AirAsia X’s 3Q flight frequencies fail to boost overall capacity

AIRASIA X Bhd’s additional flight frequencies in the third quarter of the year (3Q19) were insufficient to boost overall capacity, MIDF Amanah Investment Bank Bhd said.

The long-haul affiliate of low-cost carrier AirAsia Group Bhd increased flight frequencies to Gold Coast, Sydney and Melbourne to cater for increased demand following the school-term holidays in Australia.

However, this was insufficient to boost overall capacity, causing AirAsia X’s average stage length to remain flat on a yearly basis between July and August this year.

In 3Q19, AirAsia X’s average seat per kilometer (ASK) declined by 3% year-on-year (YoY), outpacing the 2% YoY dip in revenue per kilometer (RPK).

“This was due to seasonal capacity management which saw the total capacity (-3% YoY) decline more than the number of passengers carried,” MIDF said in a research note yesterday.

The destinations involved were Sapporo and Taipei in response to weaker demand during the leanest season of the year for these routes.

Meanwhile, AirAsia X Thailand recorded a 32% YoY increase in passengers carried in 3Q19, underpinned by additional seat capacity and the inauguration of the fifth Japanese destination, Fukuoka, on July 2019.

ASK grew at a faster pace of 48% YoY due to high capacity, leading to a decline of 10 points in load factor to reach 77% in 3Q19.

MIDF forecasts a loss of RM8.1 million for AirAsia X in the financial year ending Dec 31, 2019 (FY19), and lower earnings of RM45.6 million for FY20.

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“We are imputing a lower jet fuel estimate as our Brent crude oil estimate for FY19 has been lowered to US$63 (RM264.60) per barrel (previously US$70 per barrel).

“Nonetheless, the effect of lower estimated fuel expenses is moderated by a higher US dollar to ringgit rate of 4.15 (previously 4.08). We have also taken into account lower growth in capacity amid the group’s ongoing network rationalization exercises in its key markets,” the research house said.

Moving forward, lower passenger service charges (PSC) of RM50 for international departures from Asean will deliver an additional boost to the current traveling trend.

The PSC was revised last month for passengers traveling outside of Asean from RM73 to RM50, effective Oct 1, 2019.

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

The adoption of the Malaysian Financial Reporting Standard 16 will be a hurdle to AirAsia X, since the majority of the group’s fleet are leased, with gains from lower interest to be realized beyond the fifth-year of the leased term.

MIDF maintained a Neutral call on the low-cost long-haul carrier with a target price of 17 sen per share based on the adjustment in earnings.

AirAsia X share price closed one sen higher yesterday at 17 sen, valuing the airline at RM705 million.

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