AirAsia X Bhd
(March 28, 38.5 sen)
Maintain buy with a target price (TP) of 53 sen: We hosted senior management — group chief executive officer (CEO) Tan Sri Tony Fernandes, group CEO Datuk Kamarudin Meranun, CEO Benyamin Ismail, and chief financial officer Wong Mee Yen — from AirAsia X for RHB’s corporate digest luncheon on Monday.
The company is expected to grow seat capacity at its Malaysian operations by 20% in 2018, and would be taking delivery of six aircraft this year, bringing its total fleet across its AirAsia X network to 36 aircraft. In terms of deployment, three aircraft would be added to Malaysia and similarly in Thailand. Indonesia would still only operate with two aircraft this year. Over the next five years, management is of the view that they could grow its fleet to 100 aircraft.
While the company is comfortable with operating both Airbus and Boeing aircraft, they believe that the availability of second-hand Airbus 330s in the market should allow them to continue negotiating for more competitive leasing rates going forward.
AirAsia X has an ancillary income per passenger target of RM186 for financial year 2018 (FY18) (versus RM176 in FY17). Aside from the regular food and beverage, seat selection, fly-through services and baggage, the company expects the installation of Wi-Fi on board and offering of freight services to boost duty-free shopping and e-commerce sales. Management is bullish on the viability of its logistics business, and maintains that it can still ensure an efficient 25-minute aircraft turnaround time, despite having to handle additional cargo. Meanwhile, optimisation of its ancillary pricing strategy would be launched in the second half (2H18).
Through its digital initiatives, AirAsia X is expected to better understand passenger preferences and allow for the upselling of targeted services to these passengers, while optimising costs via more predictive maintenance scheduling.
We understand that the company has secured a deferment from Malaysia Airports Holdings Bhd (“Neutral”; TP: RM9.30) and the Malaysian Aviation Commission (Mavcom) in not paying the equalising passenger service charge (PSC) at klia2 that was previously expected to be implemented in February 2018.
AirAsia X hedges its fuel costs based on its three-month forward booking curve.
Looking ahead, we are positive on AirAsia X’s plans to realign routes from Australia to its other more profitable key markets in North Asia and India. This should allow the company to sustain more consistent quarterly earnings going forward. The company’s plans to add capacity and replicate routes from its associates in Thailand and Indonesia to markets in North Asia should also allow the company to optimise its route network, and provide greater economies of scale while sustaining its low-cost structure. — RHB Research Institute, March 28