Revenue of AirAsia Bhd had been growing very consistently, which means that it has a good competitive advantage, resulting in stable and growing market share in the low cost airline industry. The company has achieved year to year average revenue growth of 26.216% which is pretty remarkable.

However, other than its outstanding year to year revenue growth, the financial performance of AirAsia are quite disappointing, mainly due to the highly competitive environment of the airline industry. Net earnings of AirAsia had been a roller coaster ride for the past 10 years. If we narrow down our analysis to the most recent 3 financial  year, AirAsia  had  a  massive  decline  in  earnings  from  RM1.88  billion (FY2012) to RM 82.8 million (FY 2014), which translates to more than 50% decline in just 2 years. The sharp decline in net earnings explains why the net profit margin of AirAsia is barely 1.53% in FY 2014, whereby it use to have 20 to 30 % margin during the good years.

Another alarming aspect of AirAsia’s financial figures is its Total Dept to Equity Ratio. With a 2.793 ratio, it means that the total dept incurred in this company is 2.793 times of the total company’s capital (shareholder’s equity). Moreover, both current and long term liability of the company has been ballooning for the past 10 years. Take long term liability for example, it has grown from RM13.8 million to RM12 billion in 10 years. This translate to an average year to year growth of 110%, an extremely worrying figure. Such high debt incur by the company explains why the both Current Ratio and Cash Ratio are at the low side of 0.594 and 0.340.

In terms of dividend payout, AirAsia have not been paying dividend since financial year 2013, hence it is a no no for dividend seekers.

Note: There is no calculation of Intrinsic Value for AirAsia as it is still loss making.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software toolkit - AirAsia

iVSAChart Comment:

On Airasia weekly chart, it looks like in medium term trend stage 4 may had reversed to stage 1 evidenced by bullish 2 bars reversal at week 4 sep and subsequent wide spread bar with high volume starting a possible stage 2. This reversal at high volume could be caused by speculated privatization plan reported in the media. 

However, on week 25 Sep there was an upthrust bar but at high volume as price was testing recent resistant area but unable to close higher as there are still many sellers at this level.

Subsequent bars indicated sideway trend in stage 2 at high volume (could be absorption). There seems to be a support at RM1.20 level. If the price retest recent resistant of RM1.42 and successful then stage 2 will continue.

However since background is still in red colour, need to monitor closely with tight stop loss for potential break of support line of RM1.20 since breakthrough this level may means continuation of stage 4 again especially if it also break support level at recent low of RM0.86.

In summary, there is a popular quote by Richard Branson who is the founder for Virgin Airlines: “If you want to be a Millionaire, start with a billion dollars and launch a  new  airline.”. Airline  industry  is  highly  competitive  in  nature  and  hence  it  is extremely difficult to achieve stable earnings. Incurring high debt is also part of the airline industry nature as buying new aircraft for expansion is inevitable. Companies with such high debt will place itself in a very vulnerable position especially during the recession period. AirAsia although being one of the best low cost airlines in the world have no exception in having these unfavourable qualities. Investors are advised to think  twice  not  only  investing  in  AirAsia,  but  also  investing  in  other  airline companies.

iVSAChart is also indicating likely profit taking coming after moving from RM 1.10 to RM1.50

(Share price on 20 October 2015: RM 1.52)