Posted by cruger12345 > 2016-12-29 00:44 | Report Abuse

Two thumb ups for the write up .

Posted by Ricky Yeo > 2016-12-29 09:36 | Report Abuse

There's a clear distinction between competitiveness and pricing power. Competitiveness means can a company continue to make a profit while competing with others. If AA has a low cost base or the ability to keep cost on par or lower than competitors, then yes AA has competitiveness.

On the other hand, pricing power means can a company raise price at the rate of inflation or even better, higher than inflation rate. If AA has consistently done that over the past 3, 5, 10 years, one can say they have pricing power. An increase of 4% over a quarter doesn't conclude anything.

While low cost or pricing power can create a moat for a company, moat has to be viewed on its durability. If a company cannot maintain its advantage over the next 10 years, it isnt considered a moat. When applying moat into both competitiveness and pricing power, the questions are 1) Can Airasia continue to maintain the lowest CASK in the world over the next 10 years? 2) Does Airasia has the ability to increase price at inflation rate over next 10 years when there's lack of past record to support that?

Posted by cruger12345 > 2016-12-29 10:14 | Report Abuse

VG. If you look at the past record, AA could only have this sort of " pricing power " when MAS were dying for the past 2 years. I do agree with Ricky Yeo. But, Ricky, I think you area bit too negative about AA. As long as AA is the lowest cost producer, it will always has competitive edge. After painful years of bleeding capital do you think the other players want to go for another round of price war ? yes MAS and Makindo and adding the capacity. But if the industry doesn't see the huge demand, would you think all the players want to add capacity ? I am a bit on the positive side for I think the demand will still outpace the supply. Well that is my 2 cents. Eventhough the demand is slight lower than the supply it is not the end of the world and AA shall command a better PE price than current of less than 5 ( Base n anulaized 2016 profit ). But market put a price tag of the doom.

Posted by cruger12345 > 2016-12-29 11:29 | Report Abuse

By the way VG. I don't think the IRR value as explained by you in others post would be so straight forward. 1. The aircraft life span should not be calculated as 25 years for the enginer will need major overhaul after 8-10 years. that will be a cash out flow on this. 2. Not all the aircraft at ACC has same life span. hence the IRR shall not be applied to all aircrafts with single input. 3. AAC could add more aircraft in future hence it will be more cash out flow and inflow in future. So it is immposible to use IRR for its valuation like a toll highway like EPF buying Ekovest highway.

Posted by Ricky Yeo > 2016-12-29 11:54 | Report Abuse

I'm not being negative, just clarifying. You and VG know more about AA than I do. I'm just telling as an observation on other industries. The thing is demand is always hard to gauge, in 2004 many economists had high confident that China's boom will be multi decades, pushing everything from shipping, commodities to record high as more capaital flows into those industries to build ships and explore new mine sites, shipyard backlog filled up, and the subsequent bust. When an industry started to improve with excess profit to be made, there will be plenty of supply of money ready to invest to get a piece of it, that's what AA needs to defend against. Again all these are business observation, you have to decide the price and value.

Posted by valuegrowth > 2016-12-29 19:39 | Report Abuse

Ricky, the definition of pricing power is "an economic term referring to the effect that a change in a firm's product price has on the quantity demanded of that product." In the low fuel cost environment, competitors are fighting each other with lower fare or by introducing more aircraft/capacity (Malindo add 5 ATR72 and 10 Boeing 737 in last 6 months), but MAA is still able to maintain their price.
(Source: http://www.investopedia.com/terms/p/pricingpower.asp)
For the inflation rate, I do agree that MAA airfare doesn't inline and may even lag behind inflation rate.

Posted by valuegrowth > 2016-12-29 20:06 | Report Abuse

Cruger,
1. the responsibility of maintenance and overhaul (MRO) in on lessee, not lessor. Alternatively, lessor will charge lessee a fee called maintenance reserve for MRO. As AAC is a lessor, it doesn't has to spend cash from their own pocket, they could even earn interest on lessee's maintenance deposit.
2. For the lifespan, i don't have the breakdown but we do know the average age of all aircraft, it's safe to use average age for modelling.
3. future adding/selling of aircraft is beyong current valuation of AAC's current profolio worthy.

For 1 above, the reason I think it's safe to assume aircraft lifespan of 25 years is due to internationally acceptance of depreciation rate of aircraft. I found from AA & BOC Aviation annual report that both of them are depreciate aircraft in 25 years. If you interest I could send you the spreadsheet of my summary on their depreciation rate, together with my spreasheet of IRR calculation, just give me your email =)

Posted by valuegrowth > 2016-12-29 22:31 | Report Abuse

Btw, i found that you are right about passenger number, it doesn't include AAX group, but does include flights operated by IAAX on behalf of IAA. (i.e 3rd party passenger number we always saw in prelim Operating Statistic.

Posted by cruger12345 > 2016-12-29 22:55 | Report Abuse

Thanks VG. Appreciate if you could email me the calculation. But is there any other way to tell uou my email ? I dunno how many enemies I made in this forum ha ha ha . Don't want to get my email spamed. Read enough spam on i3 already ha ha ha . Thanks.

Posted by cruger12345 > 2016-12-29 22:59 | Report Abuse

By the way reading Tony interview get me a bit spooked. Adding 28 aircraft each year for the coming years . That take a lot of capital. Unless it's cash flow can really match the expansion otherwise it will red flag all over the places . By expansion is good . It will make a lot of money if he can pull it off nicely. Let's hope for the best.

Posted by valuegrowth > 2016-12-29 23:01 | Report Abuse

Haha, really, if anyone disclose their email here, he will spammed by those spammer, haha.
Or maybe u can create a temporary email and we exchange our true email from there?

Posted by valuegrowth > 2016-12-29 23:10 | Report Abuse

Can share the link if interview?

Posted by cruger12345 > 2016-12-30 07:35 | Report Abuse

Ohhhh ... It is in the edge recently which I think iou can find the link in i3. Anyway here you go http://www.theedgemarkets.com/en/article/airasia-moving-full-steam-ahead

Posted by KYLEE > 2016-12-30 08:41 | Report Abuse

I think Tony only said will add 28 aircrafts in 2017 ...he did not mention to add same amount in every year to come. Also, gradual replacement of old planes with new planes will increase effeciency as well as competitive advantage.

Posted by cruger12345 > 2016-12-30 09:18 | Report Abuse

KL Lee. This is from HL bank : " AirAsia has updated its fleet plan for 2017 with an expected growth of 26 net additional aircrafts (+15.9% yoy). Fleet expansion is expected to continue until 2028, with an average of 19-20 aircrafts per annum. New deliveries of A320NEO (15% fuel saving) has begun since Sep 2016, while the A321NEO (20% fuel saving) will begin in 2019. " ....

Posted by cruger12345 > 2016-12-30 11:07 | Report Abuse

VG. Thanks just send you a mail .... you can delete your email here just in case your email gor spamed hahahha.

Posted by annmix > 2016-12-30 22:24 | Report Abuse

malindo its always cheaper than airasia. airasia based far mayb cheaper but u need to add up luggage etc. malindo is all included with 30kg luggage & snacks/ water. even a meal if the flight is more than 3 hours. wider seat n also inflight entertainement. Only Malindo doesnt serve as many routes as AA. I rather pay little more for comfort if the fare jus 20-50rm extra

Posted by cruger12345 > 2016-12-30 23:52 | Report Abuse

An mix. If that is true that will be a great news for Airasia. Imagine you could maintain that pricing with a more than 85% load factor that is a big loney there to be made.

Posted by James_007 > 2017-01-04 19:14 | Report Abuse

Taking away the analytics, i am actually quite impressed by the organizational culture in Air Asia. I think that this is what other competitors are missing at

Posted by skyhawk > 2017-01-04 22:14 | Report Abuse

Airasia is about to complete its pullback corrections.....Best Buy at 2.05....