AirAsia said 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 (US$50 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.

tony fernandez and airasia "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.

Looming consumer slowdown

AirAsia said that passenger numbers increased by 21 percent to 2.6 million during the first quarter, while average fares rose 10 percent, and that a looming consumer slowdown would not necessarily hurt its bottom line.

"Passengers who would normally take a full-service carrier are likely to trade down and fly with a low-cost carrier," Fernandes said.

"We believe the way around the spiking fuel cost is by reducing cost, and equally important is to consolidate our brand, using innovation and marketing to drive the top line."

AirAsia's Thai operations have improved considerably with five new Airbus A320 aircraft, and better passenger flow and load factors, it said.

- AFP