AAX 2Q loss widens; optimistic about turnaround this year


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KUALA LUMPUR (Aug 19): AirAsia X Bhd (AAX), the long-haul, low-cost affiliate of AirAsia Bhd, reported its second-quarter net loss widened by 3.2% to RM132.94 million or 6.1 sen loss per share from RM128.79 million or 5.4 sen loss per share a year ago, largely because of foreign exchange (forex) losses from a strong US dollar.

The airline recorded a forex loss of RM28 million in 2QFY15 compared with a forex gain of RM20 million in 2QFY14 as the ringgit depreciated 13% against the US dollar year-on-year (y-o-y) in 2QFY15 to 3.66 from 3.24 in 2QFY14.

"With every 10 sen movement in the ringgit against the US dollar, the airline will recognise either savings or expenses of approximately RM50 million per year," said AAX in a statement today.

Revenue for the three months ended June 30, 2015 (2QFY15) fell 2.8% to RM653.03 million from RM671.61 million in 2QFY14, primarily due to the decrease of scheduled flight revenue of 16% y-o-y and 24% y-o-y for ancillary revenue resultant from lower load factor. Its revenue per available seat-kilometer (RASK), however, improved 6.7% to 11.51 sen for the current quarter under review compared with 10.79 sen in 2QFY14.

AAX  blamed the lower load factor to a halt in marketing activities, the Middle East respiratory syndrome outbreak in South Korea and the massive earthquake in Kathmandu, Nepal.

"Despite the decreased in load factor by 12 percentage points to 68% in 2QFY15 from 80% in 2QFY14, average passenger fare has improved by 7.2% to RM415.91 from RM388.07," said the airline in a filing with Bursa Malaysia today.

The weaker 2QFY15 results widened its net loss for the six months period (1HFY15) by 84.8% to RM258.86 million from RM140.07 million a year ago.

Revenue, however, improved by a marginal 0.5% to RM1.43 billion in 1HFY15 from RM1.42 billion in 1HFY14. Its RASK also increased by 7% to 12.24 sen as at June 30, 2015 from 11.44 sen as at June 30, 2014.
As a result of the weakening ringgit, AAX said it recognised unrealised forex loss on borrowings of RM120.1 million in 1HFY15 compared with an unrealised forex gain of RM8 million in 1HFY14.

Looking forward, AAX said advance bookings indicate that recovery in passenger and yields evident in 2QFY15 will hold up for the rest of 2015.

"Average fares are expected to be higher than in the prior quarter as marketing activities are resumed and better price discipline returns to the market. The airline remains on track with its turnaround plan with a focus on optimising fleet size and improve yields and loads," said AAX.

"We’ve seen return of business in 3QFY15 onwards as forward bookings for the second half of the year is promising. We are optimistic in reaching a turnaround this year as we’ve set ourselves the task of getting AirAsia X to a better financial footing," AirAsia X group chief executive officer Datuk Kamaruddin Meranun said in the statement.

Nevertheless, AAX is cognisant that a severe weakening of ringgit will adversely impact its financial performance.

"However, yields and loads are expected to be stronger as a result of a more rational pricing environment," it added.

In the effort of reducing the forex’s impact, the airline is intensifying sales from stronger currency markets such as the Australian dollar and other currencies to offset US dollar bills.

It sees upside in yields with the new routes launch such as Sapporo and Hawaii, improved ancillary products and services, intensified marketing especially in Australia and the strategic network consolidation.

"Taking into account the recently completed rights Issue with warrants and the initiatives intended, we believe that we have taken the necessary steps to rationalise our operations and improve financial performance," said AAX.

 AAX shares closed 2.86% higher at 18 sen today, bringing a market capitalisation of RM746.67 million.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)