AirAsia Group has been cancelling flights for the China sector while suffering low load factor for other sectors. — Bernama photo
KUCHING: Low cost carrier AirAsia Group Bhd (AirAsia) and its long haul affiliate AirAsia X are badly affected by a drastic drop in air travel demand as governments have imposed various bans and restrictions on air flights while people are reluctant to travel.
The research group with Hong Leong Investment Bank Bhd (HLIB Research) noted that AirAsia Group has been cancelling flights for the China sector while suffering low load factor for other sectors.
The outbreak of Covid-19 in China, affecting other 27 countries around the world has raised alerts by the World Health Organisation (WHO) on the severity of the new virus. China has locked down several cities and provinces in bids to contain the virus while several countries have scrutinized their border movements.
At the moment, global health experts are still analysing the virus and developing the vaccines.
“We expect AirAsia Group to re-adjust its capacity to more domestic and India sectors (limited number of cases) and postpone the delivery of aircraft in 2020,” it said in a sector review yesterday. “We believe any recovery of air travel demand will at earliest, only be realised by the third quarter of 2020 (3Q20).”
“We are relatively concerned on AirAsia Group’s 13.7 per cent investment in AirAsia X, with weak balance sheet and cash position.
For the first nine months of 2019 (9M19), AirAsia X has cash of RM401 million with a total debt of RM6.254 billion (inclusive of RM5.93 billion lease liabilities), of which RM806 million was categorised as short term debt (inclusive of RM749 million lease liabilities).
For 9M19, AirAsia X registered negative operating cashflow of RM200 million (operating cash – lease payments), while its current positive cash position was sustained from its sales and leasebacks contract amounting to RM909 million proceeds.
“We expect AirAsia X’s loss making operation to worsen by the Covid-19 outbreak in 2020, and hence AirAsia Group may need to step in to provide support to AirAsia X,” it opined.
AirAsia’s tough outlook was further exacerbated by the alleged scandal where British authorities said Airbus SAS paid US$50 million (RM220 million) for the sponsorship of a racing team owned by the former’s top officials in return for an order of 180 planes (later changed to 135).
Following this, Tan Sri Tony Fernandes and Datuk Kamarudin Meranun had stepped down from their executive roles for “two months or a period that the company may deem fit”.
This is to facilitate a full and independent inquiry by AirAsia Group (appointed BDO Governance Advisory to assist in the investigation). Both founders are viewed to be the crucial factor in driving the group’s into today’s success.
“With this ongoing episode, we reckon that investors are likely to place discounts towards AirAsia at least in the near term, given the leadership uncertainty, perceived or otherwise,” it said.
On a more positive note, global Brent oil prices have dropped to US$55 per barrel due to the outbreak of Covid-19 affecting China’s demand for oil.
Similarly jet fuel price has also trended down to US$63 (from recent US$82 per barrel), which will lower down AirAsia Group’s operational costs, partially cushioning the impact of lower yields and declining load factor.