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3 Things Investors Should Know About AirAsia Berhad

Warren Buffett has famously shared his thoughts on how the airline industry is one of the worst industries to invest in. He went as far as naming the airline industry “a death trap for investors.”

But just last month, the SEC filings of Buffett’s conglomerate, Berkshire Hathaway, revealed that it has invested in three of the four major US airlines.

So, has Buffett’s views on the airline industry changed? It’s hard to know for sure, and it’s likely the case that the airline investments were made by Buffett’s investing lieutenants, Todd Combs and Tedd Wechsler.

But in any case, the airline industry here in Asia has seen tremendous growth over the past decade. In Southeast Asia, several low-cost carriers (LCCs) have grown very aggressively.

One of the largest LCCs in the region has to be AirAsia Berhad (KLSE: 5099.KL), with its market capitalisation of RM6.54 billion. Over the past decade, AirAsia’s shares have generated a total return of exactly 100%.

Here are three things investors might want to know about the LCC.

1. An ASEAN airline

Unlike most traditional airlines which operate mainly from one key hub, AirAsia serves its customers through a few major hubs regionally.

At the moment, the company operates out of Malaysia, Thailand, Indonesia, the Philippines, and India. It was able to do so because it managed to form joint ventures operating under the AirAsia brand with local partners outside of Malaysia.

2. A large fleet

In 2015, AirAsia had a fleet size of 171 airplanes and flew more than 50.7 million passengers. It is not an apples-to-apples comparison given the different planes they have, but for some perspective, Singapore Airlines Ltd  (SGX: C6L) has a fleet size of only 104 planes at the moment.

AirAsia also operated out of 20 airport hubs at the end of 2015 and had 221 routes.

3. An obsession with costs

Being a LCC, it’s important for AirAsia to focus on its costs. The company has been able to maintain a very low operating cost.

In 2015, the company achieved a cost per available seat kilometer of just 12.61 Malaysia sen (around 4.1 Singapore cents). This means it only cost AirAsia 12.61 Malaysia sen to ferry one passenger for every kilometre flown – this cost includes fuel expenses.

Singapore Airlines, in contrast, reported a cost per available seat kilometer of 8.5 Singapore cents in its fiscal year ended 31 March 2016. That’s more than double the self-same number for AirAsia.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.