Kingfisher shares soar following BA codeshare announcement; AirAsia to float AirAsia X

07 September 2010

Several Asian stock markets advanced for a fourth consecutive session on Monday, with the Nikkei Stock Average (Tokyo) rising 2.1%, the S&P/ASX 200 (Sydney) adding 0.8%, The Sensex (Mumbai) gaining 1.9%, the NZX 50 (Wellington) increasing 1.2% and the Wintek (Taipei) soaring by the daily 7% limit. The stock market advances occurred following better-than-expected US job data which eased economic concerns and buoyed Wall Street on Friday.

Kingfisher Airlines was the best stock of the day, jumping 8.8% after the carrier signed a codeshare agreement with British Airways, and British Airways CEO, Willie Walsh, commented its future oneworld member partner was “clearly the best partner” in India.

Mr Walsh, who stated the carrier has a list of 12 potential takeover takeover targets, added that if the Indian Government amends its Foreign Direct Investment (FDI) legislation “all airlines around the world will look at the possibility to invest in Indian carriers”, adding, “I have no doubt Indian carriers would welcome such foreign investment because airlines are looking at strengthening their financial position.”

Meanwhile, Davy Stockbrokers commented: "I would say Asia is number one in the [BA] context that it's a high-growth market. India is very important for them and I suspect Kingfisher is top of the list."

Meanwhile, KSEMA Fincon recommended Kingfisher Airlines as a good stock to buy in the upcoming six months, while SMC Global Securities commented that Kingfisher “can be a good stock to look for” at a target price of INR78, commenting: "Kingfisher is in the backdrop of their debt restructuring … Once the debt is removed and the restructuring efforts are successful then the company's efficiency levels and their profitability levels will significantly go up and because of this debt levels, even the stock has remained under pressure for quite some time and going forward, there can be a good strong relief rally in the stock."

Also gaining strongly was Jet Airways (+5.6%), while on the other end of the spectrum, Tiger Airways’ shares declined 2.0%.

Thai Transport Ministry summons Thai Airways to explain LCC JV agreement

Thai Transport Ministry has summoned Thai Airways to explain its agreement with Tiger Airways to jointly launch LCC, Thai Tiger Airways. The carrier will answer questions from the Ministry on 15-Sep-2010, with the Ministry claiming the carrier is yet to clarify some of its issues of concern. Transport Minister, Sohpon Zarum, has insisted Thai provide full details of the JV and has stated that if the agreement is found not useful or lawful, it would be halted.

AirAsia confirms plans to float AirAsia X

In other Asia Pacific LCC news, AirAsia CEO, Tony Fernandes, commented that the group plans to float AirAsia X as he is seeing “a bit of contamination” between the way AirAsia and AirAsia X are operated.

The carrier will list in Malaysia and possibly in London or New York. The CEO declined to disclose how much of the business will be sold to outside investors, but stated AirAsia's 16% stake in AirAsia X would be “treated as an investment” and sold down gradually. However, the two airlines will not be fully separated and will continue to share a website. Four executives, including Mr Fernandes, will remain on a board for both carriers. Shares in AirAsia gained 1.1% yesterday.

Asia Pacific selected airlines daily share price movements (% change): 06-Sep-2010

Source: Centre for Asia Pacific Aviation, Reuters & Financial Times

Virgin Blue pax up in Jul-2010; AirAsia focuses on ancillaries; Thai Tiger revising business

30 August 2010

Shares in Virgin Blue gained 3.2% on Friday, the same day the carrier released its traffic results for Jun-2010 and Jul-2010.

The carrier reported a 7.3% increase in passenger numbers to 1.6 million (1.4 million for domestic operations and 283,500 on international services) in Jul-2010, with an average load factor of 81.6% (78.7% for domestic and 86.0% for international routes). This follows 1.5 million passengers in Jun-2010 with an average load factor of 75.4%.

Thai AirAsia, Indonesia AirAsia may convert debt into equity when listing

In other Asia Pacific LCC news, AirAsia CEO Tony Fernandes stated Thai AirAsia and IndonesiaMalaysia Business Times report on 30-Aug-2010. The collective debt of the two carriers is approximately MYR800 million. Mr Fernandes added that AirAsia’s 49% shareholdings in Thai AirAsia and Indonesia AirAsia would be diluted once they are listed. AirAsia may look to convert their debt into equity when they seek listing, according to a

Mr Ferndandes also said the carrier aims to increase ancillary income to USD19.14 (MYR60) per passenger in the next three years. Shares in AirAsia gained 1.9% on Friday.

Tiger financially strongest option for LCC JV

Also in the region, Thai Airways President, Piyasvasti Amranand, commented that the carrier selected Tiger Airways as its partner to launch LCC JV, Thai Tiger Airways, after looking at a number of options, including Jetstar, Dragonair, Cebu Pacific and Lion Air.

Mr Amranand said Tiger was selected as it is financially the strongest and the two airlines have the “same business concept” and “same enemy”. The two are now revising a business plan, to include regional and domestic routes. Mr Amranand said the carrier would not be losing aviation slots to Tiger Airways as a result of the JV.

Cebu Pacific yet to decide on timing for IPO

Meanwhile, Cebu Pacific parent, JG Summit Holdings Inc, stated it is yet to decide the timing of plans to launch an IPO for the LCC. The company said the timing of the offer would depend on approvals from the stock exchange and securities regulator.

Selected LCCs daily share price movements (% change): 27-Aug-2010

Source: Centre for Asia Pacific Aviation, Yahoo! Finance & Reuters

Low dividend payout by AirAsia if any

24 August 2010

PETALING JAYA: While analysts approve of AirAsia Bhd’s move to pay dividends, they expect the dividend payout will not be significant yet.

The budget carrier, which has been listed since 2004, do not have a dividend policy. However, the group is now considering to pay dividend to its shareholders.

HwangDBS Vickers Research said that although the dividend payment was positive for AirAsia’s shareholders, it did not expect yield to be attractive, considering AirAsia’s huge capital commitment as it was still at its expansion phase.

A local analyst said although AirAsia could afford to start paying dividend, it need not do so as no one expected the airline to pay dividend.

“Its cashflows are okay but the questions is not about the decision to pay, but by what quantum. It (quantum) makes a difference, for example paying one sen – which still constitutes a dividend although it’s not material – and a payout which gives a decent yield such as 10 sen,” he added.

A bank-backed analyst concurred that AirAsia could afford to pay dividend based on its current cashflow but it would not be as significant yet. He added that investors could invest in dividend stocks such as British American Tobacco if dividend was what they were after.

“AirAsia is a growing company. Investors invest in AirAsia for its growth story. They could pay half a sen to one sen in dividend and it may be more symbolic in the next three years,” he added.

The analyst also said AirAsia needed to restructure its Thai and Indonesian units as both were currently leveraging on its balance sheet.

Another analyst said AirAsia was currently on an expansion phase and would required large capital commitment. Hence, its dividend yield would not be as attractive.

“I don’t think it will be that much. In terms of yield, it may not be that attractive,” she said.

Yesterday, a local daily reported group CEO Datuk Seri Tony Fernandes as saying the group was planning to propose a dividend policy by the third quarter of this year.

AirAsia has been mulling over a dividend for some time. In June, Fernandes said AirAsia was in a much better position to consider paying dividends to its shareholders after solving some issues within the group.

Although it has announced its intention to pay its maiden dividend, the carrier has not given any indication on when the first payout will be.

As at June 30, AirAsia has a short and long-term borrowing of RM7.58bil and a deposit, bank and cash balances of RM858.1mil.

“The borrowings are mainly in the form of term loans which are for the purchase of new Airbus A320-200 aircraft,” it said in notes accompanying its latest quarterly results.

For the quarter ended June 30, AirAsia posted a net profit of RM198.9mil for the three months to June 30, a 43% jumped from RM139.2mil in the previous corresponding period, on a turnover of RM940.6mil.

By Leong Hung Yee

The Star

AirAsia Q2 net profit 43% up on higher passenger load

19 August 2010

PETALING JAYA: AirAsia Bhd’s net profit jumped 43% to RM198.9mil for the second quarter ended June 30, from RM139.2mil a year ago, on the back of strong growth in passenger volumes, ancillary income and higher average fares.

Its revenue for the quarter was 26% higher at RM940.6mil from RM747.9mil a year ago. It reported earnings per share of 7.2 sen versus 5.9 sen a year ago.

For the six months ended June 30, AirAsia posted a net profit of RM423mil on revenue of RM1.82bil.

While AirAsia posted a record quarter, Malaysia Airlines posted a net loss of RM535mil due mainly to derivative losses from its fuel hedges. MAS’ revenue stood at RM3.2bil for the quarter ended June 30.

In a teleconference yesterday, group CEO Datuk Seri Tony Fernandes was confident of a strong second half for AirAsia. He sees a tremendous upside for its operations in Thailand and Indonesia while its ancillary income registered massive growth.

“Forward bookings are looking very good, The fourth quarter is traditionally our strongest quarter. To head into our strongest season on the back of a soaring first quarter and a record-breaking second quarter puts us in a fantastic position,” he said.

During the second quarter, the group’s core operating profit for the period was RM168.5mil, a 31% increase over RM128.4mil core operating profit achieved a year ago.

The core operating profit margin for the period was at 17.9%, 0.7 percentage point higher than the 17.2% core operating profit margin achieved a year ago.

“There were no unrealised translation gains in the quarter as gains from the slight strengthening of the ringgit were offset by losses from the change in the fair value of currency derivatives,” it said in the notes accompanying AirAsia’s financial results.

Commenting on its ancillary growth, Fernandes said: “We have actually reached our target of RM40 spending per pax that we set for the last quarter. We have unearthed a gushing revenue stream that can boost the bottom line and also serve as a buffer to rising fuel prices.”

He said baggage fees and AirAsia Cargo were significant contributors to ancillary income for the group.

Meanwhile, AirAsia’s associates Thai AirAsia Co and Indonesia AirAsia recorded good performance in the second quarter.

“Indonesia AirAsia has staged a strong turnaround and we expect greater things,” Fernandes said, adding that passenger volume grew by 10% year-on-year to 947,786 from 863,440 last year.

In the second quarter, Thai AirAsia recorded a net profit of RM4.9mil on revenue of RM267.4mil while Indonesia AirAsia’s net profit rose to RM39.6mil on revenue of RM233.2mil.

During the quarter, the group carried a total of 6.07 million passengers while the load factor increased to 77% from 75% in the same period last year.

Fernandes said its cost per average seat per km (ASK) of 3.62 US cents was mainly due to higher average fuel cost. He said the average fuel price in the second quarter was US$100 per barrel against US$60 a barrel in the same period last year.

However, its revenue ASK grew by 26% to 4.88 US cents in the second quarter from 3.87 US cents perviously. “I think we remained prudent with hedging, but it’s very useful too – that we’re not trying to bet where the market’s going, we’re just trying to match our forward sales with our oil hedging,” he said when asked on its hedging status.

Fernandes said its net gearing was expected to improved after the deferment of aircraft in 2011. “We have deferred seven A320s for 2011 to 2015. We are planning to reduce aircraft deliveries to 10-12 from 2012 onwards,” he said. He expected AirAsia’s gearing ratio to be below two times from 2011 onwards.

On aircraft financing, he said the financing for all the aircraft in 2010 was secured. As of June 30, the group has a total of 85 planes. Of the total, 50 planes are for Malaysian operations, while Thailand has 20 and Indonesia 15.

Fernandes was confident that the group’s cash balance would surpassed RM1bil by year-end. It has a current cash balance of RM858mil.

“We’ll easily surpass that by year-end. We will be getting re-payment from our associates in Thailand and Indonesia.” He added that with the listing of associates, the amount due from associates could potentially be converted to new shares to maintain shareholding in Thai AirAsia and Indonesia AirAsia.

“It is very premature for me to comment. We believe we have a very strong brand in Thailand. We are not duly concerned. We are not focusing on our competitor, but ourselves,” Fernandes said when commenting on Tiger Airways’ venture into Thailand.

Analysts contacted said AirAsia’s strong performance was above their expectation.

“They (AirAsia) did superbly despite the significant rise in the fuel bill due to the higher oil prices. And that’s largely thanks to the strong growth in ancillary income which sort of ‘offset’ the higher fuel expenses. The deferment of aircraft significantly reduces the debt burden, and should contribute positively to earnings via lower financing costs and better yields through higher loads,” an analyst said.

Another analyst said AirAsia’s operational numbers look very good and were slightly above his expectations.

By Leong Hung Yee

The Star

AirAsia reports 'record' 2Q results; SpiceJet up 20% in Jul-2010; Skymark holiday traffic soars 35%

19 August 2010

AirAsia, the Asia Pacific region’s largest LCC, has proven its staying power in a slow but recovering market in 2Q2010, turning in what it describes as a "record quarter" for second quarter revenues. The carrier commented that the result builds on the “momentum of its first quarter profits” and sets the stage for a “potentially dynamic” second half.

AirAsia reported a 43% increase in net profit in the second quarter (three months ended Jun-2010) to USD63 million, and a 25.8% gain in revenue to a record USD299 million, as a recovering economy boosted passenger traffic (+11% to 3.9 million for Malaysian operations), load factors (+2 ppts to 77%) and average fares (+8% to USD54.70). Profit before tax rose a more modest 4%, while EBTIDAR was up 9%.

AirAsia shares have risen by 24% since the start of the year, below Tiger Airways' 26.5% rise but outperforming the Malaysian benchmark KLSE's 8.3% increase. The carrier’s shares were down 1.8% ahead of the result.

In other AirAsia news, the LCC confirmed it is working with Sovico Holdings Joint Stock Company to develop a suitable structure for the proposed venture in Vietnam. It includes the option of AirAsia initially providing operational and management services to Vietjet Aviation Joint Stock Company for a prescribed period before an investment is made.

SpiceJet handled 540,000 pax in Jul-2010; load factor of 77%

Meanwhile, shares in SpiceJet slipped 0.3% yesterday. On the same day, the Indian Ministry of Civil Aviation reported that SpiceJet witnessed a 20.3% increase in domestic passenger numbers in Jul-2010 to 540,000, to be the fourth largest carrier in the domestic market, behind KingfisherJet Airways (782,000, +14.8%) and Air India (708,000, +21.6%). Overall domestic passenger numbers increased 13.5% to 4.1 million. SpiceJet load factors stood at 76.8% in the month. (815,000, -1.7%),

IndiGo receives approval to purchase 150 aircraft

In other Indian news, non-listed LCC, IndiGo, reportedly received approval from the Indian Government to purchase 150 aircraft over the next two to three years to be used on international services. The carrier will have completed five years of operations in Aug-2011 making it eligible to launch international services.

Tiger Airways shareholders sell SGD125m in shares

Meanwhile, Tiger Airways shareholders sold approximately SGD125 million (USD93 million) in the carrier’s shares, at a price of SGD1.90 per share. CEO, Tony Davis, Ryanasia Ltd and Indigo Partners LLC sold 65.8 million shares combined. Shares in the carrier slipped 1.0% yesterday.

Skymark pax soar over peak summer period

Meanwhile, Skymark shares soared 6.0% yesterday. The carrier witnessed a 35% jump in domestic passenger numbers over the peak summer vacation period, between 06-Aug-2010 and 15-Aug-2010, to 129,489 passengers, despite overall passenger numbers slipping 1% to 2.7 million.

Source: Centre for Asia Pacific Aviation, Yahoo! Finance & Reuters

AirAsia net profit up 43% for 2Q2010; Air New Zealand expanding services to Japan

19 August 2010

AirAsia (-1.8%) declined for Wednesday (18-Aug-2010) despite reporting a 43% year-on-year improvement in net profit for the three months ended 30-Jun-2010 to USD63.2 million. The result came as revenues rose 26% for the quarter to USD298.8 million, while the cost of sales rose 33.6% to USD167.2 million.

The Group also reported strong yields for the period, with revenue per ASK (RASK) for Malaysian operations up 15% to USD 5.03 cents. AirAsia Thailand reported a 8% rise in RASK, to USD 4.74 cents, while AirAsia Indonesia RASK was up 19%, to USD 4.74 cents.

CEO, Tony Ferndandez, stated forward bookings are “looking very good”, with the fourth quarter traditionally its strongest. As a result, the carrier is in a “fantastic position” heading into its strongest season, following improved results in the first and second quarters.

See related report: AirAsia perspective

See related CAPA Profile: Financial Results

Capital Group increases shareholding in Qantas

Qantas (+2.8%) ended the day higher after news The Capital Group Companies Inc purchased 28.9 million shares in Qantas for AUD71.1 million between 07-Jun-2010 to 16-Aug-2010, increasing its stake from 8.25% to 9.53%.

The carrier has been edging higher after improved financial results for FY2009-10 and talk of plans to expand operations as demand, particularly in business markets, returns.

Air New Zealand expands services to Japan

Air New Zealand announced during trading it has more than tripled the number of charter flights it will be operating from Japan to New Zealand this summer in response to a resurgence in demand from this high-spending tourism market. Between 26-Dec-2010 and 03-Apr-2011, Air New Zealand will operate 14 return charter flights to Auckland from nine departure points across Japan. General Manager Japan, Edward Overy, stated the carrier is deliberately focusing on new tourists from key regions across Japan including Nagoya, Fukuoka, Sapporo, Okinawa, Sendai, Kumamoto, Hiroshima, Miyazaki and Kagoshima. These visitors will complement those already travelling on Air New Zealand's 12 scheduled services from Tokyo Narita and Osaka Kansai each week. The charter flights will utilise 230-seat B767 aircraft.

Indian airlines report improved passenger numbers for Jul-2010

Kingfisher Airlines (+4.4%) advanced, despite the Indian Ministry of Civil Aviation reporting a 1.7% year-on-year decline in the carrier’s domestic passenger numbers for Jul-2010 to 815,000. The carrier had a load factor of 79.3% for the month.

The carrier reportedly plans to sign a codeshare agreement with British Airways in Sep-2010. Kingfisher is due to join the oneworld alliance in 2011 with BA, one of the alliance’s founders, serving as sponsor.

Jet Airways (-0.6%) slipped, despite reporting a rise in passenger numbers of 14.8% for the month to 782,000. LCC subsidiary, JetLite also experienced an improvement in passenger numbers, up 15.8%, to 308,000. Load factors were 73.8% and 76.6%, respectively.

SpiceJet (-0.3%) was also down. The carrier reported a 20.3% increase in passenger numbers for Jul-2010 to 540,000, while load factor totalled 76.8%.

See related CAPA Profile: Traffic and Capacity

Elsewhere, China Airlines (-2.1%) and Malaysia Airlines (-1.8%) ended the session in negative territory, while Skymark Airlines (+6.0%) was the day’s biggest gainer.

Asia Pacific selected airlines daily share price movements (% change): 18-Aug-2010

Source: Centre for Asia Pacific Aviation, Reuters & Financial Times

AirAsia’s Q2 revenue expected to rise 16%

13 August 2010

KUALA LUMPUR: AirAsia Bhd’s revenue for the second quarter is estimated to rise 16% compared with the previous corresponding period and 4% higher quarter-on-quarter to RM928mil on higher fare and traffic, said stockbroking research company ECM Libra Investment Research.

It said this would make the first half revenue hit 50% of the budget airline’s RM3.6bil target for the current financial year ending Dec 31.

“Revenue is expected to be sustained at 21.5 sen per km in the first quarter of the current financial year, higher by 33% year-on-year. We expect overall cost/available seat kilometres to rise year-on-year to 11.5 sen/available seat kilometres mainly on higher jet fuel,” it said in a statement yesterday.

The company also said it expected AirAsia to record 5% year-on-year higher adjusted net profit of RM135mil (up 22% quarter-on-quarter), assuming that non-fuel cost remained unchanged on a quarterly basis.

– Bernama

Tiger Airway returns to profitability, AirAsia defers aircraft, Cathay forward bookings “very good

06 August 2010

Tiger Airways’ shares surged 4.2%, as the carrier reported a 45% increase in revenues in the thee months to Jun-2010 (to USD107 million), with a return to profitability at both the operating and net levels (to USD591,000 and USD1.4 million, respectively).Tiger Airways’ yields improve, but unit costs also up

Passenger numbers increased 39% in the period to 1.5 million, while average fares and revenue per ASK also showed signs of improvement, increasing 4.3% (to USD57) and 24% (to USD 4.74 cents), respectively. Cost per ASK, however, also increased, by cost per ASK up by double-digits (+16.6% to USD 4.71 cents, with ex-fuel and forex unit costs increasing 5.5% to USD 2.67 cents).

See related report: Tiger Airways 1Q2011 operating profit sees the LCC well under way to becoming a regional force

Deferment of aircraft boosts AirAsia shares

Shares in AirAsia soared 10% yesterday, to more than a 30-month high, buoyed by the carrier’s decision to defer the delivery of seven aircraft.

AirAsia Group CEO, Tony Fernandes, commented: “Our share price is beginning to show its true potential, but, once people start analysing properly after the second quarter, they will see even more value”.

While the market reaction was favourable, analyst commentary was mixed. Some analysts commented that the deferment would enable the LCC to optimise its fleet capacity while reducing capital expenditure and net gearing, while others saw the decision as allowing the market to absorb the available capacity.

ECM Libra Investment Research estimated the impact of the deferrals to be a 2.2% increase in FY2011 earnings per share as lower interest expenses and depreciation outweighs capacity cutbacks. However, FY2012 earnings per share will be reduced by 3.6%”.

Meanwhile, Kenanga Research commented: “Although the fleet expansion will be relatively less aggressive for FY2011, AirAsia could benefit from lower operating and fuel costs from this deferment and perhaps this will allow the group’s internal restructuring, such as listing of its associates, and solve the overhang issues in its balance sheet”.

Meanwhile, OSK Research downgraded AirAsia from “buy” to “neutral” as a result of the deferrals, with a target price of MYR1.60.

China Airlines, Eva Air rise after cross-strait flights report

Shares in China Airlines and EVA Airways gained in Taipei Trading yesterday, on reports that Taiwan and China Mainland would resume talks on additional cross-Strait services on 05-Aug-2010. EVA shares reached an intra-day high during morning trading, for the highest share price level since 03-Jul-2010, closing the day 6.8% higher, while China Airlines shares gained 0.5% by day-end, reaching its highest level since 26-Jun-2008 during intra-day trading.

See CAPA Hot Issue page on Cross-Strait Aviation.

Cathay forward bookings “looking very good”

Shares in Cathay Pacific gained 4.5% in Hong Kong trading yesterday, the biggest gain in almost eight months, after CEO, Tony Tyler, commented that reservations are "looking very good" as a rebounding economy revives travel demand. Mr Tyler said: “We can look forward to the next six months with some confidence. Forward bookings are looking very good for the rest of the summer. Cargo is looking good for the rest of the year”

Asia Pacific selected airlines daily share price movements (% change): 05-Aug-2010
Source: Centre for Asia Pacific Aviation, Reuters & Financial Times

Deferment of aircraft boosts AirAsia shares

06 August 2010

PETALING JAYA: AirAsia Bhd’s stock was one of the flavours of the day yesterday, buoyed by its decision to defer delivery of seven aircraft, a move deemed favourable by analysts.

Analysts believed the delivery deferment would allow the budget carrier to optimise its fleet capacity while reducing capital expenditure and net gearing. As at March 31, AirAsia’s net gearing stood at 2.25 times.

Shares in the carrier jumped to more than a 30-month high yesterday, appreciating 15 sen, or 10%, to RM1.65. It was also one of top gainers and the third most active counter with 33.5 million shares traded.

“Our share price is beginning to show its true potential but, once people start analysing properly after the second quarter, they will see even more value,” group chief executive officer Datuk Seri Dr Tony Fernandes said in his Twitter post yesterday.

On Wednesday, AirAsia announced that it had deferred the delivery of seven Airbus A320s to 2015 from the original delivery period next year as it expected infrastructural constraints with the current airport facilities.

The seven planes are now due for delivery from April to November 2015 from the original March to October 2011.

AirAsia said slowing the deliveries would allow it to optimise its fleet and avoid costs associated with leaving the aircraft idle or underutilised due to infrastructural limitations.

Analysts said AirAsia might have doubts that the new low-cost carrier terminal (LCCT) would be completed on schedule, hence the deferment. They said more importantly, AirAsia’s aircraft deferral would not involve any penalty.

While some analysts agreed with the company’s reasons to defer given the uncertainties over completion of the new LCCT, they said the deferment might allow the market to absorb the available capacity.

“AirAsia has been very aggressive with the latest route to Seoul, South Korea. Deferring the aircraft will let the market absorb the capacity available first,” an analyst said.

ECM Libra Investment Research said based on its assumptions, earnings impact to AirAsia (which does not equity account its associates) was likely to be minimal.

“We estimate that the deferment will result in a 2.2% increase in FY11 (financial year ending Dec 31, 2011) earnings per share as lower interest expense and depreciation outweighs capacity cutbacks. However, FY12 earnings per share will be reduced by 3.6%,” it said.

AirAsia is expected to release its second quarter results on Aug 18.

The International Air Transport Association expects global airlines to post a profit of US$2.5bil in 2010 from a loss of US$2.3bil last year and say Asian carriers should do well.

“Although the fleet expansion will be relatively less aggressive for FY11, AirAsia could benefit from lower operating and fuel costs from this deferment and perhaps this will allow the group’s internal restructuring, such as listing of its associates, and solve the overhang issues in its balance sheet,” Kenanga Research said.

It added that with the deferment, the earnings growth for FY11 would depend on yield play and further cost efficiency on the back of growing demand for low-cost carriers in the improving airline industry.

By Leong Hung Yee

The Star

AirAsia load factors up, Jetstar expands long-haul, Tiger’s vertical seating, Virgin’s middle ground

28 July 2010

AirAsia has significantly enhanced its traffic reporting, releasing monthly operating statistics for each of its Malaysian, Thai and Indonesian operations for the first time, reproduced in full here.

The Malaysian operation enjoyed rising load factors in Apr-2010 and May-2010, with occupancy rates peaking at 80% last month (as in Jun-2009). Average stage lengths have been relatively flat, while the carrier had 50 aircraft in operation at the end of Jun-2010, up from 47 in the same month last year.

AirAsia’s Malaysian operating highlights: Apr-2010 to Jun-2010

Source: AirAsia Bhd

Thai AirAsia has also enjoyed rising load factors, although they are averaging around 4-6 ppts below the Malaysian operation. Thai AirAsia is growing its average stage lengths by up to 20% year-on-year, as it expands its international network, while its fleet has reached 20 aircraft, up from 17 in Jun-2009.

AirAsia’s Thai operating highlights: Apr-2010 to Jun-2010

Source: AirAsia Bhd

Indonesia AirAsia’s load factors are also below the Malaysian operation, but a shade above the Thai unit. Its average stage lengths are also rising in the double-digit range year-on-year as it too expands its international presence. See related report: Five Indonesian airlines seek rights to Australia: Batavia, Sriwijaya, Mandala, Lion Air & AirAsia

Indonesia AirAsia operated 15 aircraft as at the end of last month, one fewer than the same period last year. Despite this, it expanded capacity by 29%, as a result of improved aircraft utilisation.

AirAsia’s Indonesian operating highlights: Apr-2010 to Jun-2010

(1) Number of earned seats flown. Earned seats comprise seats sold to passengers (including no-shows) and
seats provided for promotional purposes
(2) Number of seats flown
(3) Number of Passengers carried as a percentage of Capacity
(4) Available Seat Kilometres (ASK) measures an airline’s passenger capacity. Total seats flown multiplied by
the number of kilometres flown
(5) Revenue Passenger Kilometres (RPK) is a measure of the volume of passengers carried by the airline.
Number of passengers multiplied by the number of kilometres these passengers have flown
(6) Number of flights flown
(7) Number of operational fleet including spares
Source: AirAsia Bhd

AirAsia X considering New Zealand options

The group’s long-haul operation, AirAsia X, is meanwhile considering joining the competitive tussle on routes between Australia and New Zealand by the end of the year, possibly operating services between the Gold Coast and Perth and either Auckland or Christchurch. The carrier sees the potential alliance (and any capacity rationalisation) between Air New Zealand and Virgin Blue as a “golden opportunity” to enter the trans-Tasman market.

Jetstar to expand long-haul routes

Jetstar meanwhile will today announce further long-haul international network expansion plans. In May-2010, Jetstar confirmed plans to base two A330-200s in Singapore to launch long-haul services to Australia, North Asia and Europe from late 2010. The destinations will be revealed shortly.

Tiger Airways to mine ancillaries, introduce “vertical seating”

Tiger Airways Australia Managing Director, Crawford Rix, announced yesterday that the LCCfares. would introduce charges for toilets, baggage and introduce "vertical seats," in a bid to put further downward pressure on

Virgin Blue standing its ground

Virgin Blue’s Group Executive, Commercial Liz Savage has declared the airline will not give up the "very strong foothold we enjoy today in the leisure space" as it concurrently aims to gain a greater share of the corporate travel market.

Asia Pacific LCC stocks rise

In trading yesterday, Tiger Airways gained 0.5% in Singapore, AirAsia rose 1.4% and Virgin Blue was flat.

Selected LCCs daily share price movements (% change): 27-Jul-2010

Source: Centre for Asia Pacific Aviation, Yahoo! Finance & Reuters

Thai Airways, AirAsia and Air China stocks surge

07 July 2010

Thai Airways and Thai AirAsia’s parent, AirAsia Bhd, gained considerable ground again yesterday, rising by 6.5% and 5.6%, respectively.

See related report: Thai Airways gains as tourism outlook improves

Air China upgraded, ANA benefits from Shanghai Expo

Air China advanced 4.1% yesterday on the same day Daiwa lifted its target price to HKD10.40, with an unchanged “Outperform" rating, noting the airline will benefit from an “aggressive fare increase”. The carrier is raising premium fares for 43 domestic routes from 15-Jul-2010.

Meanwhile, All Nippon Airways (ANA) stated its international passenger numbers surged 29.1% to 362,066 in May-2010, citing last year’s influenza outbreak (which depressed May-2009 figures) and strong demand for China-bound traffic amid the Shanghai World Expo. The number of ANA passengers to Asian destinations surged 35.4%, while US numbers rose 28.6%.

See CAPA Hot Issue on Traffic & Capacity

Asia Pacific selected airlines daily share price movements (% change): 06-Jul-2010

Source: Centre for Asia Pacific Aviation, Reuters & Financial Times

Air China stepping up domestic capacity with order for 20 B737-800s

28 June 2010

Air China's shares closed steady on Friday after it agreed to purchase 20 new B737-800s to meet rising demand. Air China stated the aircraft would be delivered between 2013 and 2015 and would “strengthen the fleet capacity of the company with an increase of approximately 5%”. The carrier added the transaction would “reinforce the company's market share in the domestic market, and will also increase frequency of flights for a number of domestic and neighbouring international routes."

China Southern Airlines, China Eastern Airlines and Hainan Airlines fell 2.7%, 1.7% and 1.5%, respectively.

See related report: China’s second tier airports: It’s where the action is!

Elsewhere, Asia Pacific airline stocks were mostly lower on Friday, with Skymark, Malaysia Airlines, Air New Zealand and AirAsia all falling by 2-3%.

Kingfisher gained 2.1% as the airline stated future oneworld partner, Finnair is looking to partner with the Indian carrier for sales to more Indian destinations, such as Mumbai. Finnair suspended Helsinki-Mumbai service in Apr-2008, but operates daily to Delhi.

Asia Pacific selected airlines daily share price movements (% change): 25-Jun-2010

Source: Centre for Asia Pacific Aviation & Reuters

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Does it matter where AirAsiaX lists?

26 June 2010

Yes, but the full answer may not be what AirAsiaX or you think it is

THERE is this perception that you get more value for a company depending on where you list it. Investment bankers, especially foreign ones, have sent out sorties to entice Malaysian companies to list overseas through this perverse logic that listing in a more developed and active market will get you better value.

But we will show that such a premise is not true. Those who fall for that fallacious argument do so at their own peril. They not only will NOT get extra value, they are likely to lose a lot of goodwill, and I am not talking accounting goodwill here.

Let’s take the example of AirAsiaX. Both its CEO Azran Osman-Rani and its prime mover and entrepreneur behind it, Datuk Seri Tony Fernandes, have talked about listing the infant airline overseas.

Analysts have blithely alluded to AirAsiaX obtaining better liquidity and valuations if they are listed overseas in markets such as London, Hong Kong or New York but they don’t explain how that is possible.

If they are to be believed, Bursa Malaysia is a market of little or no consequence, the markets here are illiquid, it is not open to investment by foreign funds, world markets are terribly imperfect and valuations here are generally lower than valuations overseas. But all of these are patently untrue.

Malaysia’s bourse is a small one but not insignificant and it has foreign funds invested in it. Some companies are majority owned by foreign funds and investors, and AirAsia – the low cost short-haul airline unlike its cousin AirAsiaX which is long-haul – is probably one of them.

In a world which has become virtually borderless, any fund in the world can invest anywhere and in any listed company. Bursa Malaysia is as open as any other market in the world. So there is no question that any fund will not have access to AirAsiaX if it were listed here. There is no question of liquidity.

Markets, because of their openness, reflect the value of companies listed on them. It does not matter where the companies are listed, their value depends entirely on their operations, future prospects and how they are perceived by the investing public.

In fact, studies have shown that companies better reflect their value when they are listed on their home markets simply because they are better understood and known there, more analysts are likely to follow them and there is likely to be greater interest in the companies if they are good.

Questions: Is AirAsiaX likely to be known better if it is listed in Malaysia or in New York or London or Hong Kong or even Singapore? Is anyone going to think that AirAsia X is English if it is listed in London?

No matter where AirAsiaX is listed, any analyst worth his salt, and in this day and age the better ones have to be, will look at where its operations are, how it is run and its prospects. Then the risk is priced in accordingly. You cannot change the risk of a company by switching its listing, you have to switch its operations.

And do overseas markets have better valuations? This question is irrelevant because as we have pointed out it is the business that counts and not where it is listed but let’s answer it anyway.

The FTSE Bursa Malaysia KLCI, the key Malaysian index, trades at a P/E multiple (total market price divided by net earnings, a measure of value. The higher the P/E, the higher the valuation.) of over 17 times according to Bloomberg data. That’s higher than London’s FTSE 100 index at 13.8X, New York’s Dow Jones (14.2X), Hong Kong’s Hang Seng (15X), and Singapore Straits Times Index (13.3X).

Going by the perverse logic given by some of those roving investment bankers intent on getting AirAsiaX listed overseas, Malaysia gives the best valuation of any of these key markets, which means the company should be listed here!

Surely smart people like Azran and Fernandes are not going to be taken in by these false claims that better value is obtained by listing overseas. That means they have something else in mind when they talk about overseas listing.

If I have to have to speculate, I would say it’s a bargaining process – trying to get the best deal for AirAsiaX to list here. And the people at both AirAsia and AirAsiaX drive a very hard bargain indeed. But sometimes things can boomerang – you may get more than you bargained for.

I am willing to bet that they will NOT make the move to list overseas simply because the best value (loosely speaking that is), and importantly the best goodwill from their customers and the Government, will be obtained by listing here.

Yes, it matters where AirAsiaX lists. It will stand to gain more overall by listing here in Kuala Lumpur than anywhere else.

l Managing editor P Gunasegaram says a company creates value by, well, creating value and showing that it has. What better place to do that if not at home?

By P Gunasegaram

The Star

Malaysia AirAsia Considering Dividend Payout

24 June 2010

Malaysian budget carrier AirAsia is looking into the possibility of paying dividends, its chief executive said on Thursday.

AirAsia has not had a dividend policy since it was listed on the Malaysian stock exchange in 2004. It previously said it wants to reinvest profits for future capital requirements.

"The board is actively looking at it... we are in a much better position (than last year) to be considering a dividend," Tony Fernandes told reporters after the airline's shareholders meeting.

No decision has been made on the dividend and Fernandes declined to give a timeline or guidance.

AirAsia also plans to offer 30 percent of its Indonesian and Thai units to the public in listings in their respective stock exchanges next year, said Fernandes.

AirAsia, Asia's biggest budget carrier by fleet size, is trading at some of the lowest multiples in the industry as its high debt keeps the stock under pressure, analysts said.

Citigroup estimates that AirAsia is trading at just 6.2 times its expected 2010 earnings, one of the lowest ratios of any listed airline. That is well below its P/E ratio projection of 13.6 for rival Tiger Airways and 11.4 for Virgin Blue.

AirAsia is also one of the most indebted carriers with Morgan Stanley estimating the company's net debt to equity ratio at 249 percent at the end of 2010 and Citigroup predicting 255 percent.

Fernandes said he expects the carrier's gearing to continue falling. He did not elaborate.

Reuters

News.airwise.com

AirAsia X denies it may list in HK or US

10 June 2010

AirAsia X, a Malaysian long-haul budget carrier, denied a Star newspaper report it is considering selling shares on the Hong Kong or New York stock exchanges.

“We haven’t considered the destination. There’s no size of the floatation, no adviser has been hired yet,” chief executive officer Azran Osman Rani said in a phone interview today.

“We are not in a preparation mode for listing yet.”

-- Bloomberg

EVA Air, China Airlines fall, MAS and AirAsia gain

10 June 2010

Asia Pacific airline stocks were mixed again yesterday, with Taiwan’s EVA Air (-4.0%) and China Airlines (-3.5%) weaker despite EVA’s very strong May-2010 traffic report.

EVA Air’s passenger numbers rose 18% year-on-year last month to 552,587, while passenger load factor surged 11.2 ppts to 79.3% and passenger yield jumped 20.8% to USD 6.75 cents. Cargo volumes climbed 55.8% to 75,539 tonnes and cargo yield soared 46.2% to USD 25.65 cents.

Malaysia’s AirAsia (+4.7%) and Malaysia Airlines (+5.1%) closed higher ahead of today’s unveiling of the tenth Malaysia Plan by Prime Minister Datuk Seri Najib Tun Razak.

Elsewhere, Singapore Airlines, Qantas and Cathay Pacific fell 0.4%, 1.2% and 2.8%, respectively.

See the CAPA Hot Issue page on Asia Pacific Aviation.

Asia Pacific selected airlines daily share price movements (% change): 09-Jun-2010

Source: Centre for Asia Pacific Aviation & Reuters

AirAsia X listing under study

10 June 2010

Analysts say long-haul low-cost business model not yet proven

PETALING JAYA: While the listing of AirAsia X Sdn Bhd (AAX) is deemed necessary, some analysts are still studying the viability of its business model as the long-haul low-cost model has yet to chart an established flight path.

It is also on this note that they feel AAX’s listing will have minimal impact on AirAsia Bhd. Not everybody will sell their shares in a proven model such as AirAsia’s for AAX’s relatively new model.

“The success of budget airlines has always hinged on flights not exceeding four hours. Long-haul flights mean that margins will be thinner. Efficiency is also compromised with facilities for inflight entertainment. However, as AirAsia has continuously amazed the market, I won’t be surprised if it succeeds (with AAX),” said an aviation analyst.

An RHB analyst in his report said AAX’s use of wide-body aircraft with a seating capacity of about 400 (versus 180 seats for a narrow-body aircraft) meant it was also harder to fill the plane during off-peak periods.

Nonetheless, the listing is necessary as AAX has placed orders for 17 A330 and 10 A340 aircraft, which are scheduled to be delivered progressively in the next few years.

Without an appropriate equity portion in its balance sheet, it would be difficult for AAX to secure attractive financing for these aircraft, which will cost billions of ringgit.

This listing will also see AAX eventually taking over employment of its own pilots, cabin crew and ground staff, and maintaining its own commercial and marketing teams.

Last year, AAX paid AirAsia RM57mil for a host of airline services.

This will now stop, except for the continued use of the AirAsia brand, its website and the use of the AirAsia academy and training facility.

As no breakdown was provided for these charges, it is uncertain what each service costs. The loss of revenue to AirAsia will, however, be minimal.

On the timing of the initial public offering (IPO) by the second half of 2011, analysts said this suggested that the group would put in extra efforts to churn out better financial numbers to ensure the success of AAX’s listing.

“We believe the group will keep the good news flowing to attract investors’ attention,” said an aviation analyst.

While it is still uncertain how much AAX is planning to raise from the IPO exercise, the recent IPO of budget carrier Tiger Airways on the Singapore Exchange raised S$247.7mil (RM583.5mil). Tiger Airways shares were offered S$1.50 (RM3.53), which values the company at 12.6 times price earnings ratio of its March FY2011 earnings.

AirAsia’s IPO in 2004 raised RM863mil, with its stock priced at RM1.25 for institutional investors and RM1.16 for individual investors.

“On a historical basis, we expect the proceeds to be raised by AAX would be between RM500mil and RM900mil. We believe this would be sufficient for AAX to start on its aircraft expansion,” said an analyst from MIDF Research.

AirAsia presently has a 16% stake in AAX and an option to increase it to 30%. AAX’s other shareholders are Aero Ventures Sdn Bhd (48%), the Virgin Group (16%), Bahrain-based Manara Consortium (10%) and Japan-based Orix Corp (10%).

Aero Ventures is owned by Datuk Seri Tony Fernandes, Datuk Kamarudin Meranun, Datuk Kalimullah Hassan, Lim Kian Onn and former Air Canada chairman and CEO Robert Milton.

By Tee Lin Say

The Star

AirAsia forms Koolred

10 June 2010

AIRASIA Bhd has formed a new subsidiary called Koolred Sdn Bhd that will offer a premier travel social networking website to users.

Through the website, users can build their own communities and offer each other travel advice, support and share travel information.

The directors of Koolred presently are Phua Sheau Wei and Lau Kin Choy.

The company has an authorised share capital of RM100,000.

Business Times