AirAsia X eyes Hawaii after getting FAA nod to fly to US
KUALA LUMPUR: AirAsia X
’s 1Q17 group core net profit of RM24mil was more than CIMB Equities Research’s previous full-year forecast of RM13mil as it had underestimated AAX’s charter-flight revenues but it was concerned about multiple headwinds.
The research house said on Wednesday it revised up its FY17F core net profit forecast to RM42.7mil. Consensus is expecting higher FY17F profits versus FY16 so the 1Q would have disappointed, it added.
Still, its new FY17F core net profit is 77% lower against FY16, in the same way that the 1Q17 result was 71% lower on-year, due to multiple pressure points.
“Hence, we maintain Reduce but raise target price slightly (to 25 sen from 24 sen), still at one time CY17 price-to-book value,” it said.
Elaborating on the results, CIMB Research said that its Malaysian operations or Malaysian AAX (MAAX) reported an estimated airline-only core net profit of RM28.5mil in 1Q17 (excluding estimated leasing profits earned from its associate airlines), down 63% from 1Q16’s RM77mil, despite a 29% rise in available seat kilometres (ASK) capacity.
The drop was on the back of a 16% rise in the price of jet fuel from US$57 a barrel in 1Q16 to US$66 in 1Q17, a 9% rise in unit staff costs due to salary hikes for pilots and crew as a defensive retention move and a 6% appreciation of the US$, which impacted around 60% of MAAX’s costs.
The strong 29% ASK growth at MAAX also necessitated underlying yield cuts of 4% on-year.
Fortunately, revenue passenger km (RPKs) demand responded well, growing faster than ASK growth and helping passenger load factors (PLF) improve 2.3% pts to 84%.
This blunted the negative yield impact on MAAX’s underlying revenue per ASK (RASK), which shrank but 1.4% against 1Q16.
Yield pressures to China were acute, with yield falling 11% on-year due to a 45% rise in seat capacity, while yields to Australia dropped 3% on-year on a 25% increase in capacity.
Thai AirAsia X (TAAX) delivered similar profits but IAAX losses up. AAX’s 49% share of TAAX’s airline-only core net profit was RM19mil in 1Q17, up 12%
on-year on 15% more passenger volume. This was a decent performance since the 1Q was impacted by the Thai government’s crackdown on zero-dollar tours.
“We have attributed a 100% share of Indonesia AirAsia X’s losses into our group AAX profits, reflecting AAX’s true economic interest, in our view,” it said.
IAAX’s core airline losses doubled on-year to RM30.5mil (100% basis) as its two A330s were only partially leased to Malaysia AirAsia.
“Outlook less rosy in FY17F on multiple pressure points,” pointed out the research house.
It believes that the 1Q will be reflective of what it projected will happen across all of FY17F, with the weaker ringgit, higher oil price, higher staff costs and lower yields impacting the size of MAAX’s profits.
“From 2H17F, the yield pressures could escalate as MAAX may have to bear start-up losses on its new 4x weekly Osaka-Honolulu route that will commence on June 28 while competition in Malaysia could intensify.
“Competition may heighten from 4Q17F and into FY18F as Malindo is expected to take delivery of 3 x A330s from its parent, Lion Air, its first-ever wide-bodies.
“Meanwhile, MAS is looking to lease two additional A330s in 4Q17F and two more in 1Q18F, taking its A330 fleet to 19-strong. These seven additional A330s are expected to compete with MAAX in the medium-haul markets to China, Australia and potentially Japan.
“The last time the Malaysian market saw A330 additions was in FY16, when MAAX added two.
“IAAX operational re-start may need some investment too. IAAX this month recommenced scheduled flight operations with Bali-Narita and Bali-KL-Mumbai flights. When IAAX operated Bali-Sydney and -Melbourne flights in the past, it could not deliver profits, so we are unclear if IAAX will succeed this time,” said CIMB Research.
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