This article first appeared in The Edge Financial Daily on October 26, 2018
AirAsia X Bhd
(Oct 25, 24 sen)
Maintain neutral with an unchanged target price of 26 sen: During the quarter, AirAsiaX’s seat per kilometre (ASK) and revenue-passenger-kilometres (RPK) dropped by -4% year-on-year (y-o-y) and -3% y-o-y to 8,806 million and 7,005 million respectively. In comparison to last year’s third quarter, the ASK and RPK both advanced by more than 15% on a yearly basis. We attribute the slowdown to the volatility in fuel prices which may have hampered its expansion plans.
Looking ahead, we believe further expansion is likely to be challenging if external factors remain unfavourable. At this juncture, we view that the rationalisation of routes is a strategic approach to optimise its current capacity, hence the termination of certain routes such as Tehran and Maldives.
Nonetheless, load factor in third quarter of financial year 2018 (3QFY18) rose higher by +1.0 percentage points (ppts) y-o-y from 79.0% in the same period last year. This comes amidst the occurrence of public holidays, during the quarter especially the four-day weekend during the Yang di-Pertuan Agong’s birthday and Awal Muharram that encouraged Malaysians to take extended leave and travel to further destinations. In addition, the Australian term holiday in July was a seasonal factor which moderated the impact of the typhoon season in August/September period. AirAsiaX Thailand rides on strong demand. Likewise, AirAsiaX Thailand’s load factor remained commendable at 87%, higher by +1ppts y-o-y from the same period last year.
We attribute the increase to the addition of more frequencies in certain routes, with fleet size increased to eight. We believe that this was timely due to the growth in the number of passengers which grew by +36% y-o-y.We were not surprised by the slight drop in ASK and RSK in 3QFY18 considering the volatile fuel price environment which may hamper its expansion plans. Despite the cloudy outlook for the rest of FY18, we are expecting AAX to return to profits in FY19.
This will be coming from further cost cutting initiatives, better capacity utilization and stabilising fuel environment.
Although we maintain our “neutral” stance on the stock due to short-term headwinds, we remain encouraged by AAX’s long-term prospect that is tied to the strategic plan of 1) further reduction in cost per available seat per kilometre; 2) stronger focus in core markets. — MIDF Research, Oct 25