AirAsia share price dip after posting first losses

Shares of Southeast Asia's top budget airline AirAsia and Malaysian Airlines fell Monday after both carriers reported weaker earnings in the third quarter.

AirAsia on Friday announced a net loss of 465.5 million ringgit in the July-Sept quarter, reversing a 180 million ringgit profit in the same period a year ago. It was the first quarterly loss for AirAsia since it was publicly listed Nov. 2004.

Domestic rival Malaysia Airlines managed to stay in the black with a net profit of 38 million ringgit during the quarter, but this was down sharply from 364 million ringgit a year ago.

"Operationally, the outlook is grim for AirAsia. It is facing intensifying competition from Malaysia Airlines and both are competing for a shrinking market as demand slows," research firm Aseambankers said.

AirAsia shares lost 10 percent to 1.00 ringgit (28 cents) while Malaysia Airlines fell 4 percent to 2.55 ringgit at midday Monday in line with overall market weakness. So far this year, the stocks have fallen by 38 percent and 48 percent, respectively.

"It will be tough operation for airlines. We are concerned that AirAsia's association continue to lose money while its Malaysian operations may be close to saturation point," said Chris Eng of OSK Research.

He said prospects are grim for both AirAsia and Malaysia Airlines' next year, but there may be a slight recovery in 2010.

AirAsia blamed its poor performance on foreign exchange losses and the unwinding of fuel hedging contracts following sharp drop in world oil prices.

However, it described the losses as "short-term pain for long-term gains." It believed outlook has improved with jet fuel falling to three-year low and more travelers switching to budget airlines amid the global economic downturn.

Malaysia Airlines said it proved its resilience by reporting a profit for the ninth consecutive quarters despite the global economic slowdown. It said it would continue to cut costs and offer competitive fares to survive the crisis.

"Although crude oil price has tapered off, the current financial crisis will result in many bankruptcies and it will take 2-3 years for the aviation industry to fly out of this crisis," its Managing Director Idris Jala warned last week.