KUALA LUMPUR (Sept 27): AirAsia Bhd is expected to face a temporary negative impact from the impending volcanic eruption at Mount Agung in northeastern Bali, said CIMB Research.

However, it is the airspace of Jakarta that may be affected by ash cloud from the imminent eruption, based on wind direction, the research house said in a note on the aviation sector.

It noted that AirAsia has the second largest exposure to Bali and Jakarta flights after Singapore Airlines Ltd in terms of point-to-point flights.

"Prevailing winds originating from the southeast of Bali suggest that the ash cloud from Mt Agung could be blown to the northwest and away from the south of Bali, hence, Bali's Denpasar airport may remain open," said CIMB analyst Raymond Yap.

"Bali's main tourist areas and the airport are in the south of the island and are not expected to be physically affected by the lava flows, hence the key tourist infrastructure will remain intact," Yap said, adding that there may be some hesitation to travel to Bali, causing temporary impact on tourism.

"If the airspace around Jakarta is closed, the impact on airlines will be much more severe.

"Flights originating from Australia may not be impacted. However, flights originating from Singapore or Kuala Lumpur may have to take a different air corridor to avoid the ash cloud that may spread across the northern coast of Java," said Yap.

Mt Agung eruption can be quite severe, with one major eruption expected every 100 years, CIMB Reasearch noted. The last major eruption happened in 1963-1964.

"It has the potential to send ash clouds to more than 10,000m high in the atmosphere, impacting airlines that typically cruise at altitudes of 10,000m to 12,000m. The ash cloud could also be dense, which can be of greater risk to aircraft engines," said Yap.

Singapore Airlines had its own share of experience from volcanic eruption, said Yap. The airline lost S$100 million in profits back in 2010 after an eruption in Iceland affected airspaces across Northern Europe for almost a month.

"Having said that, any negative impact will be temporary, and airlines typically recover quickly once the skies clear up," added Yap.

CIMB Research has put an "add" call on AirAsia, with a target price of RM3.51.

The counter was trading four sen or 1.18% higher at RM3.44 as at 4.20pm.