Air Asia boss admits high fuel costs are hard to manage

**Bisi Adebayo** (0:02)
How much longer can airlines and shipping companies absorb the soaring cost of fuel? It's World Business Express from the BBC World Service. I am Bisi Adebayo. Air Asia says the current jet fuel shock is hitting airlines really hard and Shell reports stronger profits as energy prices remain high.
So the co-founder of Airline Air Asia has told the BBC that the jet fuel shock triggered by the war in the Middle East is a bigger crisis for global aviation than the COVID-19 pandemic. Tony Fernandes said the company had to slash flights and raise airfares by up to 40% as a result of the conflict. However, the Malaysia-based Airline continues to invest, and this week, it placed an order for 150 Airbus A220s, and that's the single largest order ever made for that particular aircraft. Well, let's hear from Tony Fernandes, and he's been speaking to my colleague, Sally Bundock.

**Tony Fernandes** (1:05)
We're not slowing down our growth. We're not slowing down our ambitions because of this blip. We've just come out of COVID, so we think this aircraft is a great opportunity, and we're grabbing it while that opportunity arises.

**Sally Bundock** (1:19)
Tony, your costs have gone up significantly. How are you managing that, and how do you remain a low-cost carrier when jet fuel prices have gone through the roof?

**Tony Fernandes** (1:29)
Firstly, it's come back out of the crazy levels of $240 to $150.
Pre-war, it was about $90, so we've still got 66% up.
But we're managing through a combination of passing the costs through, plus cost reduction. We're seeing governments quite cooperative in reducing taxes, and airports also helping out. So that's helped, and we're recovering now most of the fare. Obviously, as a low-cost carrier, we're going to see some impact on demand, but at the moment, we feel we can manage through.

**Sally Bundock** (2:06)
How does this crisis in your industry compare to COVID?

**Tony Fernandes** (2:10)
I think it's worse, to be honest, in that in COVID, there was a slight expectation of you're not flying, there was the unknown, the people are much more reasonable. But in this instance, it's normal business for most of the consumers.
So partners are less forgiving, they want to be paid.
So I think it's tougher. And the similarity with COVID is that you just don't know when this is going to end.

**Bisi Adebayo** (2:35)
Air Asia's Tony Fernandes. Well, Shipping2 continues to feel the impact of high oil prices and disruption linked to the effective closure of the Strait of Hormuz. The chief executive of Shipping Giant, Maersk, has told the BBC that rising energy costs are adding around half a billion dollars a month to the company's expenses, costs that are now being passed on to customers. Vincent Clark also warned that rising toll charges in the region could push costs even higher.

**Vincent Clark** (3:03)
I don't think that there has been many other countries applauding this measure. So I think whether it ever becomes reality is something we'll have to see. But it would be a significant change. It would set the Strait of Hormuz to be something similar to the canals in Suez and in Panama, where we also pay to go through. I think the important part to remember, as far as we're concerned, is that this would not be a competitive differentiator because everybody would probably have to pay. So it would be another cost inflation for us, that we somehow would need to understand how we mitigate. But I think at this stage is very, very speculative. And there is a long way before such a toll system is actually applied in the Strait of Hormuz.

**Bisi Adebayo** (3:40)
Well, time now to bring in Anna McDonald, whose Chief Investment Strategy Director at Hargreaves lands down. Anna, so when you hear airlines comparing this few shocks to the pandemic and shipping firms taking or talking about billions in extra costs, just how serious is this becoming for the global economy?

**Anna McDonald** (4:00)
Hi. Well, the longer the Straits of Hormuz remain shut, the more serious the impacts become on the economy. So all eyes are on a potential peace deal.
This crisis is particularly serious for Asian nations such as Air Asia Serves, because they're key users of several of the products that are jet fuel to LNG shipments that are currently stuck. And Maersk's comments show that even after any resolution, it's likely Iran's leverage over the Straits will persist, adding to insurance costs and the potential toll costs he talked about, and I suppose further disruptions if tensions do rise again.

**Bisi Adebayo** (4:40)
And for energy companies, they're benefiting from higher prices, because we're just in shell, posting strong profits. So how are investors balancing those gains?