By Chan Quan Min
A year-long price war and the ensuing erosion in yields saw AirAsia post full-year and fourth-quarter revenue and operating profit that was largely flat despite double-digit growth in passenger numbers.
But according to analysts, AirAsia is taking proactive steps to cut capacity expansion to approximately 4% for this year, the lowest pace of growth since inception.
The budget airline yesterday reported a full-year operating profit of RM1.02 billion unchanged for 2013 on the back of slightly higher revenue of RM5.19 billion up 5% year-on-year (y-o-y)
Pre-tax profit saw a shocking 62% decline to RM363.2 million due to heavy (on paper) foreign exchange losses in excess of RM380 million, dragged down by the depreciation of the ringgit against the US dollar last year. AirAsia’s aircraft financing is overwhelmingly denominated in US dollars.
AirAsia’s latest financial results were disappointing, research analysts at AmResearch said today, as the competitive environment and weak yeilds rendered the airline unable to translate higher passenger numbers and load factor into earnings during 2013
In a statement yesterday, AirAsia said the number of passengers carried grew 14% y-o-y in the fourth-quarter, overtaking capacity growth of 10% y-o-y. Consequently, “load factor was at an all-time high of 85% due to the company’s very aggressive load active strategy.”
AirAsia CEO Aireen Omar, on the occasion of the results announcement said she was “pleased that our cost reduction exercise… was able to achieved cost per available seat kilometre (CASK) down 10%… to 12.77 sen.”
The set of results “clearly suggest AirAsia’s priority has been to protect market share against price aggression by domestic competitors in particular,” said AmResearch analysts in a report this morning.
Ostensibly to stem the yield weakness in domestic flights, AmResearch observed AirAsia would “reduce capacity growth by deferring aircraft deliveries.”
Mohshin Aziz of Maybank IB research similarly said the budget airline’s results same in “below expectations” but management has “done a good job to fend off competition in the first three quarters of 2013 (9M13) as seen by its modest yield decline compared to the industry.”
“However, in the fourth-quarter (4Q13), AirAsia succumbed to competitive pressures with a yield decline of 12.3% y-o-y, on par with the industy.
“This proves that (yield decline) is an industry wide peril, and nobody is immune,” he added.
Passenger yield, usually shortened to just yield, is a measure of average ticket prices and is often taken as a vague indicator of airline profitability.
In sticking to a ‘buy’ rating for AirAsia, Maybank’s Mohshin credited the airline’s management for “actively managing the situation” by paring down aircraft deployment and realigning capacity.
“AirAsia will pare down its fleet growth plans in 2014 to 18 aircraft, down from 24 aircraft earlier. Six existing aircraft in the Malaysian fleet will be sold; and management hinted that they are expecting to get US$120 million (RM393 million),” Mohshin said.
“The management is also actively cutting capacity on weak routes, and redeploying that capacity on higher growth potential routes. For example, AirAsia has reduced its flight frequency on some key East Malaysian routes such as Kota Kinabalu, Kuching and Miri.
“It is uncharacteristic for AirAsia to pull out capacity, but this shows AirAsia’s high level of maturity and deep understanding of the fundamental market demand,” Mohshin added.
Maybank IB Research pegged a target price of RM2.65 for the stock, maintaining a ‘buy’ call. AmResearch was slightly more pessimistic on AirAsia, with a ‘hold’ call and target price of RM2.50.
At 11:40 am today AirAsia was trading at RM2.37 down one sen. The counter hit a two-year low of RM2.20 in late December 2013.
Sister airline AirAsia X is reeling from posting a core net loss of RM48.6 million Tuesday and is trading at 86 sen down sharply from its July 2013 initial public offering (IPO) price of RM1.25.
Malaysia Airlines is trading at an all-time low of 26 sen after posting deepening losses last week,
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