Sunday, January 10, 2010

Jetstar tie-up a positive development for AirAsia

08 January 2010

But investors, analysts cautious due to lack of details on coalition

PETALING JAYA: News of the newly forged alliance between AirAsia Bhd and Jetstar Airways Pty Ltd is seen as a positive development for AirAsia, but investors and analysts remain cautious on the budget airline due to a lack of details on the coalition as well as lingering worries about the aviation industry.

“Our main concern remains fuel cost,” Kenanga Research said yesterday. “We are unsure if the alliance would help both airlines in reducing their fuel cost via bulk purchasing or hedges.”

On Wednesday, the two budget airlines made their partnership official after almost a year of speculations about a possible tie-up between them.

Jetstar is the budget airline unit of Australia’s Qantas Airways Ltd, while AirAsia is Asia’s most successful low-cost carrier.

One of Jetstar’s Boeing 717s. Kenanga Research says it is unsure if the alliance will help both airlines in reducing their fuel cost via bulk purchasing or hedges — AP

In a statement to Bursa Malaysia yesterday, AirAsia said the two parties were in “discussions to investigate a possible collaboration” to reduce cost, pool expertise and to drive efficiencies to ultimately result in cheaper fares.

“We view the AirAsia-Jetstar move as beneficial to both airlines because successful cost reduction efforts will boost their bottomlines and help them compete more effectively against high-cost competitors,” CIMB Research said yesterday.

But the research house kept its forecast unchanged for AirAsia at this juncture as “it is too early to assess how much savings AirAsia can derive and how long it will take to extract them.”

CIMB noted that the two airlines operated a significant fleet of Airbus A320 aircraft, with slightly over 100 planes between them, and that they could work together in parts procurement, maintenance contract negotiation and sharing of inventories.

“These procurement savings form the bulk of the potential benefits of the AirAsia-Jetstar cooperation,” it said. Kenanga has predicted, based on figures quoted in the press, that cost savings from the pooling of resources in maintenance alone could be around RM110mil a year.

The two airline chiefs had said on Wednesday that the alliance could lead to as much as A$300mil in annual savings.

Meanwhile, RHB Research Institute has ruled out the possibility that the tie-up would be a prelude to a merger between the two airlines.

“We believe countries in the region are still not ready for cross-border merger and acquisition between airlines due to various highly entrenched strategic, tactical and national security consideration,” it said.

RHB Research also left its forecast unchanged with the latest development.

“Our forecast has already reflected AirAsia’s continued efforts to contain and cut cost. Moreover, AirAsia had said that it intends to pass down some of the cost savings to consumers in the form of cheaper fares,” it said.

AirAsia climbed 1 sen, or 0.7%, yesterday to RM1.43 on a volume of 6.3 million shares.

The benchmark FTSE Bursa Malaysia KL Composite Index eased 0.14% to 1,291 points.

By Izwan Idris

The Star

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