A milestone quarter that featured the Malaysian government's decision to shift the bulk of domestic operations to AirAsia starting Aug. 1 and the opening of the low-cost terminal at Kuala Lumpur International Airport did not end with very good news on the LCC's bottom line, which showed a profit of MYR22.8 million ($6.3 million) for the fiscal third quarter ended March 31, narrowed from earnings of MYR40.7 million in the year-ago quarter.AirAsia said the decline "was mainly due to lower average fares arising from our aggressive promotions, competitive pressures and heavy maintenance checks due to the induction of the last batch of Boeing 737 aircraft." Its average fare fell 21.2% to MYR123 during the period.

Revenues rose 23% to MYR201.7 million but expenses increased 32.2% to MYR146.8 million, dropping operating profit 3.6% to MYR50.1 million. The promotional efforts did succeed in driving passenger growth as RPKs lifted 54% to 1.83 billion against a 39% rise in capacity to 2.3 billion ASKs. Load factor climbed 8 points to 80%. But unit revenues fell 19% to 2.95 cents.

The carrier's unit costs bode well for a spike in profitability should yields rise, as cost per ASK climbed just 1% to 2.14 cents and fell 16% to 1.16 cents excluding fuel. Fuel costs jumped 26% during the period.

Thai AirAsia reported a net profit of THB41.7 million ($1.1 million), while Indonesia AirAsia "continues to produce losses," the company said.

AirAsia said its fourth-quarter outlook is "positive relative to the third quarter." It said it has budgeted for higher oil prices and that the end of its Supersaver discount program will lead to a more "benign" yield environment. "[Delivery] of the new A320s, the cost and operational benefits from the low-cost terminal and the strengthening ringgit should continue to drive operating costs lower," it added.