Budget carrier AirAsia tips record profits for the three months to December on the back of the strengthening ringgit and lower fuel prices.

"There are two major things going in favor of AirAsia: one is oil, the other is the ringgit, which has had a phenomenal appreciation," chief executive officer Tony Fernandes told today's The Edge daily.

"It is our best ever quarter and I want to stress that this is the first quarter that AirAsia has operated really on a level playing field."

AirAsia announced in November that its net profits fell by almost 35 percent in its first quarter to September to RM5.65 million on lower average fares.

Fernandes said many industry analysts had failed to pick up on the fact that the ringgit had appreciated 6.0-7.0 percent and that this factor combined with lower oil costs had produced substantial savings.

Malaysia's currency is this month trading at its highest levels since the peg to the dollar was removed in 2005.

"About 70 percent of our cost is in US dollars and 6.0-7.0 percent makes a huge impact to our bottom line," Fernandes told the financial daily.

"We also never hedged our currencies because we felt the ringgit would strengthen and we are now benefiting from a stronger ringgit," he said.

What's next

Fernandes said AirAsia had hedged almost 100 percent of its fuel requirements for the rest of the financial year ending June 2007.

"We believe fuel will oscillate between 55 and 65 US dollars (a barrel) and, no matter what OPEC is doing, oil is going down," he added.

The AirAsia chief said the airline's strategy for next year would be to focus on consolidation rather than expansion, particularly on improving its services, driving down costs and increasing flight frequencies.