Analysts retain ‘neutral’ stance on AAX as capacity management remain an issue

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KUCHING: AirAsia X Bhd’s (AAX) capacity management is expected to remain a headwind for the rest of the financial year 2019 (FY19) and as such, analysts retained their ‘neutral’ stance on the airline.

In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) noted that AAX’s third quarter of FY19 (3QFY19) preliminary available seats kilometre (ASK) and revenue passenger kilometre (RPK) took a breather as AAX’s ASK declined by three per cent year-on-year (y-o-y) outpaced the two per cent y-o-y dip in RPK.

This was due to seasonal capacity management which saw the total capacity (down three per cent y-o-y) declined more than the number of passengers carried (down two per cent y-o-y). The destinations involved were Sapporo and Taipei in response to weaker demand during the leanest season of the year for these routes.

As such, AAX’s load factor remained reasonable at 81 per cent, one percentage points (ppts) higher than a year ago.

“Flight frequencies were increased to Gold Coast, Sydney and Melbourne to cater for increased demand following the term holidays in Australia. However, this was insufficient to boost overall capacity, causing AAX’s average stage length to remain flat on a yearly basis in 3QFY19,” the research team commented.

Nevertheless, it expected some benefits of AAX’s prudent hedging policy to be realised in 3QFY19 following the average 13 per cent y-o-y drop in the Singapore jet kerosene price during the same quarter, effectively bringing the Singapore jet kerosene price lower by 12 per cent y-o-y on average for 9MFY19.

For AAX Thailand, the research team noted that the 32 per cent y-o-y increase in passenger carried in 3QFY19 was underpinned by additional seat capacity and inauguration of fifth destination in Japan, Fukuoka in July 2019.

Nevertheless, the ASK grew at a faster pace of 48 per cent y-o-y due to higher capacity, leading to a decline of 10ppts in load factor to reach 77 per cent in 3QFY19.

On its projections for jet fuel prices, MIDF Research said it expected Brent Crude oil for FY19 to be lower from US$63 per barrel (previously US$70 per barrel).

“Nonetheless, the effect of lower estimated fuel expenses is moderated by a higher ringgit to dollar rate of 4.15 (previously 4.08). In addition, we have also taken into account of a lower growth in capacity amidst its ongoing network rationalisation exercises in its key markets.

“As a result, we are now forecasting a slight loss of RM8.1 million for FY19 and lower earnings forecast of RM45.6 million for FY20.

“We expect FY20 to see support from the ancillary segment, WIFI onboard and Teleport,” it added.

As for the lowered passenger services charge (PSC) of RM50 for international departures, MIDF Research said it could deliver an additional boost to the current travelling trend.

“Notwithstanding this, we believe the ongoing capacity deployment will remain a headwind for the rest of FY19.

“This is in addition to the adoption of MFRS 16 will be a hurdle as the majority of AAX’s fleet are leased, with gains from lower amount of interest to be realized beyond the fifth year of the lease term,” it opined.

On a bright note, it expected AAX’s ‘Teleport.social’, a platform enabling sellers on social media to integrate with Teleport’s logistics infrastructure to realise full year benefit in FY20.

All in, MIDF Research maintained its ‘neutral’ call on the stock.