PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 18 Nov 2019, 9:59 AM


AIRLINES - Marginal QoQ Improvement in Operating Statistics

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AirAsia Group (AAGB) and AirAsia X (AAX) delivered marginal QoQ improvement in operating statistics for 3QFY19, with passenger traffic growth of 1.6% and 1.8% respectively. Passenger load factor was commendable at 84% and 81% respectively, despite seasonally leaner quarter. We expect the upcoming 3Q19 results (released in one month’s time) will continue to show YoY earnings decline as airlines performance continues to be dragged by MFRS16 impact and lower yield environment. Meanwhile, both airlines will also recognise the difference of passenger service charge (PSC) claim by Malaysia Airports (MAHB) amounting to RM41.5m in this 3Q numbers, which we believe would negatively impact AAX. We maintain our Neutral stance for airlines sector.

  • Marginal QoQ growth in passenger traffic. AAGB and AAX’s passenger traffic marginally grew by 1.6% and 1.8% QoQ of revenue passenger km (RPK) to 16bn and 6.9bn respectively. This was on the back of 1-2% increase in average seat per km (ASK) to 19bn and 8.5bn respectively. The operating statistics for AAGB was within expectation at 75%, but slightly lower for AAX at 70% of our full year estimates. The passengers carried by “other airlines” (Table 1) were the biggest contributors to the Malaysian traffic growth, of which we believe Malindo Air formed the biggest chunk of the growth, with a marginal QoQ decline to Malaysia AirAsia (MAA)’s market share from 34% to 33%.

    Under AAGB, biggest passenger growth was coming from its Indonesian unit (IAA), with its RPK grew by 10.3% QoQ to 2.8bn and load factor at 85%. This however, partly offset by 2.2% QoQ declined to 2.5bn in its Philippines unit (PAA).

    Meanwhile, AAX executed a seasonal capacity management on Taipei and Sapporo routes in response to weaker demand during the quarter, but increased flight frequencies to Gold Coast, Sydney and Melbourne to cater for increased demand arising from term holidays in Australia. No new routes were added during the quarter.
  • Jet fuel for 3QFY19 declined 19% YoY. Singapore Jet Kerosene price declined by 18.7% YoY to USD75/bbl in 3Q19, compared to USD92/bbl in 3Q18 may provide some cushioned to airlines earnings. To-date, the AAGB has hedged 65% of Brent at USD63.31/bbl for FY19. Meanwhile, AAX hedged 70%-85% of Brent for 2H19 at USD76/bbl. We currently forecast an average jet fuel price of USD85/bbl at RM4.10/USD for FY19.
  • Net fleet growth. In terms of fleet, Malaysia (MAAX) operation will remain with 24 aircraft for FY19, while its associate in Thailand (TAAX) will be adding up to five aircraft in FY19, of which two aircraft were delivered in August 2019. Meanwhile AAGB targeted for a net fleet growth of nine aircraft to its consolidated AOCs (Malaysia, Philippines, Indonesia units), of which it expects to receive 5 more deliveries in 4Q19, with the first A321neo expected to be delivered in November 2019. Its Indian unit (AAI) is expected to add a net addition of 9 aircraft in total, as it plans to expand into international routes.

Source: PublicInvest Research - 23 Oct 2019

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