AirAsia to see exponential growth in Indonesia with the right strategy
by Justin Yap, email@example.com. Posted on June 20, 2012, Wednesday
KUCHING: AirAsia Bhd (AirAsia) will see a quantum leap in the growth of its Indonesian unit (Indonesia AirAsia) should it execute the right strategy upon full implementation of the Association of Southeast Asian Nation’s (Asean) open sky policy in 2015.
AirAsia Malaysia currently owns 58 aircraft to serve Malaysia’s 30 million population as compared with 18 aircraft to serve 240 million in Indonesia.
“We believe the move by its rivals, Tiger Airway, to acquire Indonesia’s Airline Mandala and Lion Airway, to purchase 201 new Boeing 737 aircraft has compelled AirAsia to base its regional office in the country,” MIDF Amanah Investment Bank Bhd (MIDF Research) stated in its report yesterday.
After the announcement on Monday of Aireen Omar as the new chief executive officer (CEO) for Malaysian operations following with the redesignation of Tan Sri Tony Fernandes as the Group CEO, AirAsia had reconfirmed Jakarta as its regional base with Kuala Lumpur remaining as its headquarter.
This was in tandem with its regional expansion plan, enabling it to raise its presence into the fastest growing market in the region. A new team of 20 key officials from Malaysia would be relocated to the new regional office.
Growing profits by 400 per cent to 500 per cent was the aim of Fernandes as he moved to the new regional office in Jakarta. The Malaysian operations currently contributed 75 per cent to group profit despite it having subsidiaries in other countries.
On the other hand, MIDF Research also pointed out that with fuel cost accounting almost 50 per cent of its operating cost, the research firm expected the softening of jet fuel prices to improve AirAsia’s profitability in the coming quarters.
To recap, jet kerosene prices fell sharply by minus 15.8 per cent to US$112.31 per barrel since last month.
“Our house view is that crude oil price will remain depressed at current level for 2012 due to weakening economic outlook in eurozone. We expect the same for jet kerosene price as it moves in tandem with crude oil price,” it added.
Moving forward, the group was also looking to list Indonesia AirAsia by the first quarter of next year. The initial public offering would follow its planned listing of AirAsia X Sdn Bhd, which was expected to fall sometime between October and November this year.
AirAsia holds a 49 per cent stake in Indonesia AirAsia, which currently flies to six cities in Indonesia, four others in Southeast Asia and one Australia.
The research house viewed AirAsia’s decision to set up a regional office in Jakarta and the appointment of new Malaysian CEO positively. It said the move by AirAsia to seek the expansion abroad was a natural growth progression as the Malaysia’s operation had reached a matured stage.
Factoring all the possibilities and risks, MIDF Research pegged its target price at RM4.20 per share.