Saturday, September 26

Bumpy ride for AirAsia in 1Q as group sees heavy losses

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In Malaysia, AirAsia restarted its domestic routes on April 29, and continued to scale up since. Management expects 80 per cent of domestic routes to be in operations by July 2020, and is looking at resuming international flights in July.

KUCHING: AirAsia Group Bhd (AirAsia) reported a steep net loss of RM804 million for its first quarter of financial year 2020 (1QFY20) – a sharp contrast to the RM102 million core net profit reported in 1Q19.

The steep core net losses were attributable to lower revenue due to weak travel demand; higher staff cost and maintenance and overhaul expenses; the recognition of RM110 million losses on settlement of fuel hedges; and higher depreciation and interest expenses.

Taking into consideration the weak results and the challenging business environment in 2Q and 3Q, Affin Hwang Investment Bank Bhd (AffinHwang Capital) believed AirAsia’s 2020 core net loss may come in steeper than the market prior forecasts of RM1.05 billion.

“As the Covid-19 pandemic started to unfold and the countries started to impose travel restrictions, AirAsia started its proactive cost management and cash preservation initiatives in February 2020 and hibernated its fleet in March,” it recapped yesterday.

“Management has also undertaken a headcount rationalisation; cut the staff and directors’ salaries; restructured a major portion of its fuel hedging contracts; negotiated with the lessors too defer operating lease and maintenance payments; and is seeking loans and exploring other forms of capital raising.”

In Malaysia, AirAsia restarted its domestic routes on April 29, and continued to scale up since. Management expects 80 per cent of domestic routes to be in operations by July 2020, and is looking at resuming international flights in July.

In Thailand, the domestic routes started on 1st May and the government had announced a number of promotions to boost domestic tourism. Thailand is also discussing with a number of countries to re-open their borders. However, the recovery in Indonesia, Philippines and India may take longer.

“Broadly, management expects a U-shaped rebound in tourist arrivals within Asia Pacific, with domestic markets recovering at a faster pace than international, and expects market normalise in late 2021,” AffinHwang Capital said.

However, over the medium term, Kenanga Investment Bank Bhd expect AirAsia to face tough operating environment derailed by widespread travel disruptions due to the Covid-19, to be hit by lower load factor.

“The group have applied for bank loans in their respective operating countries to shore up liquidity, with net cash currently at RM1 billion as at March 31, 2020,” it said in a separate note.

“In addition, AirAsia has ongoing deliberations with a number of parties for joint-ventures and collaborations that may result in additional third -party investments in specific segments of the group’s business.”

Hong Leong Investment Bank Bhd (HLIB Research) also affirmed that the outbreak of Covid-19 has affected the overall travel demand and yield of the aviation sector, including AirAsia Group.

“We are generally less optimistic on full relaxation within the region as the outbreak of Covid-19 in Indonesia and Philippines are still on a rising trend and hard to control at this juncture,” it said.

“Governments are taking utmost precautionary measures against the risk of a potential second wave within their borders. Management is strategizing in limiting the downside impact with proactive capacity management to match demand.

“AirAsia is also actively implementing cost cutting measures and actively working with stakeholders for better incentives and rebates with stimulus plan in place. Management aims to cut cash expenses aggressively by 50 per cent in 2020.

“On a more positive note, the group’s digital ventures under RedBeat Ventures have been prospering during this difficult period.

“Management will ensure sufficient liquidity to ride through the impact of Covid-19 in FY20. Several measures include reduction of salaries/allowances, deferment of payments for operating lease and aircraft maintenance, contract renegotiations and so on. Management is also seeking loans and exploring capital raising exercises to shore up its cash holding to meet liquidity.”