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AA Official statement Posted on Bursa..

Kuala Lumpur, 15 January 2008 – AirAsia wishes to rectify certain statements appearing in the press and analyst reports with regards to the Company’s fuel hedging strategy.   

It has been stated by the press and in some analyst reports that the Company adopts a fuel hedging strategy that is speculative. The Company wishes to notify that it has never speculated on fuel prices in the past and will not speculate on fuel prices going forward. Our strategy has always been to hedge fuel requirements whenever an attractively priced structure is available. Fuel hedging is an important component of our strategy as it provides us with clarity over our cost structure; this will allow us to manage our seat inventory better and aids route development. We are averse to risks and therefore believe in mitigating those risks by removing variability and uncertainties from our business whenever suitable opportunities arise.  

Prior to a trade being executed, one would have assessed the current operating and market conditions before choosing the appropriate hedge. Therefore, the decision to hedge begins with a view. At the time the earlier hedge was taken in July 2007, our view was that oil prices of above USD90/barrel will be a result of excessive speculative market action in that commodity.

Fuel price volatility intensified in the later part of the second half of 2007 due to higher fuel consumption projections, supply disruptions, geopolitical risk concerns, and the weakening of the US Dollar. Due to the high volatility in oil prices, we are of the view that adopting a static hedged approach (through fixed/plain vanilla swaps) at current price levels would involve taking excessive risks. If one were to opt for a fixed swap now and should fuel prices retrace subsequently, we would be left with effectively an obligation to purchase expensive fuel with no room to manoeuvre out of the position. Therefore, we opted for a dynamic approach and layered fuel hedge structures. We are confident that this is the most suitable approach to manage the high volatile fuel prices and will continue to apply this strategy in the future.

We approach this fuel hedging subject carefully and we have always maintained a conservative stance which has resulted in positive contributions from our past fuel hedges. This has ultimately benefited the Company in reducing the total fuel bill and hence enhance our ability to offer low fares to our guests.

Over the past two months, foreign funds have been reducing their exposure in airline stocks. As depicted in the table below, all the prominent low cost carriers around the world experienced heavy sell downs. Therefore it would be inappropriate to lay the blame on our fuel hedges as the reason for the decline in the Company’s share price.    

 

“We believe that the recent sell down of AirAsia shares are overdone. The Company’s fundamentals are in the best position ever, market demand continues to be robust and we will be launching lucrative routes such as Kuala Lumpur to Singapore and Kuala Lumpur to Guangzhou. With this fuel hedge in place, and assuming that the strong demand and pick-up rate that we are seeing is sustainable, the Company is in a sound position to deliver strong profit growth for the financial year – barring any unforeseen events and circumstances.”