Tuesday, 27 January 2015

AirAsia earnings still intact

PETALING JAYA: Industry analysts generally concur that AirAsia Bhd’s earnings prospect remains intact despite its decision to abolish fuel surcharges across all airlines in the group.

The total removal of surcharge effective yesterday also includes low-cost long-haul affiliates AirAsia X, Thai AirAsia X and Indonesia AirAsia X, in line with declining global oil prices.

Largely, the analysts had already factored in the removal of surcharges to some extent in their previous estimates and believed that this would boost sales for the budget airline group.

AirAsia domestic flight fare could now go to as low as RM19 one way all-in, and international flights from RM49 one way all-in, said AirAsia in a statement.

MIDF Research analyst Tay Yow Ken said there wouldn’t be any changes in the company’s estimates published in a report last Friday as he had expected the fuel surcharge abolishment to be implemented soon.

“We have already factored it in our estimates,” he told StarBiz yesterday.

In the report, the research house said the removal of fuel surcharge would be positive for AirAsia.

“Even with the lower fuel surcharge, management expects yields to remain resilient.

“This is mainly due to the higher passenger volume expected in anticipation of Malaysia Airlines’ (MAS) planned capacity reduction,” it said.

MIDF Research explained that when AirAsia last removed its fuel surcharge in November 2008, Brent crude prices averaged at US$54.7 per barrel for that month.

“Despite that, yield was sustained at 14.1 sen before rising to 16.2 sen in 2010 due to higher passenger volume and the introduction of new routes. Furthermore, AirAsia, which adopts a lean operating cost structure, would have an edge over its rivals.

“We also believe that the fuel surcharge removal would generate positive publicity for AirAsia in the wake of the QZ8501 crash,” it said.

According to MIDF Research, the management guided that for every dollar of change in jet fuel price, earnings would be impacted by RM15mil.

Crude oil prices have plunged by more than 50% over the last seven months to around US$45 per barrel currently due to oversupply of the commodity in the international market amid weak demand. About 50% of AirAsia’s jet fuel requirements for 2015 are hedged at US$88 per barrel while it is presently hovering at US$60 per barrel.

On whether MAS would follow suit, Tay said MAS had, to some extent, lowered its fuel surcharges, adding it was hard to predict the immediate action now that the airline had been taken private.

MAS’ community airline, Firefly, had announced special fares with the removal of fuel surcharges under a Chinese New Year promotion deal recently.

MIDF has maintained its “buy” call on AirAsia with a target price of RM3.70 pegged to financial year 2015 price-to-earnings ratio of 10 times.

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