AirAsia X denied rights to Sydney, Seoul

28 July 2009

KUALA LUMPUR: Long-haul budget airline AirAsia X has been denied permission by the Malaysian government to fly into Sydney and Seoul, due to a row over its sister carrier AirAsia, a report said Tuesday.

The move has forced AirAsia X to scramble to make plans to utilise the three new Airbus A330 aircraft due for delivery this year, the Star daily said.

"We had asked for rights to fly to Sydney and Seoul and the government decided to defer granting us the approval," AirAsia X's chief executive officer Azran Osman-Rani reportedly said.

He said the government first wanted AirAsia to settle the issue of an outstanding 65 million ringgit (US$18.5 million) payment for airport services with Malaysia Airports Holdings (MAHB) before giving the green light.

"The dispute is between the two (AirAsia and MAHB) but delaying us from flying into these two destinations will not help travellers who have limited choices," Azran told the daily.

"We know the Koreans are keen to have us and both the airports - Sydney and Seoul - welcome us," he added.

AirAsia was not immediately available to confirm the reported comments.

An affiliate of regional low-cost carrier AirAsia and Virgin Group, AirAsia X was launched in January 2007. AirAsia and AirAsia X have common shareholders, including AirAsia founder and CEO Tony Fernandes.

AirAsia X currently flies to three Australian destinations - the Gold Coast, Melbourne and Perth.

AirAsia X fails to get Govt nod for flights to Sydney and Seoul

28 July 2009

SEPANG: AirAsia X’s expansion into Sydney and Seoul will be delayed as it has failed to get the nod from the Malaysian Government to fly to the two cities, forcing the long haul low-cost carrier to formulate a back-up plan to utilise some of the new aircraft that will be delivered later this year.

“We had asked for rights to fly to Sydney and Seoul and the Government decided to defer granting us the approval. They want (AirAsia) to settle (its) dues with Malaysia Airports Holdings Bhd (MAHB),’’ AirAsia X chief executive officer Azran Osman-Rani told StarBiz in an interview recently.

“It is a high profile issue and needs a lot of justification but we are AirAsia X and not the ones that owe MAHB money for airport services. Every invoice that we receive is paid within 30 days.”

“It is unfortunate that we are brought into the AirAsia issue but we have written and explained that our accounts are all current,’’ he said.

About RM65mill payment due to MAHB from AirAsia is in dispute.

Azran reiterated that “the dispute is between the two (AirAsia and MAHB) but delaying us from flying into these two destinations will not help travellers who have limited choices and we lose opportunities of the multiplier impact (that) tourism has.”

“We know the Koreans are keen to have us and both the airports – Sydney and Seoul – welcome us,’’ he said.

The delay may be seen as a setback in its expansion plans as with so much capacity coming onstream, AirAsia X has to work fast to secure rights for other markets so that its planes are not grounded for too long.

“We believe the two markets are big enough for more players. MAHB has been trying hard to get Qantas and Jetstar back and here we are waiting to fly to Sydney,’’ Azran added.

Whether it is AirAsia or AirAsia X, there are common shareholders in both companies and allowing AirAsia into newer markets will certainly heat up competition and drive fares down as seen from its flights to Gold Coast, Melbourne, Perth and London.

“Fundamentally, we do not fly to a destination and take passengers away. We create a new market which even other players can tap into,’’ the AirAsia X chief said.

AirAsia X is set to take delivery of three A330 this year – one each in September, November and December.

It needs to utilise these aircraft and Azran said he was now busy trying to come up with a plan so that the aircraft would be fully utilised since the Sydney and Seoul routes would be delayed.

“We will look at the near term first since we will take delivery of an aircraft in September. We may add capacity on our existing routes to Gold Coast, Hangzhou and Taipei. The new destinations that we are considering include Chengdu. We are hoping to get the time slots soon and the Transport Minisntry has been really helpful in all this,’’ he said.

AirAsia X might fly into either Sharjah or Abu Dhabi sometime this year as part of its plan to venture into the Middle East, he said, adding that Baharin was also on the cards but Teheran would be delayed.

India is a market that AirAsia X wants to look at in 2010 but Amritsar may come earlier if it manages to get the rights, but via Bangkok.

As for the US, the airline liked New York, San Francisco and Los Angeles but formal submissions had not been made, although the process had begun, Azran said, adding that AirAsia X hoped to cover the US by next year.

AirAsia to have second daily flight to Tiruchirapalli from Sept 1

28 July 2009

PETALING JAYA: Good news for those who travel to Tiruchirapalli often. Low-cost carrier AirAsia will launch a second daily flight to the Indian district from Sept 1.

To celebrate the introduction of the flight, AirAsia will be offering an all-in fare of RM129 for the travel period between Sept 1 and April 30.

The booking period for the flight will be from today to Aug 2.

AirAsia Group commercial regional head Kathleen Tan said the airline was proud to be servicing an underserved route and opening up this market to the world.

“Tiruchirapalli is a highly popular and desired destination among Hindus in Malaysia as it has an abundance of temples, which are popular for pilgrimage,” she said in a statement yesterday.

She said that there was an increase in visiting travellers from the district in Tamil Nadu who were progressively using Kuala Lumpur as a connecting gateway to over 130 routes in South-east Asia and beyond.

“In fact, within the first month of flying to India, we have enjoyed a load factor of 100% on this route,” Tan said.

She added that it was timely to add a second frequency.

Tiruchirapalli was AirAsia’s first destination in India since its inception on Dec 1 last year.

Stock picks in key sectors

25 July 2009

IN good or bad times, there is always value to be found. StarBizWeek polled several analysts’ views on their stock picks and have compiled a list of eight stocks from several key sectors.

On the back of a 23% passenger growth and 77% load factor, analysts are expecting AirAsia Bhd’s quarterly results next month to surprise on the upside.

“Ancillary income will offset fuel price increase. It acts as the best defence against fuel price increase as every RM1 per pax increase will offset US$1 per barrel increase in fuel price,” says an analyst from ECM Libra.

He adds that ancillary income has doubled to RM29 per pax within the last two years and management targets to double it again to RM60 per pax by introducing more value-added services.

Meanwhile, AirAsia plans to defer the delivery of 15 A320 aircraft as it expects the construction of the new LCCT to be further delayed. Hence, capital requirement will be reduced by RM2.3bil while gearing will also be lowered.

“We reiterate our buy call on AirAsia with a target price of RM1.90. AirAsia is poised to outperform on consensus earnings upgrade in anticipation of strong second quarter results, sustained low fuel price and potential dual listing (or merger),” he says.

The analyst forecasts an 8.89% increase in revenue to RM2.87bil while net profit is expected to jump 211.13% to RM598.3mil for its year ending Dec 31, 2009.

irTran soars on positive outlook; Allegiant slumps on ancillary revenue fall; AirAsia higher

22 July 2009

Worldwide LCC share prices were mixed on Wednesday (23-Jul-09), reflecting softer conditions in European, Asian and North American equity markets. Oil prices in New York eased USD 32 cents to USD65.40 for Sep-2009 delivery, but rose 48 cents to USD67.19 in London.

Among the gainers, AirTran's shares jumped 10.8%, as the LCC reported a strong net profit of USD74.8 million 2Q2009, as it benefited from a combination of lower fuel prices, its decision to reduce capacity and its low cost structure, in what is otherwise a challenging and uncertain operating environment. AirTran CEO, Bob Fornaro, stated that, while the industry likely faces a slow recovery, AirTran's low cost structure puts it in a good position. He added that, as AirTran was one of the first airlines to react to the changing economic environment last year, it is “among the first airlines to show signs of recovery”.

Allegiant – yields and ancillaries down, remains unhedged

Also reporting yesterday was Allegiant Air. Despite the carrier reporting another solid performance in the quarter, with a nine-fold increase in net profit, the carrier’s share price slumped 9.4%.

While Allegiant remains a star performer in the US aviation industry, there are a few signs of weakness for the carrier: probably the most concerning is that, for the first time in years, ancillary revenue per passenger declined (albeit slightly, to a still impressive USD32.36/pax), with average fares also down in the quarter (-13%), although the carrier expects this to trend upwards in 3Q2009.

The carrier, which operates a fleet of geriatric MD80 aircraft, is also unhedged moving forward, making the carrier very susceptible to significant oil price increases in the future. However, contrary to the investor reaction, Allegiant CEO and President, Maurice Gallagher Jr, remains optimistic, stating, “we find ourselves in an exceptional place”, with the carrier also remaining hopeful that Jun-2009 “may mark the bottom of revenue softness”, as it approaches the seasonally-weak third quarter.

Mr Gallagher, added, "fares for July, including ancillary, are, thus far, trending slightly upwards, despite the large year-over-year capacity increase we have in this month. An improvement in the revenue environment as well as the recent moderation in fuel prices will help us to extend strong year-over-year earnings growth into the third quarter, historically the seasonally weakest of the year,” he concluded.

The unique airline has always been an enigma for the market, which tends to interpret its results uncertainly. It seems that investors are particularly anxious at the slightest indication of weakness, in particular the three issues – of reduced yields (over the previous, low season quarter), reduced ancillary income per unit and a – predictable – sequential quarter-on quarter increase in fuel costs for the unhedged carrier. Compared to carrier’s sequential comparisons, RASM fell 12% year-on-year for the quarter.

Elsewhere, in Europe, shares in Air Berlin, easyJet and Ryanair were all weaker yesterday, down 3.0%, 1.1% and 0.2%, while in Asia Pacific, AirAsia gained 2.4%.

Selected LCCs daily share price movements (% change): 22-Jul-09

AirAsia Submitting Merchant Bank

22 July 2009

We are pleased to announce the proposed issue by CIMB Bank of up to 100,000,000 European-style non-collateralised cash-settled call warrants over ordinary shares of RM0.10 each in AirAsia.

The AirAsia CW is constituted by the Deed Poll dated 7 April 2009 and First Supplemental Deed Poll dated 22 June 2009 executed by us, as supplemented from time to time. The AirAsia CW is subject to the terms and conditions of the Base Prospectus dated 8 May 2009, First Supplementary Base Prospectus dated 27 May 2009, Second Supplementary Base Prospectus dated 6 Jul-2009 and the Term Sheet for the AirAsia CW dated 22-Jul-2009.

The AirAsia CW is to be listed on the Warrants Board of Bursa Malaysia Securities Berhad and is the 7th call warrant to be issued by CIMB Bank under the Base Prospectus dated 8 May 2009.

A summary of the principal terms of the AirAsia CW is set out in Table 1.

AirAsia X CEO backs merger with AirAsia Bhd

23 July 2009

Azran: Merger will let AirAsia tap into long-haul markets

SEPANG: A merger between AirAsia X and AirAsia Bhd makes business sense and the combined balance sheet would make sourcing for future funding much easier, said AirAsia X chief executive officer Azran Osman-Rani.

“It would be difficult for AirAsia in the future if it did not have trunk routes as (this) is where the traffic volumes come from, so AirAsia needs growth from AirAsia X and the merger allows it to tap growth opportunities in the long-haul markets,” Azran told StarBiz in an interview.

“AirAsia cannot continue to just criss-cross and enter new markets, it needs a bigger base,’’ he added.

Given the nature of the business, which is counter-cyclical, a large base was necessary to balance the routes in peak and non-peak months, he said.

Azran Osman-Rani … ‘AirAsia needs growth from AirAsia X.’

That is why AirAsia X has to sell beyond Kuala Lumpur or else only 20% of the seats will be taken up. It has to sell destinations, be it in Malaysia or the region, and 80% of those travelling with AirAsia X use AirAsia to travel to Langkawi, Penang, Phuket or even Bali.

“That is why AirAsia needs growth from AirAsia X and for that greater control of AirAsia X is needed,’’ Azran said.

Recently, AirAsia group chief executive officer Datuk Seri Tony Fernandes was reported as saying his personal preference was for a merger of the two companies.

AirAsia has a 16% stake in AirAsia X and an option to increase it to 30%.

The remaining shareholders in AirAsia X are Aero Ventures Sdn Bhd (48%), the Virgin Group (16%), while Bahrain-based Manara Consortium and Japan-based Orix Corp hold the remaining 20%.

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

Fernandes and Meranun are controlling shareholders in AirAsia with a 30.7% stake via Tune Air Sdn Bhd.

Even though it is still at the idea stage, critics are already saying the merger is necessary to rescue AirAsia X as, to them, AirAsia is now subsidising AirAsia X.

“Rubbish, we can clearly dispute that. For the first quarter ended March 31, 2009 our net profit was RM18mil and we are net cashflow positive. We even had a little cash at RM3mil.

“We are in a very good position and on a much firmer footing and now is an interesting time to talk about merger,’’ Azran said.

Fernandes, in a separate interview with StarBiz recently, said the merger was merely his proposal but felt it was a good model. However, no decision has been made thus far.

“When we started AirAsia X, a lot of critics said we could not do it but AirAsia X has turned out to be a very cash-flow positive company. Azran will be going on a roadshow soon to explain so that people have a better understanding that this long-haul, low-cost model can work,’’ Fernandes said then, adding that the roadshow would cover Kuala Lumpur, Singapore, Hong Kong, New York and London.

A share swap is likely but Azran said AirAsia had an option to increase its stake from 16% to 30% and with that it could equity account its venture in AirAsia X.

“They can either put cash in and increase the stake from 16% to 30% or do a share swap. It is a decision only the shareholders can make and I am not privy to that,’’ he said.

Asked when the merger was likely to happen, he said: “I will be surprised if it happens this year. AirAsia X has not received any offer and the process cannot begin. We also have to appoint a valuer and AirAsia has to hold an EGM.’’

AirAsia X was last valued at RM1.3bil when Manara and Orix took up their stakes.