After operation suspended twice, analysts vague on AAJ future

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Analysts are uncertain about the future of AirAsia’s operations in Japan following the second suspension of its operations there this year. — Bernama photo

KUCHING: Analysts are uncertain about the future of AirAsia Group Bhd’s (AirAsia) operations in Japan following the second suspension of its operations there this year.

In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) noted that based on recent news flow, AirAsia Japan (AAJ) is expected to begin suspending its operation in Japan temporarily beginning in October 2020 due to poor demand caused by Covid-19.

It said that its operations is expected to be halted on the October 1, 2020 with possible suspension until October 24, 2020, at the earliest, affecting all of its three domestic routes which connects the carrier’s base in central Japan – Chubu to Sendai, Sapporo and Fukuoka. This is the second suspension of the year after the carrier suspended their operation back in April which was also due to the Covid-19 pandemic.

It also noted that AAJ is the smallest unit in AirAsia with just three planes of Airbus A320.

“Going forward, we are uncertain of how the ‘new norm’ will alter consumer demand for air travel even post Covid-19 as everything is up on the air. We believe that there might be possibility of shrinking market size, due to the regional economic contraction. Operationally, there is a small evidence of a potential recovery,” MIDF Research opined.

It added that “the odds are stacked against AirAsia” and as such, it is not convinced yet on the recovery narrative.

“Moving forward, AirAsia will continue to operate in a challenging environment amidst persistent pandemic development, border control and other measures that remains inconducive for airline business to operate in.

“That said, we are not inputting any potential earnings deterioration coming from AAJ as we believe the impact is minute on the already grim backdrop for the group as well as; pending further disclosures from the management,” it said.

Overall, it expected a decline across the board, to below FY19 level but it maintained its positive stance on a possible recovery in FY22.

MIDF Research maintained its ‘trading sell’ recommendation on the stock.