The threat of regulatory penalties could be a further serious blow to Indonesia AirAsia, in addition to the brand damage that is likely to result from the loss of flight QZ8501.
Revelations that the flight was operating outside the parameters of the carrier’s route authority have prompted an investigation by Indonesian officials. While the immediate focus remains on retrieving bodies and wreckage, eventually the Indonesian low-cost carrier must confront the financial fallout from the crash. This could derail the fragile financial recovery the LCC had achieved.
The Indonesia AirAsia A320 was flying from Surabaya to Singapore on the morning of Dec. 28 when it lost contact with air traffic controllers and crashed. More than 30 bodies have been recovered, and parts of the aircraft fuselage have been identified on the seabed.
While the carrier was allowed to operate the Surabaya-Singapore route four days a week, Sunday was not one of those days, according to Indonesian authorities. The country’s ministry of transport says it will launch an investigation into the LCC’s compliance with route authorizations, and officials have reportedly raised the possibility of route or certification suspensions. The airline has already stopped flying the Surabaya-Singapore route.
Surabaya is one of five aircraft bases for Indonesia AirAsia, which is a joint venture partly owned by Malaysia-based AirAsia. Singapore is an important route from this hub. The carrier also offers four non-stop domestic routes from Surabaya, as well as direct flights to Bangkok and three Malaysian destinations.
Five of Indonesia AirAsia’s 30 A320s were assigned to Surabaya as of Nov. 19, according to AirAsia’s third-quarter reporting. This made Surabaya the affiliate’s third-largest hub behind its main base at Jakarta and Bali’s Denpasar.
Prior to the crash, Indonesia AirAsia was seeing improving financial results and predicting more gains to come. The carrier achieved a slim IDR1.68 billion ($132,706) after-tax profit for the three months ending Sept. 30, a welcome return to the black following three quarters of losses. Another profit was forecast for the fourth quarter.
The carrier has been hurt by the effects of Indonesian rupiah weakness, which has contributed to a spike in costs denominated in overseas currencies. But revenue was up 7% in the third quarter, with unit revenue rising 28% year-on-year and 18% compared to the second quarter.
These gains were helped by higher average fares, and the completion of a network rationalization program that eliminated some loss-making routes. Indonesia AirAsia was achieving more success in brand awareness, according to its parent group.
At the time of the third-quarter report, AirAsia said its Indonesian affiliate’s outlook “remains positive with strong forward booking and [unit revenue] upside.” These assumptions could obviously change dramatically depending on regulatory action and demand shifts stemming from QZ8501.