By Chan Quan Min
Analysts have high hopes for the aviation sector this year following the halving of crude oil prices over the past six months, and expect nothing less than bumper profits.
The change of fortune is a welcome relief for Malaysian aviation. Malaysia Airlines and AirAsia are struggling to recover from an unfortunate year which saw three air disasters strike unmercilessly. The year before, in 2013, a price war decimated profits for both airlines.
Two reports today by CIMB and Maybank aviation analysts are enthusiastic on the aviation industry in the current environment of cheap oil.
“At today’s fuel price, just about any route imaginable is profitable,” said Maybank analyst Mohshin Aziz.
Airline CEOs would want to “capitalise on the positive landscape as much as possible”, he added, suggesting that bosses may move to “maximise aircraft utilisation in order to churn as much profit as possible”.
Concerns over yield and load factor, which have dogged the industry over the past few years, no longer matter because lower fuel prices have reduced breakeven load factor to the point that planes can take off with a passenger load of 70% and still make a profit on the flight, Mohshin said.
CIMB analyst Raymond Yap said two factors are at play in influencing airline profits this year: the decline in jet fuel prices and weakness of the ringgit. However, the “fall in the jet fuel price has been sharp and more than offsets the strength of the US dollar”.
Yap called a “golden opportunity to accumulate (AirAsia) shares ahead of what is likely to be a very strong and impressive financial year 2015 earnings performance”.
At the noon trading break, AirAsia was trading at RM2.50 per share. Yap expects the stock to rally to his target price of RM3.50 for a 35% upside.
This revaluation of AirAsia shares will come down to the airline posting a net profit of RM890 million this year, according to CIMB estimates. This is four-fold higher than 2014 and double that posted for 2013.
You must be logged in to post a comment.