This article first appeared in The Edge Financial Daily on October 12, 2017
AirAsia X Bhd
(Oct 11, 38.5 sen)
Maintain neutral with an unchanged target price of 41 sen: Recently, we attended AirAsia X Bhd’s (AAX) analyst briefing at its corporate office, RedQ. The meeting was helmed by AirAsia group chief executive officer (CEO) Tan Sri Tony Fernandes, AirAsia Bhd CEO Datuk Kamarudin Meranunm, AAX CEO Benyamin Ismail, and AAX chief financial officer Cheok Huei Shian.
Management discussed the growth focus and outlook for 2018, with its key strategies moving forward being the realignment of capacity for the Australian market, to focus on the North Asian market and potentially to lease up to 10 Airbus SE A330s to support growth in 2018.
In its financial year ended Dec 31, 2016 (FY16), the Australian segment contributed about 34% of AAX’s revenue. Due to overcapacity in the market and heightened competition on certain routes, the segment has been a drag on its earnings. Hence, AAX plans to realign the capacity for its Australian routes by next year to improve profitability. At the moment, AAX will be focusing its capacity growth on the more lucrative North Asian routes, which are Korea, Japan, China and India, while both its associates in Indonesia and Thailand are also expected to replicate the same route strategy.
The recent red flag removal against the safety concerns on Thai airlines by the International Civil Aviation Organization is favourable to AAX’s Thai associate, given an opportunity of growth to add frequencies and introduce new routes to Japan and Korea.
Going forward, AAX aims to focus on medium-haul routes, with expansion opportunities to Europe and America through future hubs from North Asia in the next three to four years’ time.
AAX is scheduled to receive its latest aircraft delivery of A330neos by end-2018. While waiting for the next aircraft delivery, AAX is in talks to take up to 10 A330ceos to support its capacity growth in 2018, of which three to four aircraft will be allocated to Malaysia, four to five aircraft to its Thai associate and two aircraft to its Indonesian associate.
In addition, AAX may also convert some of its fleet order book of A330neos, each of which has 377 seats, to A321neos, each of which has 236 seats, as it plans to go to thinner routes to boost its aircraft utilisation.
The group is expected to further drive its revenue by boosting its ancillary income, and continuously focus on cost reduction through high aircraft utilisation rate, fuel-efficient aircraft and centralised cost.
Currently, the average fuel price for 2017 was 77% hedged at US$60 (RM253.20) per barrel, while in the first half of 2018, it was 14% to 16% hedged at US$62 per barrel. Current Singapore jet fuel price is standing at US$65.57 per barrel. — PublicInvest Research, Oct 11