By Chan Quan Min
Budget carrier AirAsia will soon see better financial performance from the fourth quarter onwards from lower crude oil prices and better pricing power, say analysts.
AirAsia yesterday released its third quarter results showing a slight improvement in revenue performance indicators. Operating profit was reported at RM227 million, down 13% year-on-year but up 8% quarter-on-quarter.
The recent plunge in crude oil prices, by more than 25% since July, was not fully reflected in the third quarter results but will help boost earnings in subsequent quarters. Brent crude is now trading at under US$80 a barrel.
RHB Research this morning raised their earnings forecast for AirAsia for the current year, 2015 and 2016 based on “lower jet fuel price assumptions, capacity growth guidance and less-than-expected total losses from associates”.
The research house said “yields are at an inflection point” with a high likelihood of capacity cuts at Malaysia Airlines once its restructuring plan kicks in.
AirAsia has been judicious with expansion this year after its usually robust earnings took a hit from a fare war with Malaysia Airlines and Malindo Air last year.
Analysts have praised the budget airline for choosing to protect its profits instead of fighting for market share. AirAsia CEO Aireen Omar has on several occasions blamed AirAsia’s weaker earnings performance on “irrational competition”.
Lower jet fuel prices will also help AirAsia’s long-haul unit AirAsia X, which flies routes with a flight time of more than four hours with widebody jets.
AirAsia X yesterday posted a fourth consecutive loss-making quarter, reporting an operating loss of RM140 million for the third quarter ended September.
The long-haul airline is struggling to fill excess capacity created by over-expansion and has now decided to halt growth at its Kuala Lumpur hub. Aircraft deliveries will either be deferred or transferred to its Bangkok and Bali hubs.
According to AirAsia X management, every US$10 drop per barrel in jet fuel price will result in savings of RM120 million per annum for the company.
RHB Research rates AirAsia as a “buy” with a target price of RM3.11 while AirAsia X is a “sell” with a target price of 57 sen.
On Bursa Malaysia this morning, AirAsia is trading at RM2.43 down 3 sen while AirAsia X is trading at 64.5 sen unchanged. The prices are accurate to 11:30pm.
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