AirAsia’s net profit soars by 41%

Monday, 29 August 2016 | MYT 9:16 PM
AirAsia’s net profit soars by 41%
BY EUGENE MAHALINGAM

KUALA LUMPUR: AirAsia Bhd’s net profit for its second quarter ended June 30, 2016 soared 40.8% year-on-year to RM342.12mil, boosted mainly by a 40.2% jump in aircraft operating lease income and a 24% reduction in average fuel price to US$59 (RM236) per barrel compared to a year earlier.

Revenue in the second quarter increased to RM1.62bil from RM1.32bil in the previous corresponding period, the low-cost carrier said in a statement on Monday.

Aircraft operating lease income, the second largest component of its revenue after passenger seat sales, grew to RM328.5mil. Passenger seat sales, meanwhile, were up 22.9% to RM991.4mil.

On the performance of its affiliates, AirAsia said 45%-owned Thai AirAsia posted revenue of 7.77 billion baht (RM908.82mil) in the second quarter of 2016, an increase of 13% from the same period last year while net operating profit increased by 69% year-on-year to 671.80 million baht (RM78.56mil).

“This led the associate to post a profit after tax of 767.56 million baht (RM89.78mil) (up 105% year-on-year) in the second quarter of 2016.”

Indonesia AirAsia, in which AirAsia holds a 49% stake, recorded revenue of 887.38 billion rupiah (RM270.6mil) in the second quarter of 2016, down 30% year-on-year which AirAsia said was in-line with the planned 37% decrease in capacity.

“Load factor recorded 10 percentage points improvement to 83%. Meanwhile, IAA registered a lower net operating loss of 84.60 billion rupiah (RM25.8mil) and a smaller loss after tax of 63.35 billion rupiah (RM19.31mil).

Separately, Philippines AirAsia, which is 49% owned by AirAsia Inc (AirAsia’s 40% owned associate), posted an 11% increase in revenue at 2.57 billion peso (RM223.82mil) and strong growth in the number of passenger carried.

“Load factor was at a high of 91%, up by 11 percentage points year-on-year. Cost per available seat kilometre (CASK) increased by 1% to 2.53 peso due to higher depreciation of property, plant and equipment and maintenance and overhaul cost.”

Meanwhile, 49%-owned AirAsia India recorded a 73% increase in revenue at 1.89 billion rupees (RM113.79mil) and carried higher number of passenger.

Commenting on the results, AirAsia chief executive officer Aireen Omar said in a statement that the airline saw good growth and earnings in the second quarter despite it historically being the company’s leanest.

“The highest growth seen among our ancillary products are sale of in-flight merchandise (up 400% year-on-year), AirAsia Courier (up 86%) and connecting fees for our ‘Fly-Thru’ service (up 65%).

“These led to the company recording an ancillary income per pax of RM48 this quarter (up 5% year-on-year). The group recorded a 32% year-on-year increase for Fly-Thru traffic, and Kuala Lumpur remains the largest transit hub with 83% AirAsia Group Fly-Thru traffic with the growth of 31% year-on-year.”

For the six-months period ended June 30, 2016, the low-cost carrier’s net profit more than tripled to RM1.22bil from RM392.36mil a year earlier, while revenue increased to RM3.32bil from RM2.62bil in the previous corresponding period.

Meanwhile, in a separate statement, AirAsia said its board of directors had approved the divestment of Asia Aviation Capital Ltd (AAC), the carrier’s wholly-owned aircraft leasing business.

AAC carries out the aircraft leasing business within the AirAsia group and with third party airlines

AirAsia has appointed RHB Investment Bank, Credit Suisse (Singapore) Ltd and BNP Paribas (acting through its Singapore branch) and BNP Paribas Capital (M) Sdn Bhd, as joint advisers for the potential divestment.

AirAsia's resilient Fernandes eyes China to chart new expansion

CK Tan, Nikkei staff writer

AirAsia's group CEO Tony Fernandes, left, and Airbus President & CEO Fabrice Bregier signed the deal in the U.K.

KUALA LUMPUR -- Confidence has returned to AirAsia, the region's largest budget carrier by fleet size. Group Chief Executive Tony Fernandes has gotten more involved in running the airline group, charting a new course for expansion that may include a second listing, in Hong Kong, and a joint venture in China.

 

Nearly 20 months after one of its jetliners crashed into the Java sea, claiming 162 lives, Fernandes is aggressively charging toward a new phase of growth.

 

 

On July 12, AirAsia announced an order of 100 Airbus A321neo passenger aircraft. The deal, AirAsia's biggest since the accident, was announced during the biannual Farnborough Air Show, on the outskirts of London. The purchase lays bare a bold expansion plan for the no-frills flyer that in 2015 had 172 aircraft.
"With these aircraft," Fernades said during the signing ceremony, "we will hit 100 million passengers in the not-too-distant future."
The group, which has associate carriers in India, Indonesia, the Philippines and Thailand, ferried 51 million travelers last year.

 

In Farnborough, Fernandes was at ease. His casual attire included his trademark red baseball cap and a pair of jeans. He peppered the post-signing ceremony press conference with jokes. Fabrice Bregier, Airbus' president and CEO, was also on hand.
The new aircraft have a total catalog price of $12.6 billion. Deliveries are to begin in 2019. The A321neos have better fuel efficiency and are more spacious than AirAsia's current A320s. Fernandes has big plans for them.
Fernandes, a former executive of record company Warner Music Group, began his airline in 2001 after being inspired by the success of Ireland's Ryanair, which covers much of Europe.
Fernandes' no-frills business model, from which he has never strayed, made air travel and faraway vacations affordable to many Southeast Asians.
Of course, he never saw the Java Sea tragedy coming.

"My heart is filled with sadness for all the families involved in Flight 8501," Fernandes tweeted on Dec. 30, 2014, two days after the crash. "Words cannot express how sorry I am."
While AirAsia was dealing with the tragedy, it was also grappling with intense competition. Other budget carriers appeared in the skies, and fares fell. Amid all this, the group was accused of tweaking figures to boost earnings. As a result, the company's stock price last August caved in, falling to a low of 0.78 ringgit.

 

"Many people were writing off AirAsia, but we stuck to our guns," Fernandes recalled in Farnborough. "We have moved from a Southeast Asian airline to an Asian airline."
And AirAsia's share price has bounced back. On Tuesday, the shares closed at 2.95 ringgit, the highest they've been since two days before the crash. Cheaper fuel prices, which have buoyed the entire aviation industry, and a reshuffling of routes have contributed to the recovery.
The shares finished the week at 2.97 ringgit.
Market capitalization grew by about 7% to $2.03 billion since the crash, but still lacked behind regional peers like Shanghai-based Spring Airlines' $5.89 billion.
According to the Centre for Aviation, or Capa, an Australian consultancy, among the 20 regional airlines in Southeast Asia, 14 reported year-over-year improvements in the first quarter 2016, including all seven of the AirAsia-branded airlines. "The group is upbeat about its outlook, having recovered from a very challenging 2015," Capa added.
After the accident, Fernandes kept a low profile. Only now is he re-emerging. "Super second quarter performance for All Stars," he tweeted on Jul. 27, giving employees credit for AirAsia's strong passenger growth in the April-June period.
AirAsia said it carried 13.9 million travelers during the quarter, 12% more than a year earlier, despite the April-June period traditionally being "our slowest quarter," Fernandes said.
The bumper passenger numbers are thanks to higher demand in Malaysia and Thailand.
By way of comparison, AirAsia's closest rival in the region, Cebu Pacific Air, out of the Philippines, carried 5.2 million in the quarter.
Ten new routes were added during the quarter, mainly to second-tier Chinese cities, which now account for about 40% of revenue. AirAsia also increased the frequency it flies to many of its destinations.
The group is to announce its latest earnings by the end of the month.
In the 20 months since the accident, AirAsia has undergone operational and structural changes.

 

Fernandes gave up the carrier's ASEAN headquarters, in Jakarta, and put it back in Kuala Lumpur. The CEO had hoped the Jakarta base would lead to growth in Indonesia and the surrounding region.
In April, Fernandes received shareholder approval to raise his stake in AirAsia from 18.9% to 32.4% through Tune Live, a private company co-owned with Kamarudin Meranun, who co-founded AirAsia with Fernandes. The new share issuance will raise 1 billion ringgit ($247 million), which will be used to pare debt and as capital expenditures.
The AirAsia Group's net debt after offsetting cash balances amounted to 9.2 billion ringgit as of March.
"The placement signals the conviction of the major shareholders with regard to the prospects of AirAsia, given the sizable cash outlay and expanded share base of the group," said Marvin Khor of AllianceDBS Research. He added that the capital injection will reduce the carrier's gross debt-to-equity ratio from 2.8 to 2.2, raising its stock valuation.
After the Airbus order, Fernandes traveled to the U.S. and Europe to let institutional investors like Fidelity and The Boston Company Asset Management know that they might want to kick AirAsia's tires. Perhaps they'll find a bargain.
From Paris, Fernandes tweeted, "15 days but very rewarding for me and investors now know how undervalued we are."
To be a bargain, though, the shares have to look like they are ready to jump in price. In other words, AirAsia needs to continue growing.
That is not going to happen in Southeast Asia. Budget short-haul routes there have approached "maturity," Capa said in a report earlier this year. Low-cost carriers made up of 56% of the seats flown in the region, compared to 11% in Northeast Asia.
For AirAsia, then, growth means going north.
To drive growth in China and Japan, AirAsia in June set up North Asia, a Hong Kong-based subsidiary.
The president is Kathleen Tan, who was in the music industry before 2004, when she was named AirAsia's commercial director. She was promoted in 2013 to head of AirAsiaExpedia, a joint venture with a travel agency that AirAsia has since divested.
"North Asia -- with China, South Korea, Japan and Taiwan -- is considered a high growth region" for no-frills flyers, Tan told the Nikkei Asian Review. Tan said demand for regional travel is high, partly due to the proximity of the countries and cultural similarities.
Tan's top priority is China. China's budget aviation market is growing rapidly. A raft of new players entered the skies after the government began opening new routes to promote economic growth in the western part of the country. Spring Airlines and West Air enjoy big pieces of China's low-coast market.
Fernandes said he will pursue more connections to second-tier Chinese cities.
"I can confirm China is a market we will love to be in," he said. "We are not interested in Beijing or Shanghai or those big metropolises. What AirAsia is good at is developing those secondary and tertiary routes, and those are what we are looking at."
Fernandes continued that AirAsia's forte is "providing connectivity where there isn't any connectivity and providing economic growth where there isn't any economic growth."
The strategy is to avoid directly competing with both full-service and budget carriers that have already established hubs in the country. AirAsia might do this by taking the joint venture route. He said AirAsia has been approached by Chinese companies in this regard.
Hong Kong's capital market could also beckon AirAsia.
"We need to attract a new form of capital and awareness of AirAsia," Fernandes said in Farnborough, adding that a Hong Kong listing could help AirAsia accomplish these goals. "It is something we are investigating," he said.
The carrier is also getting ready to start crisscrossing Japan again. It has received two A320s, and Tan said the group hopes to begin test flights this month.
Pending regulatory approval, it hopes to begin commercial flights from its base in Nagoya come January.

 

It will have to compete against established peers like Peach in Japan and Spring Airlines in China, and the relatively demanding customers in North Asia who may have yet to be fully accustomed to no-frills travels.
"While I joke and laugh but it is not easy," Fernandes said in response to a question on how he manages challenges in different markets.
"To me, business is the same whether it is in an airline or music: Maximize the top line, minimize the cost, do a lot of marketing and be different."

http://asia.nikkei.com/Business/Companies/AirAsia-s-resilient-Fernandes-eyes-China-to-chart-new-expansion

MQ Research: AirAsia’s air traffic beats estimates

AirAsia reported its operating numbers for the second quarter of 2016, reflecting the performance of its Malaysian, Thai, Indonesian, Indian, and Philippine entities. In terms of air traffic, AirAsia unveiled a better-than-expected performance, beating Macquarie Equities Research’s (MQ Research) estimates by 7.8%, which translated to a better than expected load factor. In its report, MQ Research reiterated an ‘Outperform’ rating on AirAsia, with a 12-month target price of RM3.50.
Event

• AirAsia (AIRA MK) released a good set of 2Q16 operating statistics on late Tuesday.
• In terms of air traffic (RPK), its Malaysian entity, the major contributor to MQ Research’s sum-of-parts target price, is tracking 8% ahead of MQ Research’s estimates and its India entity is tracking marginally above expectations (4%), while its Thai and Indonesia entities are tracking in line with MQ Research’s estimates. However, its Philippine entity is tracking marginally below MQ Research’s estimates due to an unexpected capacity reduction.

‌Impact

• Load factor improvements across its five entities in Malaysia, Thailand, Indonesia, Philippines and India.
• Malaysia AirAsia improved load factors by 6.7% to 87% and delivered a 10% passenger growth in an industry that had zero growth in 2Q16.  Traffic beat MQ Research’s expectations by 7.8% and capacity was in line with MQ Research’s expectations, leading to the positive surprise in load factors
• Thai AirAsia delivered double-digit passenger growth in 2Q16, carrying 18% more passengers in 2Q16. Its three-year compound annual growth rate (CAGR) stands at 20%, a commendable performance, in MQ Research’s view. Capacity and traffic figures for Thai AirAsia were in line with MQ Research’s expectations.
• Indonesia AirAsia, in line with its restructuring plans, carried 2% more passengers. Load factors were 83%, an increase from 73% in 2Q15. Capacity and traffic figures for Indonesia AirAsia were in line with MQ Research’s expectations.
• Philippines AirAsia surprisingly reduced 7% year-on-year (YoY) capacity in 2Q16, thus leading to traffic figures marginally below MQ Research’s expectations. Load factor received a boost, at 91% for 2Q16 vs MQ Research’s expectations of 85%.

‌Action and recommendation

• Reiterate Outperform with a target price of RM3.50 (+25.8% TSR).

Source: Macquarie Research - 28 Jul 2016

亚航售AAC有利股价‧潜在股息或达96仙

（吉隆坡25日讯）大马航空业今年第四季的竞争将加剧，但亚洲航空（AIRASIA，5099，主板贸服组）在脱售亚洲航空资本公司（AAC）股权潜在股息诱人的利惠下，股价仍有一定上涨空间。

根据马航新首席执行员的谈话和马印航空（Malindo）增加机队，显示竞争白热化。

大马机票价格战白热化

联昌研究指出，大马机票价格战越演越烈，而航空业的竞争主要是受到航班回酬强稳，航班增加所造成。

马航的去年第四季和今年第一季每公里营业额（RASK）分别成长7.8%和15%。马航每公里营业额上涨，归功于其前首席执行员穆勒削减了一些长程和短程航班。

马航新任首席执行员彼得贝鲁也表示，该公司必须解决其平均乘客率低于70%的问题。

该公司将会把15至20%的空置座位作为廉价机票，以重夺其失去的市占率。另外马航也会在第二国际机场（KLIA2）和亚庇国际机场推出前往中国的航班。

至于马印航空，该公司也会推出前往越南、泰国以及印尼航班，这些都会蚕食亚航在该地区的乘客人数。同时，该公司在今年也增加了8家737-800s飞机。

尽管大马航空业竞争加剧，但联昌并没有对于目前情况过于担心，并有信心亚航可以达到目标价。

这是因为AAC的出售将会为亚航带来重大刺激，加上该公司之前所定做的100架A321neos飞机，其中30架属于ACC所有拥有，这大大增加该公司的吸引力。若该公司成功出售ACC，其潜在股息高达96仙。

不过，联昌预测该公司2017年每股核心盈利会减少10%，这是因为该公司之前以每股1令吉80仙（比目前股价折价20%）私下配售予两位大股东5亿5900股新股的冲稀效应所致。

针对上述条件，联昌维持亚航“买进”评级不变，目标价为4令吉15仙。

文章来源：

星洲日报‧财经‧报道：傅文耀‧2016.07.26

 

AirAsia and Norwegian Air Could Create A Worldwide Low Cost Alliance

Two of the world’s most successful low cost carriers could soon be joining forces.
Norwegian newspaper Dagens Naeringsliv has reported that AirAsia boss Tony Fernandes met with Norwegian Air CEO Bjorn Kjos at the Farnborough International Airshow. The two reportedly want to set up meetings to discuss the possibility of a joint venture.

Friendly competitors or allies? 
Kjos praised AirAsia as he stood next to Fernandes at the World Airline Awards. Speaking of both airlines’ awards for best long haul low cost carrier and best low cost carrier, Kjos said, “These are the world’s two best airlines. [The awards] show that the customers like our product. They’re the ones who voted for us.”
Fernandes, for his part, donned a Norwegian Air pin and told Kjos “If I get the opportunity to come to Oslo, we should sit down and talk. Why not?”

A worldwide low cost carrier alliance
Should such a joint venture come to pass, the two airlines would be able to cover most of the world. AirAsia has more than 200 routes in Asia and the Pacific regions. Norwegian flies extensively in Europe and has been dramatically expanding its international route offerings. The US market has been a major target for Norwegian, though it has met with resistance from American labor unions and regulators.
AirAsia’s low cost long haul wing, AirAsia X, does fly to Europe, but most of its routes are in Asia and Oceania. Sharing passengers with Norwegian would allow it to reach further into Europe and even into North America. Norwegian, likewise, has a limited number of routes to Asia (to Thailand, Hong Kong and India). So, on paper at least, this seems like a perfect match.

Or could they become rivals
AirAsia is looking to expand its route options in Europe through AirAsia X. Fernandes has already teased more flights to the UK. Potentially, he could also opt to open routes into Scandinavia and use Norwegian’s European services as feeders. Norwegian could want to expand in the other direction, using AirAsia as a feeder airline. If the two carriers cannot come to an agreement about which airline flies which route, they could just as easily become competitors instead of partners.

Following the trend
Such joint venture partnerships have become more common as airlines look to minimize the risks and costs of expansion. United Airlines recently partnered with Air New Zealand, for example, and American Airlines has joined forces with South American super-carrier LATAM on intercontinental routes.
In the current climate, a joint venture between Norwegian and AirAsia does not seem at all far fetched.

Making low cost carriers global
An alliance between Norwegian and AirAsia could signal a new era in the evolution of the low cost carrier phenomenon, which is still mainly focused on regional flights. Carriers like Norwegian and WOW have brought the same low fare model to transcontinental flying, but the trend is still in the very early stages of development. It will be some time before travelers will be able fly anywhere overseas on low cost carriers like they now can on full service airlines.
It is an attractive idea, however. With worldwide networks, low cost carriers could make international travel possible for many people who could not previously afford it (the same way that they have made flying more affordable on the domestic level).
For American fliers, a joint venture between AirAsia and Norwegian could eventually mean low cost flights to both Asia and Europe. As fuel costs start to rise again and airlines start murmuring about raising fares, that would be a very welcome development.
The only reason this is a story is because of the people involved. Both Kjos and Fernandes are shrewd businessmen who have showed a knack for developing the next trend before everyone else. If a long haul low cost revolution is to take place, both their airlines will certainly be a part of it.  

http://www.travelpulse.com/news/airlines/airasia-and-norwegian-air-could-create-a-worldwide-low-cost-alliance.html

AirAsia-Norwegian Air cooperation in the works

Tony Fernandes and Norwegian Air’s boss discuss possibility of sending passengers into each other’s network routes.

 

Oslo: More tourists from Scandinavian countries and Europe might be flying into Kuala Lumpur and Asia if a move by AirAsia to tie-up with Norwegian Air materialises.
AirAsia and Norwegian Air are exploring a possible joint venture, according to Norwegian newspaper Dagens Naeringsliv (DN).
AirAsia founder Tony Fernandes met Norwegian Air founder and chief executive Bjorn Kjos for the first time at the Farnborough International Airshow, it said.
The newspaper said they discussed the possibility of sending their passengers into each other’s route networks in Europe and Asia.
Newsinenglish.no quoted DN as saying the cooperation could start in about a year and that it would create a new era in route offerings for Norwegian passengers in Asia.
The two airlines, it said, had a lot in common, growing at a rapid pace on the back of relatively cheap airline tickets and creating wide route networks in their respective markets.

AirAsia has more than 200 routes in Asia using mostly Airbus aircraft while Norwegian Air has an extensive route system within Scandinavia and Europe, and is keen on expanding its intercontinental routes as well.
DN reported that Fernandes pointed to a Norwegian Air button he was wearing on his lapel, asked Kjos for his phone number and said he wanted to fly to Oslo for a serious talk.
It quoted Fernandes as telling Kjos at the airshow: “We’ve never had the opportunity to meet each other before now. If I get the opportunity to come to Oslo, we should sit down and talk. Why not?”
The two airlines could soon be competing on intercontinental routes between Europe and Asia as Fernandes intends to re-launch a route between Kuala Lumpur and London.
He had also mentioned flying into one of the Scandinavian capitals as well, feeding passengers into Norwegian Air’s route system for onward travel. Kjos, the report said, didn’t reject the idea.
“We wish him welcome and like competition,” Kjos told DN, calling Fernandes “a great guy” who leads “a very good airline”.
At Farnborough, Norwegian Air won the Skytrax Award as Europe’s best airline for the fourth time, and as the best long-distance low fare airline for the second time. The Skytrax prizes are based on votes from passengers worldwide.
AirAsia, meanwhile, won four prizes including the one for the best low-fare airline in the world.
“These are the world’s two best airlines,” Kjos claimed as he stood with Fernandes at Farnborough, according to DN. The prizes “show that the customers like our product. They’re the ones who voted for us.”

http://www.freemalaysiatoday.com/category/highlight/2016/07/14/airasia-norwegian-air-cooperation-in-the-works/

A321neo orders good for AirAsia

AirAsia Bhd
June 13 (RM2.75)Maintain add with an unchanged target price of RM4.15: Investors whom we spoke to on AirAsia Bhd’s order of A321neos have generally been cautious about the potential orders, fearing that AirAsia is once again over expanding. Investors did not like the additional 100 orders which come at a list price of US$125.7 million (RM499 million) each, as they come on top of the undelivered 304 A320neo orders. However, we believe that the orders are good for the AirAsia group, and there is no need to fear.
From an operational perspective, the A321neos are good for AirAsia. A321neos usually seat 220 passengers, but from 2018, a new version with 240 seats will be offered. The A320s currently seat 180, but this can be raised to 186 under a new configuration. So, the new A321neos offer 33% more capacity than AirAsia’s current fleet, and can help AirAsia optimise the service of existing high-density routes.
This will be important for AirAsia on routes such as Kuala Lumpur to Kota Kinabalu, where it had wet leased several of AirAsia X’s A330s this year to cater to the strong demand at specific flight timings. A higher-capacity aircraft can also help AirAsia reduce its unit flying costs, which will improve flight profitability for thick routes.
Airport congestion is also a major issue that is being faced by Asean airports. For instance, Cebu Pacific Air currently has 30 A321neos on order, against a fully delivered fleet of 38 A320s. This is important since the Manila airport is very congested, and also affecting AirAsia Philippines.
Thai AirAsia is facing similar congestion issues at Bangkok Don Muang, and Indonesia AirAsia in Jakarta. So we think a good number of the A321neos may be placed outside Malaysia.
Also, history has shown that AirAsia has significant flexibility to negotiate deferrals with Airbus when needed, so the orders placed today are meant to secure the future delivery slots. Should demand slow in future, we are confident that AirAsia will be able to defer the deliveries to avoid overcapacity.
The A321neo orders may be parked under the leasing arm Asia Aviation Capital (AAC). We expect this to boost the valuation of AAC to above the US$1 billion which is already on the table from a potential Chinese buyer, as it locks in future delivery slots at what we expect to be attractive prices.
A higher valuation for AAC has the potential to boost upcoming special dividends upon the partial sale of AAC.
If and when a formal announcement on the A321neo orders are made, we would look at several details including: i) over how many years the 100 A321neo orders will be delivered; ii) when the A321neo deliveries will start; and iii) whether the 100 new A321neo orders will replace some of the A320neos that are currently on order.
If the orders are spread out over many years and deliveres do not start until several years later, we expect current investors’ concerns to be alleviated. The major risk to AirAsia is if there is a terrorist attack on Malaysian soil, which could impact inbound travel demand into Malaysia, much like the Erawan shrine bombing in August 2015 which affected tourist arrivals into Thailand. — CIMB Research, July 12
http://www.theedgemarkets.com/my/article/a321neo-orders-good-airasia

AirAsia buys 80% stake in T&Co Coffee for RM914,000

KUALA LUMPUR (June 27): Budget airline AirAsia Bhd is buying an 80% stake in T & Co Coffee Sdn Bhd (T&Co Coffee) for RM914,000, to provide more lifestyle-focused offering to its passengers by expanding its inflight menu.
In a filing with Bursa Malaysia today, AirAsia said it has entered into an agreement with Datin Charlene Yeo Ming Ling for the proposed acquisition.
The purchase consideration will be satisfied in part by cash of RM814,000 and the remaining RM100,000 by AirAsia credit shell which may be used to pay for flights on all carriers within AirAsia Group.
The airline also entered into a shareholders agreement with Yeo, Datuk Douglas Cheng Heng Lee and T&Co to govern the foregoing parties’ relationship as the shareholders of T&Co.
T&Co has been supplying inflight coffee and tea solutions to AirAsia since December 2013.
AirAsia said the purchase price of RM914,000 is based on T&Co’s agreed valuation of RM1.14 million, derived after taking into consideration its net tangible assets (NTA) of RM280,586 as of June 30, 2015; and the capitalisation of the amount owing to Cheng of RM852,341.
Upon capitalisation, the total shares of T&Co will be increased to 1.1 million, bringing up the NTA per share to RM1.03.
AirAsia said acquiring majority stake in T&Co would allow it to have greater management control on T&Co, which will allow it to focus more on product development.
"Coffee and tea are an important part of the inflight experience. A good coffee and tea offering would help AirAsia differentiate its brand in an increasingly competitive market," it said.
It added that the move would allow AirAsia to raise premiums on beverages, as well as improve the margin.
"A majority stake in T&Co would confer on AAB [AirAsia Bhd], greater control over product planning and development, to ensure they are both in line with the company's vision of delivering the ultimate inflight coffee experience, featuring the best of Asean beans — the 'Barista in the Skies'," it said.
AirAsia shares closed down four sen or 1.53% at RM2.57 today, for a market value of RM7.15 billion.
http://www.theedgemarkets.com/my/article/airasia-buys-80-stake-tco-coffee-rm914000

AIRASIA – Fundamental Analysis (28 Jun 2016) - L. C. Chong

Excel – Download the analysis file

Latest Financial – Q1 2016 Financial Report (26 May 2016)

FY16 Q1 Results Highlight:

• 1QFY16 revenue jumped 31.0% yoy to RM1.7bn on stronger pax traffics (RPK: +26.2% yoy), overall yield improvements (1.4% yoy), higher ancillary income/pax (+11.1% yoy) as well as new revenue recognition of maintenance fee charges to JVs/Associates. (Hong Leong 27 May 2016)
• Margins improved significantly in 1Q16 mainly due to lower jet fuel costs at US$56/bbl (vs. US$75/bbl in 4Q15 and US$85/bbl in 1Q15). AirAsia has hedged 76% of jet fuel requirement for the remaining FY16 at US$54/bbl and 25% of 1H17 at US $58/bbl. Hence, AirAsia’s strong margins is expected to be sustainable. (Hong Leong 27 May 2016)
• TAA (Thailand) also cont ributed strongly at RM94.9m in 1Q16 (+225.8% yoy; +226.1% qoq) on the back of strong demand on China sector as well as low jet fuel costs. (Hong Leong 27 May 2016)
• Outlook on the turnaround of IAA (Indonesia) and PAA (Philippines) seemed promising, after both registered lower operating losses of RM34.6m (-52.8% yoy) and RM32.6m (-54.6% yoy) respectively. The ongoing restructuring effort of IAA (capacity cut & focus on profitable routes) and PAA (fleet restructuring & focus on North Asia sector) continue to improve the load factors, yields and cost structures. The capital restructuring of both entities (new fund injections from other shareholders) are expected to complete by 3Q16. (Hong Leong 27 May 2016)
• JAA (Japan) is expected to commence operation by Oct 2016 with 2 A320s. AAI (India) continued to improve with lower operating losses (-55.6% yoy) as it expanded further. (Hong Leong 27 May 2016)

Valuation:

• In my opinion, fair value of AIRASIA range from 2.5 to 2.6. Uncertainty risk of fair value is HIGH.

Going Forward:

• Higher risk that IAA’s convertible bonds (CB) may not be successfully issued, as the CBs are now being marketed to foreigners rather than the initial target of local Indonesian investors
• The continued weakening of the Ringgit against the US$ which is on average 12.7% lower compared to FY14. ~70% of operating expenses and 80% of debt are US$ denominated. AirAsia’s US$ debt hedges are at 73% utilising a combination of natural and derivative hedging. Meanwhile, ~8% of operating costs are hedged to reduce the impact from USD/MYR volatility.
• AIRASIA is a beneficiary of lower jet fuel prices with lower hedges in FY16 of US$59/bbl (FY15: US$88/bbl)
• Positives:
  • A persistent appreciation of the Ringgit against the USD (ytd: up +10%) as 65% of AirAsia’s operating expenses and 80% of its debt is USD denominated
  • Lower jet fuel expenses as Airasia has hedged 72% of its FY16 fuel requirements at a lower US$54/bbl (FY15: US$88/bbl) with 28% exposure to the spot market which is hovering around US$48/bbl
  • A sustained recovery of its associates, Indonesia AirAsia and Philippines AirAsia
• On 1 Apr 2016, the company announced that its founders Tan Sri Tony Fernandes (TSTF) and Datuk Kamarudin Meranun (DKM) have entered into a conditional subscription agreement for 559m new AirAsia shares (representing 16.7% of AirAsia’s enlarged share base) at a price of RM1.84 per share (RM1.80 after adjusting for a  4sen dividend announced on 31/3/2016) to potentially raise RM1b. The subscription of shares will be done via their 50:50 owned entity Tune Live Sdn Bhd (TLSB), raising their shareholding in AirAsia from 18.9% to 32.4% which is just a shy of the 33% trigger in which they would have to make a mandatory general offer. The exercise is subject to shareholder and regulatory approvals.
  • The main reason AirAsia chose to raise equity funding via share placement to its founders despite announcing earlier in the year a US$1b multi-currency bond programme is due to unfavourable terms for the its bonds in light of weak market sentiment.
  • The share  placement  would cause an unwelcomed 15.3% dilution in EPS to existing shareholders. However, shareholders would in return get: 1) a reduction in debt by RM342m which reduces financing costs by RM10.7m; 2) higher equity  and lower debt reduceds net gearing from 2.29x to 1.80x; 3) 65.5% of the proceeds are to fund the company’s expansion (capex, new HQ and working capital). Meanwhile, the placement at its market price could be seen as a vote of confidence by its founders in the company’s prospects.
• I am still worry about AIRASIA, but I believe AIRASIA will be able to go through these issues.

At the time of writing, I owned shares of AIRASIA.

https://lcchong.wordpress.com/2016/06/28/airasia-fundamental-analysis-28-jun-2016/

Vistara, AirAsia India seek quick fleet growth as aviation rules eased - sources

SINGAPORE (June 16): Vistara and AirAsia India, airline ventures of India's biggest conglomerate Tata Group, aim to boost their fleet sizes to 20 planes within a year and launch international services after the country overhauled aviation rules, two people familiar with their strategy said.
The Indian government revised on Wednesday its so-called '5/20' policy, removing a restriction that domestic carriers have to operate for five years before they can fly abroad. They must, however, still deploy 20 aircraft or 20% of total capacity in India, whichever is higher.
Vistara and AirAsia India, which began operations in January 2015 and June 2014, respectively, will prioritise services to the Gulf and flights to Southeast Asia to connect with their investors Singapore Airlines and AirAsia, added the sources, who declined to be identified as they were not authorised to speak to the press.
Singapore Airlines has a 49% stake in full-service carrier Vistara, while Southeast Asian low-fare pioneer AirAsia owns 49% of budget airline AirAsia India. Tata Group has a 51% stake in Vistara and 49% in AirAsia India.
AirAsia India CEO Amar Abrol said on Wednesday that the airline will increase its fleet from six to 20 aircraft "as soon as possible".
These will come from Malaysia-headquartered AirAsia, which supplies Airbus A320s from its large orderbook to affiliates around Asia. AirAsia declined to comment.
Vistara has 11 A320s and will get two more this year, and it originally planned to have 20 planes by June 2018. All of these are from leasing firms, and it will turn to them for more planes, said a source familiar with the company's plans.
Widebody aircraft could also be on the cards for Vistara, but that is not a priority, added the source.
Singapore Airlines referred questions to Vistara, which did not immediately respond to a request for comment.
Vistara has a three-class configuration with business, premium economy and economy cabins. This is geared towards the higher-yield international segment, where executives believe they can compete against Gulf carriers such as Emirates, Etihad and Qatar Airways which dominate the market for travel to and from India.
International services by AirAsia India and Vistara may not significantly hurt incumbents such as Air India, Jet Airways and InterGlobe Aviation's IndiGo, some analysts said.
"We don't really see this as a negative for the competition because in today's global environment, the airlines also need to compete with carriers from abroad and they do not just face the local competition alone," said Pankaj Sharma, Head of Equities, Equirus Securities.

http://www.theedgemarkets.com/my/article/vistara-airasia-india-seek-quick-fleet-growth-aviation-rules-eased-sources

Investors eye bumper dividend as AirAsia plans to sell aircraft leasing business

PETALING JAYA: Shares in AirAsia Bhd climbed to its highest level in more than a year on hopes the low cost airline will pay out a bumper dividend from the impending sale of its aircraft leasing business.

CIMB Research expects 96 sen a share payout assuming the deal goes through.

“Post-sale, gearing levels would fall, and the risks arising from the associate airlines would be shared with the new majority owner of AAC,” it said in a note yesterday.

“We expect 96 sen per share in special dividends to be declared post-Asia Aviation Capital’s (AAC) disposal,” it said.

Shares in AirAsia rose two sen yesterday to close at RM2.67. CIMB Research yesterday raised its target price for the stock to RM4.15.

This values the airline at nine times its projected earnings in 2017 and adding in the expected special dividend.

It has been reported that the low cost carrier was in the process of evaluating the proposed sale of AAC.

Group chief executive officer Tan Sri Tony Fernandes said AirAsia had appointed three banks to conduct the sale and there had been significant interest in AAC with a ready offer in hand valued at about US$1bil.

AAC is AirAsia’s wholly-owned leasing arm that leases aircraft to associate airlines in Thailand, Indonesia, the Philippines, India and Japan.

At the point of sale, AAC will have a portfolio of about 70 A320 planes, with aircraft and their associated debt novated from Airasia.

CIMB Research said the best offer on the table so far values AAC’s equity at US$1bil, although it believed that AirAsia was attempting to push the valuation even higher.

“The latter was calculated based on the market value of AAC’s expected portfolio of 70 aircraft, with the valuation boosted, in our view, by AirAsia’s large and attractively-priced order book with Airbus, which AirAsia has promised to share with the future AAC owner,” it added.

The exact proportion of AAC to be sold has yet to be decided by AirAsia, but a buyer has offered to purchase an 80% stake for US$800mil.

CIMB Research said Airasia might sell a smaller stake if it could get a higher valuation. “We suspect that the key criteria is the amount the two founders need to receive in special dividends to settle the RM1bil they would borrow to pay for the upcoming placement of 559 million new shares at RM1.80 each,” it said.

The research house said after the placement, the two founders would have a combined 32.4% stake in AirAsia.

“This means they will need AirAsia to pay at least RM3.1bil in special dividends (RM1bil/32.4%) to settle their loan. The US$800mil proceeds from potential sale of 80% stake in AAC (or RM3.2bil at RM4 to US$1) neatly matches the amount the founders need.

“This is the reason we think the entire proceeds will be paid as special dividends, representing 96 sen per share on enlarged post-placement base of 3,342 million shares,” CIMB Research said.

The research house estimated that RM1.5bil-RM1.7bil in debts associated with the leasing business would be deconsolidated, reducing net gearing to below one time.

Also, the future funding of loss-making associates would be shared with the new AAC owner, since the associates will pay aircraft rents directly to AAC.

AirAsia eyes bigger growth in China

KUALA LUMPUR - AirAsia eyes increasing its footprint in China, which remains an important market for Southeast Asia's leading budget airlines, media reported.
Its chief executive officer Aireen Omar said AirAsia is the biggest international airline in China, operating 45 routes to 18 destinations.
The airlines operates hubs that connect into various destinations in China, like it fly from Guangzhou not only to the Malaysia's capital city of Kuala Lumpur, but also to the southern state of Johor.
She told reporters on the sidelines of the World Economic Forum (WEF) on ASEAN that AirAsia is weighing on more routes to China.
"There are a lot of things that are being planned at least for the next five years on how we are going to grow into China from the ASEAN base," she was quoted as saying by Bernama, state news agency of Malaysia.
Meanwhile, Air Asia group chief executive officer Tony Fernandes said Chinese regulators understood the aviation business and were very proactive.
"It has been great working with them. Wuhan airport authorities have seen us last week and wanted to know how to be a low-cost (carrier) and how to build a low-cost terminal," he told reporters.

http://www.chinadaily.com.cn/bizchina/2016-06/02/content_25590773.htm

AirAsia receives US$1 billion takeover offer for leasing unit

SINGAPORE: Asia's largest budget airline AirAsia Bhd has received a $1 billion offer for its aircraft leasing unit, Bloomberg News quoted Chief Executive Tony Fernandes as saying.
AirAsia intends to divest the business, Asia Aviation Capital Ltd, at some point, Fernandes told Bloomberg on Monday but added that the offer needs to be discussed further with the board.
He was quoted as saying that the business was a "powerful cash generator."
Reuters reported in October that AirAsia has been in talks with lessors, including cash-rich Chinese companies, to sell a stake in its leasing subsidiary.
Chinese companies are seeking to grow aggressively in the leasing industry that provides about 40 percent of the planes used by airlines globally.
Following the Reuters report, AirAsia said late last year that it had received approaches from investors to co-invest in the leasing unit. --Reuters

MQ Research: AirAsia's target price upgraded to RM3.50!

The AirAsia journey continues to excite many investors with the share price gaining an additional 2.6% to RM2.34 on Thursday.  In May alone, the share price has surged a whopping 23.2%!  Call warrants listed over AIRASIA followed closely with AIRASIA-C29 gaining 225%.
Ahead of AirAsia’s 1Q16 results due at the end of this month, Macquarie Equities Research (MQ Research) has revised the target price (TP) of the low-cost airline from RM3.00 to RM3.50.  Find out why below..

Event

• MQ Research reiterates their Outperform recommendation on AirAsia with a revised TP of RM3.50 (54% TSR) ahead of 1Q16 results due out at the end of May. Despite less aircraft operated by its Malaysian business, AirAsia Malaysia carried 17% more passengers in a period where the industry only grew 3%. This, together with lower fuel prices and a more rational competitive environment in Malaysia, should support AirAsia to deliver a 51% increase in FY16 profits, its highest ever profit. The stock is trading on 6.6x 17E EV/EBITDAR based on MQ Research’s new estimates. MQ Research’s TP of RM3.50 implies an17E EV/EBITDAR multiple of 8.6x, on par with its historical forward multiple.

Impact

• 1Q16 preview

MQ Research estimates AirAsia will report an adjusted profit of ~RM265m (+88% YoY) in 1Q16, 25% of MQ Research’s FY16E, but representing 32% of consensus estimates. MQ Research expects revenue growth of 19% in the quarter will be driven by a 26% revenue passenger per kilometer (RPK) growth. A pax yield decline of 3% is expected given the current weak yield environment. MQ Research are expecting unit cost (CASK) to remain flattish given the Ringgit weakened on average 14% YoY pcp. MQ Research expects AirAsia to deliver an EBITDA of ~RM530mn (+25% YoY). Thai AirAsia’s profit of RM95mn is expected to be higher than the losses at its Indonesian and Indian associates. MQ Research forecast its Philippines associate to turn profitable in 1Q16.

 

• Got that sunshine in its pocket

2016 is turning out well for AirAsia, in MQ Research’s view. AirAsia is delivering faster passenger growth than the industry as evidenced by its 1Q16 operating statistics released earlier this month, which supports MQ Research’s trade down thesis. With 70% of its 16E fuel requirement being hedged at US$55/bbl, a 1% strengthening of the Ringgit could increase 16/17E profit by 1.1-2.0%. The decision by its competitor Malindo Air to become a full service airline MQ Research believes will mitigate downward pressure on yields. MQ Research assumes yields will fall by 2% in FY16E. An uplift in the bottom-line to be driven by cash unit cost reduction of 10%.

 

• Downside risk to our recommendation

A faster pax yield decline than expected is the biggest risk to MQ Research’s recommendation in MQ Research’s view. Asean carriers reported -14% to +5% yield change in FY15A. MQ Research believes other key downside risks are non-payment from Indonesia AirAsia’s local shareholder for its portion of the perpetual bond, stronger dollar and demand slowdown.

Earnings and target price revision

• MQ Research increases their FY16-18E adjusted profit by 20-22% mainly on the back of a stronger Ringgit assumption and better-than-expected operating statistics. MQ Research factors in the impending RM1bn share placement. MQ Research rolls forward to FY17E. In sum, MQ Research raises their TP by 17% to RM3.50 from RM3.00.

Price catalyst

• 12-month price target: RM3.50 based on a Sum of Parts methodology.
• Catalyst: 1Q16 earnings announcement

Action and recommendation

• Reiterate Outperform.

Source: Macquarie Research - 20 May 2016

CIMB Research ups AirAsia target price to RM3.13

KUALA LUMPUR:  CIMB Equities Research has raised its target price of AirAsia Bhd from RM2.70 to RM3.13 – a significant upside from the last traded price of RM2.34.

The research house said on Friday it reviewed AirAsia’s very strong operating statistics last week and noted that the 1Q16 results, which will be released on May 27, are likely to exceed expectations.

“The airline may report a record 1Q group core profit of between RM350mil and RM450mil, versus a loss of RM53mil in last year’s 1Q and profit of RM285mil in 4Q15. As a result, we upgrade our FY16-17 core EPS estimates by 15%-16%, and lift the target price to RM3.13, still based on CY17 P/E of eight times (peer range six to 12 times).

“Stay Add as AirAsia is enjoying low fuel costs and benign competitive environment,” it said.

CIMB Research reviewed AirAsia’s excellent operating statistics and the in-depth market fundamentals in its May 11 report. In summary, the entire group registered strong growth in revenue per kilometre (RPK) demand leading to record load factors.

Improving competitive dynamics and industry capacity reductions are supportive of better yields in Malaysia, coinciding with very low oil prices, likely resulting in robust quarterly earnings.

It also pointed out Thai AirAsia, which reported results last week, is a harbinger of how Malaysia AirAsia (MAA) may report. TAA’s 1Q16 core earnings rose 59% on-year, and its 1Q16 yields were actually higher than in 4Q15, which is atypical. Higher load factors and lower oil prices did the rest.

The situation is not dissimilar for MAA, with loads higher in 1Q16 than even the super-peak 4Q15. It is a given that MAA will achieve yields higher than in 1Q15, which the crash of QZ8501 had affected, but can 1Q yields match the 4Q15 levels?

CIMB Research said if MAA delivers 1Q16 yields that are on par with the immediately preceding 4Q15 (implying +11% on-year), group core net profit can reach as high as RM450mil.

On a more conservative assumption of a 3% on-year increase in yields, RM350mil will be more likely.

“We strongly believe Indonesia and Philippines AirAsia and will deliver lower losses in the coming earnings release. For IAA, AirAsia’s 49% share of its loss amounted to RM143mil in 1Q15, but we think a much smaller RM20m share of loss is possible in 1Q16 (similar to the 4Q15 level). 

"Meanwhile, Cebu Air delivered 1Q16 core net profit growth of 56% on-year, on the back of an 8 percentage point on-year rise in loads as domestic demand was strong in the run-up to the elections. AAP similarly saw a 9.9 percentage point rise in loads, and yields may also be up on-year.

“Coming from a low level, AirAsia has seen very strong price action lately, rising 71%over the past three months and 10% over the past one month. There could be more room to rise if it delivers the strong results we expect it to.

“AirAsia remains one of the cheapest low-cost carrier stocks from a price-to-earnings (P/E) perspective, trading at a core CY16 P/E of 6 times against the average sector P/E of 11 times. We expect the 2Q results to be good as well, as industry capacity is flattish while inbound Chinese tourist traffic is rising.

“We need to monitor Malindo’s capacity expansion in 2H16, as it has kept its fleet size unchanged so far this year despite earlier planning for a six to 10 aircraft addition in 2016,”  it said.

AirAsia, budget carrier set to soar in Asean open skies

SINGAPORE: Low-cost airline groups and manufacturers of smaller passenger aircraft will be among the main winners after Southeast Asia's open skies agreement finally came into effect last month, although airport capacity constraints could limit the benefits.

Ratification of the Association of Southeast Asian Nations (ASEAN) open skies agreements by Indonesia and Laos in April lifts restrictions on capacity and competition, allowing airlines to launch unlimited flights from their home to any point in the region subject to airport slot availability.

Hubs like Singapore, which have a clear expansion plan, could gain from an increase in air services, as will budget carriers which are ideal for a region where no two points are more than a few hours apart, say analysts.

"Airlines can launch any number of international flights as the market can support," said Alan Tan, an aviation law professor at the National University of Singapore. "Travellers can thus look forward to more flights at more competitive prices."

Dominant low-cost airlines like Malaysia's AirAsia , Indonesia's Lion Air, and Philippine carrier Cebu Pacific plan to do just that.

AirAsia, for example, wants more international flights from the Philippines and Indonesia, a spokeswoman said. This will help its affiliates, which have found it tough to break into the domestic market in those countries.

"Improved connectivity in the region will be a boon to tourism and strengthen ASEAN as an economic union," the spokeswoman said.

Full service airlines like Thai Airways, Garuda Indonesia and Philippine Airlines, which have lost market share to budget carriers over the last decade, say they plan to use their long-haul network to connect passengers to their Southeast Asia services.

The Singapore Airlines group has an additional advantage, given its ability to operate services using two premium brands and two low-fare subsidiaries, analysts say.

The opening up of regional destinations can also boost manufacturers of 70-130 seater aircraft, like Brazil's Embraer , Canada's Bombardier and ATR, a joint venture between Airbus and Italy's Finmeccanica.

These planes can serve some routes more profitably than the larger Airbus A320s and Boeing 737s, they say.

"Many of the region's airlines are beginning to recognise the potential advantage of right-sizing and the ratification of ASEAN open skies, we feel, will simply accelerate the process," said Mark Dunnachie, who leads Embraer's aircraft sales in the Asia-Pacific.

HUBS LIMIT GROWTH

While there will clearly be winners from the open skies deal, the full gains could be limited by airport constraints.

Bangkok's Suvarnabhumi Airport, Ninoy Aquino International Airport in Manila, and Jakarta's Soekarno-Hatta International Airport serve Southeast Asia's three biggest domestic markets of Thailand, the Philippines and Indonesia respectively.

All have reached full capacity with congestion and delays the norm, creating spillover problems for smaller airports in those countries as well.

"Unlimited flight capacity is meaningless if airport and slot congestion remains unaddressed by governments," Tan said.

Singapore's Changi Airport is the exception. Despite having relatively little domestic traffic, it has three terminals which can handle 66 million passengers and served 55 million in 2015, the most in Southeast Asia. Work has begun on two more terminals.

Such long-term national aviation policies are needed due to the lengthy gestation period for terminals and runways, said Vinoop Goel, Asia Pacific director for airports at the International Air Transport Association (IATA), a global airline trade body.

IATA estimates that ASEAN countries can add almost 25 million jobs and $298 billion to the region's GDP by 2035 if they invest in aviation infrastructure. This is up from 11.6 million jobs and $144.4 billion to GDP in 2014.

"Clearly, failing to tackle airport infrastructure will have an economic cost," Goel said. - Reuters

AirAsia Group chalks out major shake-up

The Group has major plans which include an African debut in October beginning with Mauritius, a merger in Thailand and Indonesia, a strategic partnership and prepayment of debts.

 

KUALA LUMPUR: The AirAsia Group appears to have chalked out major plans for the months ahead in the wake of the Tata Group of India announcing that it was increasing its stake in AirAsia India to 49 per cent, according to ch-aviation which bills itself as “the world’s leading airline intelligence provider since 1998”. “The Tata Group presently has 41.06 per cent.”
“It’s acquiring 7.94 per cent of New Delhi-based investment firm Telestra Tradeplace’s stake in AirAsia India.”
The Tata Group has formally informed the Mumbai Stock Exchange on its increased stake in AirAsia India. Telestra’s remaining stake in AirAsia in India will be acquired by Subramaniam Ramadorai and R. Venkataramanan, Tata Group executives and AirAsia India board members, acting in their individual capacity.
The portal also quotes Thai Deputy Prime Minister Somkid Jatusripitak in a Reuters report as saying that AirAsia may merge in Thailand and Indonesia into one company listed on both the Thai and Malaysian stock exchanges.
Jatusripitak added that the merger also calls for AirAsia Group and Thai Airways International to form a strategic partnership that does not involve any exchange of equity. Earlier, the rumours were that Thai Airways International would acquire a 20 per cent stake in AirAsia Thailand. The rumours have since been rebutted.
The Thai Deputy Prime Minister was apparently taking his cue from a meeting he had with AirAsia Group Founder and CEO Tony Fernandes in Bangkok last week. Fernandes, at that time, had been quoted in the media as saying that he was considering using Bangkok as the Group’s international headquarters. He cited Thailand’s increasing prominence and growth potential as plus points giving it his vote of confidence.
Elsewhere, ch-aviation quotes Mauritian Minister of Tourism, Xavier-Luc Duval telling L’Express newspaper that AirAsia X will likely make its African debut from Kuala Lumpur in October this year. “AirAsia X will connect Mauritius to Asia, probably in October,” he was quoted as saying. “The airline will operate four flights per week to KLIA and anticipates bringing in at least 50,000 additional tourists to our island per annum.”
Air Mauritius is currently the only airline flying the Mauritius-Kuala Lumpur route.
In another snippet, ch-aviation noted that the AirAsia Group had informed the Kuala Lumpur Stock Exchange that Tune Live Sdn Bhd, an investment vehicle owned by Fernandes and Chairman Kamarudin Meranun, will fork out USD259 million for 559 million newly-issued shares in the AirAsia Group.
The investment, which will see Tune Live’s stake in the AirAsia Group increasing to 32.4 per cent from the present 18.9 per cent, will reportedly be used for prepayment and repayment of the Group’s debts, financing aircraft, engines and parts.

AirAsia mulling international headquarters in Thailand, Thai DPM says

Thailand's deputy prime minister Somkid Jatusripitak said said AirAsia was also ready to work with other carriers in Thailand to connect Asean cities and bring passengers to the country. — File pic
   
BANGKOK, April 30 — Low-cost airline AirAsia is mulling the possibility of setting up its Internatioal Headquarters (IHQ) in Thailand as well as building its own airport in the country, said Thai Deputy Prime Minister Somkid Jatusripitak.
The matter, he said, was discussed when AirAsia’s founder and Group Chief Executive Officer Tan Sri Tony Fernandes made a courtesy call on Thai Prime Minister Gen. Prayuth Chan-ocha at Government House yesterday.
“He (Fernandes) floated the idea of setting up an IHQ in Thailand as the true gateway of Asean tourism,” the local media quoted Somkid as saying today.
The deputy prime minister in charge of economic affairs, who was also at the meeting, said the suggestion by the low-cost airline to set up an IHQ in Thailand signalled a return of foreign-investor confidence in the country.
The budget carrier’s owner, he said, also envisaged the consolidation of its subsidiaries in the region and listing the consolidated company on the Stock Exchange of Thailand (SET) or seeking a dual listing in Malaysia and Thailand.
Somkid said AirAsia was also ready to work with other carriers in Thailand to connect Asean cities and bring passengers to the country.
In February this year, the deputy premier suggested that national flag carrier Thai Airways consider buying a 20 per cent stake in Thai AirAsia to leverage on the benefits of a budget airline. — Bernama

 

‘AirAsia biggest beneficiary of Asean Open Skies policy’

This article first appeared in The Edge Financial Daily, on April 18, 2016.

KUALA LUMPUR: AirAsia Bhd, Asia’s largest budget airline by passengers, is expected to be the biggest beneficiary of the Asean Open Skies policy, which came into effect on Jan 1, 2015, due to the airline’s significant regional presence.
National University of Singapore head of air law and policy programme Professor Alan Tan is of the view that the policy, which aims to liberalise the aviation market in Asean, will ultimately benefit low-cost carriers (LCCs).
Although implementation commenced in January last year, Tan noted that Southeast Asia’s skies had yet to be transformed into a single aviation market like that in the European Union, due to limited “freedom” traffic rights.
“What we have under the [Asean] policy now is the third, fourth and fifth freedom rights. For example, the third and fourth freedom rights of the skies enable a Singaporean carrier to fly from Singapore to Jakarta and back, while the fifth freedom right allows an airline from Singapore to fly to Kuala Lumpur and then onwards to Bangkok, and back using the same route,” Tan told The Edge Financial Daily in an interview in Singapore last week.
He said for open skies to become effective, the policy needs to allow unrestricted seventh-freedom operations, which enable a Malaysian airline, for example, to park its planes in Singapore and operate routes between two foreign countries, such as Singapore and the Philippines, and not just offering flights to Malaysia.
Tan said the absence of the seventh freedom right is due to protectionist policies by the respective Asean governments to defend their respective national airlines.
“In order to have a true single aviation market, all these restrictions must be progressively lifted. With the restrictions, Asean’s skies are only partially opened, not fully.
“If you look at the geography, the airlines that would benefit the most would be the low-cost carriers, as most flights within Asean are at most three hours long. The big winners would be carriers like AirAsia and Indonesia’s Lion Air,” he said.
Tan pointed to the absence of the seventh freedom right as the reason why AirAsia had to set up different units in Thailand, Indonesia and the Philippines.
He believes AirAsia would be the first to consolidate its various units under one group if the restrictions were to be lifted.
Still, Tan said it is still a long journey towards the full implementation of a single-aviation market in Asean. He said beyond economic regulations, such as the implementation of the seventh freedom right, technical regulations must also be in place.
This includes the harmonisation of technical standards among the Asean nations in terms of aircraft inspection and pilot training. This is so that the member nations will have mutual confidence in each other’s standards across the region.
“This will be the next challenging phase in establishing a single market. It’s not in the Asean Open Skies project yet, but it will probably be included in the next phase,” he said.
Meanwhile, Tan sees state-owned full-service carriers losing out under the open skies deal as short-haul flights will be dominated by LCCs.
“I think the big national carriers need to fly further, and capitalise on medium-haul and long-haul routes because short-haul routes are ultimately an LCC game,” he said.
Tan pointed out that some national carriers had tried to spread their risks by establishing an LCC brand to take advantage of short-haul routes. They include Singapore Airlines’ Tigerair, Garuda’s Citilink, Thai Airways’ Thai Smile and Malaysia Airlines’ Firefly, he added.
“The multi-brand strategy has its supporters, although some think it’s a controversial strategy as there is the risk of cannibalisation. The cheaper airlines could cannibalise the parent airlines’ traffic.
“Again, clearly the winners are going to be the LCCs within Asean, but legacy carriers or full-service carriers will continue to have a niche in the business-class segment, and for those passengers who prefer comfort and service over cost,” he said.
Maybank Investment Bank Bhd aviation analyst Mohshin Aziz concurred, saying that AirAsia stands to gain the most from the Asean Open Skies policy due to its significant presence in three out of the 10 Asean member countries.
“Under the current situation, AirAsia is the biggest beneficiary. The first step of the policy makes it easier for airlines to fly within Asean countries. As such, airlines with more operations across the region will benefit more, and right now AirAsia has the most operations in the region,” he said.
Mohshin also sees airlines that are regressive losing out under the open skies agreement.
“Those that are regressive and inward-looking, for example state-owned carriers, stand to lose out. Their respective national borders have been opened, but these carriers are still focused within their borders, ignoring the greater part of the bigger border.
“They will have to come to terms with reality and realise that they have to step out of their comfort zone,” said Mohshin.

http://www.theedgemarkets.com/my/article/%E2%80%98airasia-biggest-beneficiary-asean-open-skies-policy%E2%80%99

CEO on AirAsia’s direction ahead

Kamarudin is in the process of selecting the institutions and the best deal for AirAsia’s proposed private placement.

JUST off a flight from London, Tan Sri Tony Fernandes met up with StarBizWeek senior editor of business B.K. SIDHU to talk about the funding for the RM1bil share placement he and his partner, Datuk Kamarudin Meranun, are subscribing to and other goings-on at the AirAsia group.

Name the institutions that you said are willing to lend you and Datuk Kamarudin Meranun money to take up the 559 million placement shares.

We are not in a position to do that. We have a lot of offers and since the announcement, new institutions have come in. My expertise is not in that, it’s (Datuk) Kamarudin (Meranun). He is in the process of selecting the institutions and the best deal. But it is encouraging to see two things: firstly, the share price going up, and secondly, the quality of institutions that see value in the transaction, which ultimately means value in AirAsia.

Are local institutions involved?

 

Of course, it is a range.

When do you expect to wrap up the funding?

I don’t know. Our shareholders’ meeting is on May 9 and we have two months after that to fund it. But we already have deals on the table, and we would not have made the announcement if we did not already have a deal on the table.

How much of the portion is in cash and debt?

I do not know. We have to see what comes up, what is the cost of the interest. If it is very low, then we go by that (the portion of debt will be higher).

How much cash do you have?

Something I would not reveal for a variety of reasons.

You are said to be highly geared ...

Does it matter? Why is this an issue? If we are highly geared, then who would want to lend us money in the first place? People say a lot of things when you are in the public eye. They say this and that. People also make a lot of insinuations ... the proof is really in the pudding.

Why did you take your eyes off AirAsia to focus on other businesses? Then came the GMT Research report talking about accounting irregularities ...

Leadership is not about staying there forever. Leadership is about making sure that if I get hit by a bus tomorrow, the company grows, and it is not dominated by CEOs. That has nothing to do with GMT.

GMT wrote stuff that I have said from the beginning was sensational.

I was deliberately planning a leadership succession.

After GMT, and more importantly QZ8051 (AirAsia Indonesia’s flight that crashed into the Java Sea on Dec 29, 2014), both of us, me and Kamarudin, felt that we should steer AirAsia (back). We see tremendous value and tremendous upside for AirAsia. So, it is a combination of both the factors, GMT and QZ that motivated us to get back.

That does not mean that we have to be here for the next 50 years. It has to evolve from the founders and beyond. But I still believe, me and Din are motivated, so we are focused on doing it.

But what upsets me most about GMT was that they said we were not transparent. How could they write a report like that because we were very transparent? We never hid the fact that we had problems in AirAsia Philippines and AirAsia Indonesia. We never hide the problems and issues.

But I would say this is the problem with the stock market sometimes. On one side, you are questioning me and saying people say we have too much cash. Six months ago, you were asking if we were going to have a rights issue to raise cash because GMT said we had too little cash.

Investors do not look at the long term. Ten years ago, people were saying why did we invest in AirAsia Thailand. But now, this company is worth almost the same as AirAsia Bhd although it took time to get to where it is. So, different countries have different issues and problems.

Ryanair, for example, does not have to show how Ryanair Poland or other units are doing. It is all part of Ryanair.

Actually, AirAsia Indonesia contributes tremendously to AirAsia Malaysia, which makes money from all the routes in Indonesia. India is also a very big market and it has a big role for AirAsia Malaysia and AirAsia Thailand, but we must look at AirAsia as one company.

Having said that, AirAsia Philippines and AirAsia Indonesia are well on the way to becoming the next AirAsia Thailand. As for AirAsia India, I have been very bullish about it. It will make money.

India is the second largest country by population. How can you not be bullish about that, with such tourism activities, diversity of cultures and such history? And we are the only foreign airline there and low cost at that. Such value there. You know how much people will pay to get into that market?

We now have a new management team there and they are all very bullish about the business.

And the rumours, especially for a brand like AirAsia, including about myself, will never stop, never cease. We rather just focus on the results.

What about your earnings outlook?

It appears positive at the moment. Another slight boost from the ringgit, it has strengthened since the past few weeks. Oil has remained low. But to me, oil and ringgit are secondary to demand. Demand seems quite strong at the moment. Obviously, Malindo Air is becoming a full-service carrier and KLIA2 is virtually our terminal, which helps. I think we have been able to create demand.

But the cloud in the skies is the constant lack of industry players looking at cost and efficiency, and that is something we need to sort out by the side.

It is not about airlines absorbing the cost, we need to keep our fares low to stimulate demand.

But if you keep pushing the cost factor up, we will show that every time the cost increases, the numbers will drop. AirAsia will stimulate air travel with low fares and Malaysia should not lose its advantage on low cost. The industry is doing well, but please do not kill the goose that lays the golden egg, which is low cost.

Nine months on, how has it been?

To be honest, if you look at our financial numbers nine months ago, they were very good as well. This is why sometimes with the financial community, they do not look deep enough into the numbers. I have often criticised the accountants for not making the accounts clear to the general public.

Our accounts should be consolidated. It is not that we cannot own 100% of the company, but these are the regulations and we have to change.

But I was never worried about the stock price as what goes down must go up. This is a good company, solid, and the best way to answer all this is with the results. We delivered profits in the fourth quarter and we are looking forward to delivering them in the first quarter of this year.

The beauty of AirAsia, as one banker put it, is the cream always rises to the top, and with AirAsia, it has been very resilient the past 14 years. Despite the negativity, we have remained focused. I do not believe that fundamentally anything has changed since the past nine months, then and now. Of course, for me, what a 2015 it was with QZ8051 and the GMT report.

What if there is another GMT-like report in the future?

We will stand up and take it, be open and transparent and the market will come back.

So what’s next?

AirAsia is a jewel, it is three businesses and potentially adding a fourth.

It is the passenger service business which generates a huge cash flow, the profitable ancillary business, and the equity business where we do partnerships with Expedia, ACE, etc.

Many companies have not realised the power of data and we are investing heavily to understand the customer so that we are able to offer a better experience by using data.

It will not be long before you log in to our website and it will be personalised and customised to your needs. We will be able to offer you deals, be it for travel, food, duty-free or even foreign exchange.

We are rich in data and there is huge potential for monetisation of that data. We are light years ahead of the competition on that and are excited about what our data scientists have created. We will have a tremendous amount of efficiency and potential to up-sell to our travellers and also make the travelling experience much easier and better. And finally, we have got an agreement with KLIA2 for mobile phone buys and check-in. It is about capturing customer behaviour and giving them what they want.

Essentially, the first 10 years of AirAsia was about building a brand and the next ten years about using technology to improve revenue, reduce cost and make flying a much better experience.

So, the value of AirAsia is really being missed. There is no business like AirAsia that stretches from India to Japan, has 70 million consumers and the data that we have.

Will you be getting more planes this year?

We still remain quite cautious, but a bit more than last year, about eight this year, with the first Neo in October. It comes with six more seats from 180 to 186. These are lightweight seats. The interior is much nicer with much more baggage space besides a 15% reduction in cost.

The total fleet in operation is 200 and on order is 306. The deliveries are for the next 10 years. Don’t forget a lot of new planes are up for replacement. Our first plane is coming up to 12 years.

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