KUALA LUMPUR (March 10): Expected resilience backed by continued improvements in revenue yield, ancillary revenue growth and gradual recovery in associate airline operations has encouraged RHB Research to maintain its ‘Buy’ call on AirAsia X Bhd.
However, it also said its future recommendation on the subsidiary of AirAsia Bhd would depend on the performance of the ringgit, which has depreciated from an average of RM4.14: US$1 in 2016, to RM4.47: US$1.
“We forecast the ringgit to average at RM4.43, suggesting downside risks if the currency continues to weaken. This is as all of its debt and large portion of AirAsia X’s operating costs are denominated in U.S. dollar,” RHB Research said in its note today.
AirAsia X’s management is anticipating a 25% increase in available seat kilometres (ASK), driven by full-year impact of the capacity put in place in 2016, higher aircraft utilisation and redeployment of two wet lease aircrafts back to schedule flights.
“Although the Mauritius route is to be dropped, it plans to increase frequencies to Tehran, and introduce flights to Wuhan and Hawaii later this year. We believe management may add one more new destination in Asia to deploy its spare capacity,” RHB Research said.
“ASK growth could exceed 25% if AirAsia X manages to commence flights to Europe later this year,” it added. Still, launch to European routes from Malaysia will depend on the availability of appropriate aircraft for lease.
Though competition within the industry is set to intensify with the addition of fresh capacity by Malindo Air and Malaysia Airlines, AirAsia X could continue reporting slower, but continued improvements in 2017 yield, amid new route additions.
The carrier was noted to continue increasing its average air fares by double digits, especially for high demand maturing routes such as Japan, Iran and South Korea.
“[Nevertheless,] the forward booking numbers disclosed by AirAsia X remains encouraging, with higher y-o-y load factors and average fares through to July,” RHB Research said.
The firm has forecast an increase of 8% and 2% in yield for 2017 and 2018 respectively, down from the 14% (excluding fuel surcharge) in 2016.
Additionally, Thai AirAsia X (TAAX) witnessed strong operational improvements in 2016, as losses continued to narrow and is expected to turn profitable in 2017.
Indonesia AirAsia X (IAAX) has suspended operations beginning Sept 2016, and is undergoing restructuring. Operations are expected to resume in early 2H17.
“However, earnings from two aircrafts being leased to AirAsia should help sustain earnings and enable the airline to report lower losses in 2017,” RHB Research said.