New Delhi: AirAsia Bhd, the region’s biggest budget carrier, reported its first drop in profit in five quarters as higher fuel and finance costs eroded gains from carrying more passengers.

Net income fell 39% to 104.8 million ringgit ($35 million) in the three months ended 31 March, the Sepang, Malaysia-based airline said in a statement on Wednesday. Revenue climbed 11% to 1.30 billion ringgit.

AirAsia, competing with Lion Air and Jetstar for budget travelers in the region, declined the most in a week in Kuala Lumpur trading. Group chief executive officer Tony Fernandes said the carrier has potential for double digit growth this year as AirAsia expands to India and increased its bet in the Philippines with a 49% stake in Zest Airways Inc.

The airline fell as much as 1.5% to 3.19 ringgit in Kuala Lumpur trading, and changed hands at 3.22 ringgit ass of 9:45 am. The stock has jumped 25% this year, outperforming a 5.7% gain in the benchmark FTSE Bursa Malaysia KLCI Index.

The carrier said jet fuel costs rose 18% in the quarter to 523 million ringgit, while aircraft lease expense climbed 11% to 44.7 million ringgit. AirAsia also had a foreign exchange loss of 37.7 million ringgit on its borrowings, compared with a gain of 88 million ringgit a year earlier.

India venture

Such expenses eroded gains from carrying more passengers and charging higher fares. AirAsia’s passenger numbers rose 7% to 5.2 million in the period, and average fares increased by 2%, according to the statement.

The group is awaiting approval and hopes to start operations in India in the fourth quarter, Fernandes said in an interview on Thursday. The India unit, being set up in partnership with the Tata Group, will help AirAsia tap into a region that International Air Transport Association expects to become the world’s fastest-growing aviation market after Kazakhstan by 2016.

In March, AirAsia acquired the stake in Zest in the Philippines. The airline is expanding as the entry of Singapore Air’s Scoot and PT Lion Mentari Airlines’ Malaysian venture Malindo Airways boosts competition in the region.

AirAsia is also expanding its fleet. In December, the airline ordered 100 Airbus A320s valued at $9.4 billion, in addition to the 200 it had agreed in 2011 to purchase.

Airbus planes

The group currently has 124 Airbus A320 aircraft in its fleet, compared with 118 at the end of 2012. While capacity went up by 9 percent in the first quarter, the carrier filled 79% of its seats, down by one percentage points.

The group’s long-haul arm AirAsia X Bhd. is aiming to raise as much as $300 million through a Malaysian initial public offering. The five year-old airline plans to offer 790.1 million shares to raise between $250 million and $300 million to help finance aircraft purchase.

The share sale is the second of the three proposed listings by AirAsia’s affiliates. Asia Aviation Pcl, the parent of Thai AirAsia Co., was the group’s first affiliate airline to sell shares, debuting in Bangkok’s stock exchange last year. Its Indonesian unit will also go public in the third quarter, Fernandes said in February.

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