KUALA LUMPUR (April 29): MIDF Research has maintained its "trading sell" rating on AirAsia X Bhd (AAX) at 11 sen with an unchanged target price of 3 sen after the airline recorded a drop in preliminary available seat kilometres (ASK) by 21% year-on-year (y-o-y) to 6.87 million the first quarter of financial year 2020 (1QFY20) compared to the 5% y-o-y decline in 1QFY19.

In a note today, the research house said the wider decline in ASK was partly attributable to the massive capacity cuts beginning in February 2020 amid the Covid-19 pandemic. 

"Flight frequencies to China were first to take a hit in February 2020 before carrying out capacity realignment in almost 90% of MAAX's network (Australia, Japan, South Korea and India) later in March 2020," it said. 

Meanwhile, Public Invest Research explained that AAX's traffic volume contracted by 25% y-o-y to 1.1 million passengers. This is on the back of capacity cuts with ASK dropping by 21% y-o-y amid reduced flight frequency as well as temporary suspension of certain routes, to mitigate slower travel demand as a result of Covid-19. 

The group's load factors dropped below 80%. As such, MAAX's passenger load factor during the quarter inched below 80% to reach 74%, a level not seen since FY15, said MIDF.  

Meanwhile, Public Invest Research said passenger load hence declined by 9.4 ppts to 74%, compared to 83% in 1Q19.

"Both the number of passengers carried and ASK for 1Q20 were above our expectation at 29% of the full year forecast. 

"However, though we believe this to be in-line as we expect poorer numbers for the rest of the year," Public Invest Research said. 

Both MIDF and Public Invest Research said the decline in load factor was inevitable due to the massive capacity and frequency cuts mentioned before the temporary hibernation of MAAX's fleet from March 28 to May 31, 2020. Thus, this will negatively affect its 2QFY20 earnings for certain. 

Similarly, AirAsia X Thailand (TAAX) passenger load factor in 1QFY20 went below 80% to reach 77%. 

Public Invest Research said that during the quarter, TAAX's ASK capacity decreased by 22% y-o-y to 2.6 billion. 

"As at March 2020, TAAX fleet size remains at 14 aircraft," it added. 

MIDF explained that TAAX was also not left out from suspending all flights from March 16, 2020 for a period of three months except for DMK-ICN, which is suspended until April 19, 2020. 

"That being said, the risk of further extensions of these travel bans or lockdown will negate the resumption of AAX's flight operations. Therefore, this could derail the positive sentiment coming out from North Asia as countries like China have gradually added domestic flights," said MIDF. 

In March 2020, it halted almost 90% of its routes network, including Australia, Japan, South Korea and India. Four routes were terminated in March, namely Tianjin, Wuhan, Lanzhou and Jaipur.