LOWER passenger numbers are expected for AirAsia Group Bhd and sister company AirAsia X Bhd (AAX), as fears of the coronavirus outbreak are set to apply pressure to passengers carried to and from China.

MIDF Research analyst Adam Mohamed Rahim downgraded AAX to a trading sell with a revised target price of 11 sen, while maintaining a buy on AirAsia with a revised target price of RM1.86.

The downgrade on AAX is premised on the precedent that passengers carried are bound for a temporary decline during a pandemic, not to mention that capacity catered for destinations in China by AAX make up between 25% and 45% of the carrier’s total capacity, according to a preliminary analysis.

“We understand passengers flying to or from destinations in mainland China are given an option for a credit account or full refund. Assuming a worst-case scenario where all affected passengers opted for a full refund, we estimate that RPK (revenue passenger kilometres) could decline by as much as 20-30%. This in turn will reduce AAX’s profit after tax by 27%,” said Adam, adding that, based on data from the SARS outbreak, passenger traffic took an average of two to three months to normalise.

Still, RPK and ASK (available seat kilometres) are expected to inch higher for both AAX and AirAsia, considering the addition of a number of routes as well as the commencement of flights using the first Airbus A321neo from late last year.

This leads to the expectation of a solid financial performance for AirAsia’s fourth quarter of its 2019 financial year, with an expected after-tax profit of RM199.2 mil for AirAsia. AAX, however, is expected to see a “marginal normalised loss” of between RM5 mil and RM15 mil, due to minimal hedging benefits.

At the noon close, AirAsia’s shares were unchanged at RM1.48, with 3.59 million shares changing hands, while AAX’s shares were last traded at a static 14 sen, with 4.24 million shares done. – Jan 30, 2020