AirAsia X eyes $275 million in share sale

KUALA LUMPUR, Malaysia (AP) -- Malaysia's long-haul budget carrier AirAsia X said Monday it hopes to raise up to $275 million in the country's biggest share sale this year to repay debts and fund its expansion.

The airline in its prospectus said the estimated proceeds were based on an indicative price of 1.45 ringgit (46 cents) per share for 592.6 million new shares in its initial public offering. The final price will be set on June 24, ahead of its listing on July 10.

Tony Fernandes, who heads affiliate AirAsia and also a founder of the long-haul arm, said the listing was testament that the low-cost, long haul airline was pioneering a "breakthrough business model" that has unlocked new demand and revolutionized travel. He said the airline has one of the world's lowest operating costs, enabling it to offer fares up to 50 percent cheaper than full service carriers.

"AirAsia X's unique proposition lies in their competitive fares and early mover advantage...we are expanding our group further and this is just the tip of the iceberg," he said in a statement.

The IPO comes amid increased competition as more budget airlines take to the skies to grab a share of Asia's fast-growing market. Air travel in Asia is expected to grow 6.7 percent annually in the next 20 years, from 780 million passengers in 2010 to some 2.2 billion by 2030. Budget aviation now has a quarter of the air travel market in Asia, and growing.

AirAsia X, which was launched in late 2007, flies to 14 destinations across Asia, Australia and the Middle East.

Brendan Sobie, regional representative based in Singapore for the Centre for Asia Pacific Aviation, said the IPO will boost AirAsia X as it seeks to establish new hubs to strengthen its network.

He said some investors are however, skeptical if the long-haul, low-cost model is viable given high fixed costs and fuel prices that are eating into airlines' profitability. AirAsia X axed flights to Europe last year and is focusing on more medium-haul routes in Asia, which is to its advantage, he said.

"In terms of demand, there is still room for growth as the medium and long-haul sector is not as competitive as the short-haul sector," he added.

AirAsia X carried 2.5 million passengers in 2011 and has said it aims to grow this to 7 million by 2014. It made a profit of 33.85 million ringgit ($10.8 million) last year, on the back of revenues of 1.28 billion ringgit ($409 million).

The airline said it will use one-third of its IPO proceeds as capital expenditure, another one-third to repay bank borrowings and the remaining as working capital and listing expenses.