KUCHING: AirAsia Group Bhd (AAG) could benefit from Malaysia Airlines’ (MAS) suspension of the delivery of 25 Boeing 737 MAX jets as it opens up more potential for the group to increase its market share.
According to Reuters, MAS said it has suspended taking delivery of 25 Boeing 737 MAX, citing that the plane’s delayed return to service since it was grounded last year. It reported that the carrier was expected to take the delivery of its first 737 MAX July but last year.
In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) noted that out of the 25 deliveries of the Boeing 737 MAX jets being suspended by MAS, the airline previously planned to have five of the said aircraft delivered in 2020.
“Assuming that MAS will not replace these Boeing 737 MAX deliveries, other airlines particularly AAG is set to benefit by capturing the capacity,” it opined.
It said that the Boeing 737 MAX is a narrowbody jet with a capacity of 160 to 220 passengers.
“AAG’s Malaysian arm, Malaysia AirAsia (MAA) on the other hand is expecting a delivery of three new A321 neos (236 seats each) and one A320 neo (186 seats) in 2020.
“Therefore, we believe that AAG’s fleet plan for Malaysia is poised to grab some market share from MAS, increasing its share of circa 60 per cent.
“Moreover, this will stand well with the expected increase tourism activity in conjunction with the Visit Malaysia Year 2020,” it added.
In line with the expectation of AAG grabbing more market share of MAS, the research team believed that it would have a positive impact to passenger traffic in klia2.
It noted that KLIA2 recorded a higher growth in international traffic of 3.8 per cent year-on-year (y-o-y) in 2019 compared to the 2.4 per cent y-o-y growth recorded at KLIA Main Terminal during the same year. As such, we believe that AAGB will continue to attract more passenger traffic to klia2 in 2020,” it added.
All in, MIDF Research maintained its ‘buy’ rating on the stock.
It said it continued to favour AAG as the company continues enhance its cost structure, along with its efforts of rationalising revenue and cost via digitalisation efforts.
“Our positive outlook on the AAG also hinges on its more prudent hedging policy, stable operations with added capacity, and continuous improvement to drive its non-airline ancillary business,” it added.
Meanwhile, the adoption MFRS 16 would be a headwind in the coming few years as the majority of AAG’s fleet are leased, it pointed out.
“Nonetheless, AAG is expected to gain from lower amount of interest beyond the fifth year of the lease term. We opine that passenger growth in Malaysia to remain intact despite the departure levy which took effect in September 2019 as the levies gazetted are lower than regional peers such as Thailand and Hong Kong,” MIDF Research said.