,” Fernandes said, adding there had been no impact from its competitor’s sales campaign.

As for its operations overseas, AirAsia’s Thai operations managed to narrow losses to RM8.2 million. Indonesia AirAsia also reported a loss of RM21.8 million although it managed to grow its passenger load by 47%.

Fernandes said AirAsia’s overseas operations were poised to become an important contributor to the group’s bottom line, noting that the “tide has changed”. The delivery of new Airbuses to the two destinations would help to turn those businesses around, he added.

Commenting on the delivery of new aircraft, he said AirAsia might further defer delivery of another eight aircraft in 2011 if the proposed new LCCT terminal is not ready by then.

Due to the insufficient space at the current LCCT, the low-cost carrier has decided to postpone the delivery of eight aircraft next year.

Fernandes added that he expected most of the growth next year to come from Thailand and Indonesia. AirAsia is also developing its Penang hub to ease the congestion in Kuala Lumpur.

As to whether AirAsia would hedge its fuel given the present level of US$70 per barrel, Fernandes said: “No, there’s too much volatility.”

“We spoke with two major oil companies and they said that supply and demand does not match the current price. There’s so much volatility and we don’t want to play in that game yet.”

For the second quarter, AirAsia wrote back some RM18 million to RM20 million as banks released collaterals AirAsia had deposited as security against its hedges. The figure also included savings from lower handling fees charged by airports.

That's good. At least Air Asia probably fired their oil hedging strategist. The main problem is that they need to hedge to survive, and not hedge to speculate. Any paper profits derived from hedging short term, has a chance of hurting them in the long run. Even at 70 dollar oil, unhedged, Air Asia can still make a profit.

Anyways, I hope Air Asia won't return to its old ways, but we will have to see. Quoting "we don't want to play in that game yet" doesn't exactly inspire confidence.