Malaysia-based AirAsia X reported a second-quarter net loss of MYR128.9 million ($40.9 million), widened from the MYR32.3 million net loss reported for the year-ago period.

The long-haul, low-cost affiliate of the AirAsia Group attributes much of the deepening losses to its ongoing strategy of capacity and network expansion.

AirAsia X CEO Azran Osman-Rani said: “Although our capacity expansion has put short-term pressure on earnings performance, the long-term strategic advantages are very compelling. We now have our strongest route network, with multiple cities in each of our markets, and strong frequencies that lead to convenient transfer connections.”

Second-quarter revenue was up 36.7% to MYR671.6 million, but operating expenses were also up 59% to MYR807.3 million. As a result, the second-quarter operating loss deepened to MYR130.4 million from MYR11.6 million in the year-ago period.

RPKs grew 44% in the second quarter to 5.04 billion while capacity increased 47% year-on-year to 6.26 billion ASKs for the quarter ended June 30, although the rate of growth was down from the first-quarter peak of 60%. Tactical capacity reduction over the next two quarters is expected to see ASKs increase 24% in the third quarter, dropping to 12% in the fourth quarter.

Load factor fell 1.4 percentage points to 80.4%.  However, the airline said a sustained load factor performance above 80% “demonstrates the ability to keep stimulating new travel and tourism demand to fill up the new capacity added.”

Passenger numbers for the quarter broke through the million mark, up 46.2% from just over 697,112 in the second-quarter of 2013.

Looking forward, Azran said: “As we approach the end of the year after 12 months since we added a lot of new capacity in the 2013 fourth quarter, we expect RASK yields to return to positive growth and reach the levels recorded before the expansion. This in turn will return us to profitability, particularly as global fuel prices are expected to soften, while Asian currencies are expected to stabilize. We are already seeing yields catch up in Taipei, the first route to have a doubling of capacity to twice-weekly services that commenced in July 2013.”

He said that regional subsidiary Thai AirAsia X had a successful first three months of operations, recording an 88% average passenger load factor on its inaugural Bangkok-Seoul route.

“The investments in international associates gives us more room for further growth and strengthens our market position in each of our destinations as customers have multiple direct flight options to choose from,” Azran said. 

He added that the 50 Airbus A330-900neo aircraft on order would give the airline “a huge lead over other players in this space.”