AirAsia said today its net profits defied spiralling fuel prices to leap 86 percent in the first quarter, but that rising costs would impact on profit margins in the future.

Profits rose to RM161.3 million in the three months to March, from RM86.9 million in the same period a year ago, on revenue growth of 31.8 percent to RM535 million.

"The airline industry is presently facing one of the toughest challenges, with record jet fuel prices, tightening of the credit market and slower world economic growth," said CEO and founder Tony Fernandes.

"The escalating and volatile fuel price remains the principal challenge for the industry in 2008," he said in a statement.

Fernandes said the airline has hedged a portion of its fuel requirements for the second quarter but after that it would be "essentially unhedged" and will purchase fuel on the spot market.

"There is no doubt that fuel price will have an impact on our profitability and profit margins. We are confident that we will remain profitable for the full year," he added.