AirAsia’s Q1 results draw mixed views

PETALING JAYA: Analysts are divided on how AirAsia Bhd will manage competition with a pending MAS revamp, even as its Q1 results fell in line with their expectations.
AirAsia management told analysts in a briefing that it is actively monitoring Malaysia Airlines (MAS) restructuring exercise and intends to avoid head-to-head competition to maintain healthy yield environment.
"They noted that MAS has removed many domestic routes (in line with its rationalisation plan to be a regional-oriented carrier) and some international routes," Hong Leong Investment Bank (HLIB) Research said in its note last Friday.
It added that forward bookings showed strong growth for the whole group, with the exception of Indonesia AirAsia (domestic flights), which did poorly due to the QZ8501 incident.
"Ancillary income target for the second quarter of 2015 (2Q15) is RM49 per pax, full year target remains at RM50 per pax. Management is optimistic that new ancillary products (duty free website launched in April and AirAsia EZpay) would spur income for 2Q15. However, we expect Flythru to perform better as more traffic feed from AirAsia X going forward," HLIB said.
It cited several positive factors for AirAsia including strong air traffic into Malaysia in line with government initiatives to boost tourism sectors, largest and lowest low cost carrier in Asia with a strong brand name and strong ancillary income while risk factors include high jet fuel cost, strengthening of US dollar and stiff competition from MAS and Malindo Air.
Maybank IB Research, however, is less optimistic with expectations of a challenging first half of 2015 for AirAsia due to the number of cheap tickets available in the market.
"AirAsia's forward sale amount in 1Q15 is at the lowest level since 2012. This is a clear tell-tale sign that AirAsia is facing more competition and has not been successful to fend it off," it said in its report.
It revised downwards its FY15-17 earnings forecasts by 7.5%, 3.2% and 2.9% respectively as it cut yield growth assumption by 1% point to factor in 1Q15 performance. It maintained its buy call but reduced its target price to RM2.45 from RM2.65 previously. Maybank IB Research noted that the amount owed by related parties continued to rise in 1Q15 and is now at 61.4% of shareholders' equity, which is a new record, surpassing the previous crisis level of 2008.
"The market was jittery on impairment risk in 4Q14, but those fears were unfounded as the auditors approved the accounts. Granted 2014 accounts are safe, but if the amount owed does not improve soon, the risks stack higher for impairment in the 2015 audited accounts.
"This is a major concern for the market, as the Indonesia and Philippines operations are not in the pink of health, only Thailand is showing big promise," it said.
It also highlighted concerns on AirAsia's forward sales losing momentum, which was at 12.1% in 2Q14 before it fell to 10.1% in 3Q14, 7.8% in 4Q14 and 6.1% in 1Q15.
"A downtrend suggests that the underlying yield environment is weak. AirAsia has been exhibiting a downtrend since 3Q14 and the level has intensified in 1Q15. This suggests that 2Q15 yields are likely to be weaker than 2Q14."