By Stanley Lim Peir Shenq, CFA - September 17, 2016

AirAsia X Bhd (KLSE:5328.KL) is one of the newest experiment of the aviation industry. For the past decade, the airline industry has been seeing tremendous growth from its short-haul, low-cost carrier business model compared to the traditional full-service carrier model. However, it is only recently that we are seeing more long-haul low-cost carrier gaining popularity in the industry.

AirAsia X Bhd is one such airline, together with Scoot from Singapore Airlines Ltd (SGX: C6L), they focused more on long-haul travel using a lower cost business model. However, just how different is AirAsia X from the entire Singapore Airlines Group? Here are the key differences between them.

Size

The most obvious difference between the two companies is their size. AirAsia X has been growing quickly in recent years, boosting its revenue from RM1.86 billion (S$620 million) in 2011 to more than RM3.0 billion (S$1.0 billion) by 2015. That is still just a mere 6.6% of the S$15.2 billion sales which SIA generated in 2015. In term of market capitalisation, AirAsia X is currently valued at RM1.6 billion (S$540 million), which is just about 4% of Singapore Airlines’ S$12.4 billion valuations.

Business Segment

Another key difference to note is that AirAsia X has a more simple business model. It operates mainly in one business segment; the long-haul low-cost traffic. Singapore Airlines, on the other hand, has multiple businesses, from its flagship Singapore Airlines to its short-haul service airline, Silkair. In its budget aviation division, the company operates Tiger Airways and Scoot. Moreover, SIA is also the major shareholder of SIA Engineering Company Ltd (SGX: S59), its aircraft maintenance, repair and overhaul division.

Debt

Lastly, the two companies have very different debt profile. Singapore Airlines has been a very conservative company, which still maintained a net cash position even when it is operating in a capital-intensive industry.

AirAsia X has a net debt to equity of 94% and an interest coverage ratio of just 1.5 times. The company is heavily in debt and can be considered higher in risk as a company.

Foolish Summary

Although both companies are in the aviation industry, we are able to see how AirAsia X and Singapore Airlines are so different in term of their size, business models and their debt profile.

Singapore Airlines is currently trading at 12.7 times earnings and offers a 4.3% yield. AirAsia X is trading at about 17 times earnings and does not pay a dividend.

https://www.fool.sg/2016/09/17/how-does-airasia-x-bhd-compare-to-singapore-airlines-ltd/