Until 2011, AiraAsia did not have any dividend policy. However, AirAsia paid their maiden dividend in the year 2011 of 3 sen for every ordinary share for rewarding their loyal shareholders. This was due to the reason that their business was in its early stages of capital and development and needed the revenue reinvested for its future well being (Airasia, 2011). The company used no dividend policy due to their need of funds for the company’s growth and their working capital requirement (Management Education, 2012). The Directors at Airasia wished to announce that their Company adopted the dividend policy of paying the annual dividend of up to 20% of their net operating profit EPS, rounded to the closest whole sen number. Provided that this sort of distribution would not be damaging to Company’s cash flow needs. Also, the firm announced their dividend policy would commence for the FY ending 31st December 2013 (Air Asia, 2013).
The CEO Tony Fernandes, who took charge of the airline in the year 2001, informed through an interview, that Airasia always asked their shareholders to give them 10-12 years of building the infrastructure and the right airline and then they would start paying dividends. Airasia started to distribute profits to their shareholders in the year 2011 after they managed to retain their earlier earnings for financing expansion. With rising competition, unpredictable fuel costs and cyclicality make it difficult for airlines to make money consistently. In the past few years, with the challenges faced by the airline sector, investors looking for returns in the form of dividend payments or capital gain tend to minimize their exposure in the airline counters (Learn Invest, 2013)
With these results it has become just a matter of time for Airasia to pay another dividend payout to their shareholders. The only reason as per the Airasia head, Datuk Seri Tony Fernandes for not paying any dividend since 2004, when Airasia was listed was their need to reinvest as fuel for their growth (Francis, 2010). Further, with the less volatile costs of jet fuel costs and fuel efficient planes helped to sustain the earning of Airasia in the FY2012. Airasia posted their record net profit of RM 1.88 billon or 67.6 Sen per share in the FY 2012, boosted by the RM 1.16 billion gain on the fair value and disposal of their associate Thai Airasia. The operating profit airline remained healthy at RM 1.16 billon (Bhattacharya, 2013). The largest discount airline retailer, Airasia reported tenfold rise in the share values for past 1 year and the airline announced that they would adopt a dividend policy in the FY 2013 as their profits increased in the past four quarters continuously (Castro, 2013).
As per few calculations, net income has grown twofold to US$113 million or 350.6 million Ringgit in the last quarter or December 2013. While their stock has decreased 19% in the last 12 months, after the announcement of a rise in their share values of 8.7% to 2.87 Ringgit per share (Castro, 2013). In 2014, Year on year the net income of AirAsia Bhd has fallen 54.14% from $ 789.61 million to $ 362.12 million, despite a 3.35 percent increase in their revenues from $ 4.95 billion to $ 5.11 billion. The increased cost of the goods sold as the percentage of sales from 65.02% to 71.23% is the component important in falling of Airasia’s net income despite their rising revenues. YOY, both the earnings per share and dividends per share, excluding the extraordinary items growth has dropped 54.15% and 33.33% respectively (FT, 2014).
Air Asia is using the residual dividend policy and chooses to depend on their internally generated equity for financing their business, new projects and paying dividends. Due to this fact, dividend payments may come out of the leftover or residual equity after every capital requirement of Air Asia is met. Air Asia is looking to maintain a balance in its debt/equity ratios before any dividend distributions, which displays their dividend philosophy of paying when there is a significant amount of money left after all operating and expansion expense.
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