Its second quarter results point to early signs of a recovery in the Malaysian market with a planned restructuring by MAS expected to lead to lower capacity in the sector.
MAS have been caught in a price war over the past few years prior to March 2014 as both MAS and Airasia have added seat capacity to retain market share. In 2013, Malindo’s entry put further pressure on yields. Now expect struggling MAS to cut domestic capacity thus easing pressure on the industry.
Industry observers remain convinced that Airasia will be able to weather the cut throat competition and emerge as the final victor. A more benign competitive landscape is finally around the corner with MAS expected to cut back on capacity in 2015
Airasia’s current stock price (29 Aug 2014) ignores the prospect for yields to recover in FY2015E.
Airasia’s quarterly net profit jumped more than five times on foreign exchange gains, the deferment of taxes and a small increase in the number of passengers. With the trend moving upwards in the second half as irrational pricing of competitors is diminishing.
Operating profit at Airasia’s largest budget airline however fell 17% as it blamed the decline on the first quarter loss at its Thai associate.
Added capacity in the region and Malaysia especially will return to a realistic level in the second half of 2014.
Meanwhile Airasia’s superior cost advantage per available seat kilometers will help the group to weather cut throat competition and emerge the victor after the current (Aug 2014) industry upheavals.
Its decision to dispose of 12 older aircraft and convert A320ceos orders to the 12% more fuel efficient A320neos will entrench its advantage.
Asia capacity growth will peak in 2015 which could return pricing power to the airlines thereafter.
Further expect MAS’s selective capital repayment to be completed in 4QFY2014 ending Dec 31 to pave way for massive restructuring involving capacity rationalization. If so this will remove excess capacity in the industry and lift yields to more sustainable levels.
Its Thai Airasi is set to resume its earnings growth trajectory as tourist arrivals growth are expected to pick up following the resolution of the Thai political crisis. Indonesia Airasia could also see operations turn around in FY2015 if the rupiah strengthens following the installation of Joko Widodo as Indonesia’s president. Also plans are underway to turn around Philippines Airasia while Airasia Expedia is set to deliver strong earnings going forward.
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