MIDF Research believes that the second quarter will be tough on AirAsia Group Bhd with the ongoing uncertainty of the Covid-19 pandemic.
Its analyst Adam Mohamed Rahim noted that the first quarter saw AirAsia’s consolidated air operator’s certificates (AOCs) of Malaysia, Indonesia, and the Philippines recording a drop in preliminary available seat kilometres (ASK) of 19% year-on-year (yoy) to 14.38 billion from the 11% yoy growth seen in the first quarter of 2019.
“The inevitable decline in ASK in 1QFY20 was partially attributable to the reduction in the number of flights which started in February and extended to March 2020, especially for AirAsia Malaysia (MAA) and AirAsia Thailand (TAA) amidst the Covid-19 pandemic,” said Adam.
It was also noted that the 27% contraction yoy in revenue passenger kilometres (RPK) by 27% also outpaced the 19% yoy ASK drop. Still, Adam points out that the passenger load factor stays near the healthy level of 80%, with the quarter under review seeing a 78% passenger load factor.
“Load factor was deemed manageable due to proactive capacity management, particularly in the months of February and March 2020,” said Adam, noting that MAA was also the biggest cause of the drop in passengers carried among the three AOCs, with a decrease of 2.3 million passengers in the quarter under review.
However, in terms of preliminary ASK and RPK for the quarter, TAA saw a larger decline, with ASK and RPK sliding 30% and 35% yoy respectively. TAA’s network was realigned through frequency reduction and flight suspensions on international routes due to increasing travel restrictions and redeployment of excess capacity to domestic sectors, causing the load factor to drop by 6 percentage points to 84% from 90% last year.
As such, Adam maintained a trading sell call on AirAsia, with an unchanged target price of 54 sen.
As it stands, AirAsia had announced on April 17 that it will resume scheduled domestic flights commencing with Malaysia on April 29, Thailand on May 1, India on May 4, Indonesia on May 7, and the Philippines on May 16, subject to approval from authorities.
“However, the extension of travel bans in some of these countries continues due to the Covid-19 pandemic, only enabling passengers that can be carried under exceptional cases,” said Adam, noting that Thailand’s Civil Aviation Authority had extended the ban for all incoming flights to May 31 from the initial date of April 30.
“Nevertheless, domestic flights will be allowed to operate in Thailand from May 1. Indonesia is now the worst hit by Covid-19 with a current fatality rate of 8.4%, higher than the global rate of 6.9%,” added Adam.
Indonesia has now banned air and sea travel until early June, effective April 24.
Domestically, the upcoming travel season during Hari Raya Aidilfitri could be thwarted as well, as there is a possibility of the Movement Control Order (MCO) extending beyond May 12.
“All in, we view that 2QFY20 will continue to be a tough quarter. A rerating catalyst for AirAsia would be a faster-than-expected recovery from the Covid-19 pandemic,” said Adam. — April 28, 2020
