flee

MAS results disappointing despite Q2 profit, say analysts PETALING JAYA: Malaysia Airlines (MAS) failed to impress analysts despite posting a stellar performance for the second quarter ended June 30. MAS reported a net profit of RM876mil, or 52.39 sen earnings per share, aided by a RM1.34bil derivative gains on fuel hedging. Revenue for the quarter stood at RM2.56bil. It recorded an operating loss of RM420.8mil mainly due to lower operating revenue, which is in line with the declining trend in global travel and cargo movements. OSK Research analyst Ng Sem Guan said despite the huge jump in net profit, the core numbers were a “disappointment”. He said the RM1.34bil in derivative gains and strong comeback in domestic passenger numbers suggested that the worst may be over for MAS. “Nonetheless, we are disappointed with the weaker second quarter and are concerned over the protracted downturn and increasing death toll reported among Influenza A(H1N1) cases, which may prolong the airline’s recovery,” Ng said, adding that OSK maintained its “sell” recommendation on MAS. MAS’ core net loss of RM465mil in the quarter to June 30 was a lot worse than OSK’s and consensus estimates, mainly due to a 20.7% drop in overall yield per revenue passenger kilometre to 23.4 sen on intensified price undercutting, he said. “A protracted downturn in the global economy may also further pressure yields, given the substantial fare discounts being offered by airlines,” Ng said. The national carrier also recorded higher non-fuel expenditure on new leases of the 737-800 in 2009, engine maintenance costs for the B-777 and aggressive advertising expenditure. Ng said MAS’ derivative risk was protected to a certain degree as the carrier had selectively bought options, which would reduce the downside exposure of its existing fuel hedges. For the first quarter ended March 31, MAS reported a net loss of RM695mil that included a derivative loss of RM557mil following the early adoption of the Financial Reporting Standard 139. HwangDBS Vickers Research said the core net loss was mainly due to RM350mil realised derivative expenditure or losses, lower load factor and yield. The RM350mil comprised RM233.7mil derivative losses and RM116.4mil premium paid on derivatives. HwangDBS maintained its fully-valued rating on MAS and cut the forecast financial year ending Dec 31 (FY09) earnings to RM2.2bil from RM1.3bil projected earlier to account for the higher-than-expected realised derivative expenditure losses. “There could be more downside risks to FY09 earnings if MAS continues to report derivative expenditure or hedging losses as details of the hedging instruments and not available,” HwangDBS said. AmResearch upgraded MAS to “sell” from hold. It said the airline traffic contraction had moderated significantly. Kenanga Research said after excluding the RM1.34bil derivative gains, MAS registered a net loss of RM803.7mil in the second quarter and net loss of RM1.6bil for the first half. It said the derivative gain was a relief for the balance sheet with shareholders’ funds turning positive thus alleviating the company’s PN17 status. “The pro-forma net loss accounted for 69% of our FY09 forecast net loss,” Kenanga said. “We are revising our earnings estimates up slightly by 9.6% and 8.3% for FY09 and FY10 respectively, reflecting slightly higher international passenger load factor,” it added. Source: http://biz.thestar.com.my/news/story.asp?file=/2009/8/8/business/4480523&sec=business

Yes, they are mostly mid-1990's vintage. All this while, I am saying try to minimise risks - they can never be totally eliminated. Brand new planes like Firely's ATR-72's can and do have problems (engine fire) once in a while.

AF A330 is not brand new. It was delivered in 2005.

The irony is that the people of Sibu and Kota Kinabalu likes the AirAsia service and their flights are packed. Rules are good for orderly conduct. However, if the rules outlive their usefulness, a review should be done. From the report, I believe that the MoT is now reviewing this situation. Unfortunately the Borneo Post still does not realise the difference between an Airbus A320 and A380!

If it makes you happy, then go ahead! I am only doing what gives me peace of mind... The risks here are altogether different. But yes, I do not use inter-city buses.

I think the CEO is right and is focussing on the operating performance of the company. Fuel hedging profits are not generally within the control of management but operational matters are. So just take the hedging gains as a windfall and focus on getting the business and operations right.

An update on this story from Business Times: http://www.btimes.com.my/Current_News/BTIMES/articles/20090806213558/Article/index_html AirAsia to defer 8 Airbus deliveries to 2014 AirAsia Bhd, Southeast Asia’s biggest discount carrier, said it will defer the delivery of eight Airbus SAS A320 aircraft to 2014 from 2010 because of “infrastructural constraints” at an existing airport. The airline may also defer the delivery of another eight such planes to 2014 from 2011, and will make a decision on the delay by Oct 31, it said in a statement to the stock exchange in Kuala Lumpur today. AirAsia won’t incur any penalties in revising the delivery schedules, it said. “AirAsia foresees infrastructural constraints with the current airport facilities and until the new low-cost carrier terminal is constructed,” the company said. “The present infrastructure at the low-cost terminal is not able to accommodate AirAsia’s fleet expansion in the number of aircraft originally scheduled to be delivered in 2010 and 2011 under the purchase agreement.” AirAsia had its 2010 and 2011 net income estimates cut by 12 per cent and 18 per cent, respectively, at RHB Research Institute Sdn Bhd last month, after the Star newspaper reported that the airline planned to delay some plane deliveries. The carrier will now receive 16 aircraft next year, from the original 24, it said. Should it decide to defer the delivery of the eight planes in 2011, that will reduce the number for that year to 15, it added. “The rationale to scale down on the delivery of aircraft in 2010 and possibly 2011 is to enable AirAsia to optimize its fleet and avoid the costs associated with leaving idle or under- utilized aircraft due to infrastructural limitations, avoiding having to incur depreciation, interest expense and other costs without earning revenue,” the company said. - Bloomberg

I agree, but don't you think that we should also not try to tempt fate?

KUALA LUMPUR: Budget airlines have found a silver lining in the global recession. As travelers pinch pennies and opt for cheaper alternatives, AirAsia, Europe's Ryanair and other low-cost carriers are adding routes and buying new planes to grab a larger slice of global aviation at the expense of their more established rivals. Major players such as British Airways and Hong Kong's Cathay Pacific Airways have reported full year losses for the first time in years despite cutting costs and flights to cope with a downturn in premium air travel. Full service carriers, which once completely dominated the skies, are banking on an economic recovery to restore their fortunes but they may find it tough to return to the growth levels they enjoyed before the crisis. "Full-service airlines have a bit of conundrum on their hands," said Derek Sadubin of the Sydney-based Center of Asia Pacific Aviation. "We think low-cost carriers will become so much more entrenched in airports and corporate travel that it will be difficult for them to claw their business back" when the economy recovers, he said. To be sure, all airlines have struggled as oil prices soared in the last two years. Oil prices have since tumbled and despite a rally early this year, are still half the level of a year earlier. But major industrialized economies continue to contract and economic conditions are likely to remain tough even when a recovery is under way. The International Air Travel Association in June predicted airline losses worldwide to swell to US$9 billion this year, nearly double its previous forecast. Full service carriers are the worst hit as the downturn has hammered business and first-class travel, which make up a small percentage of seats but account for up to 40 percent of their revenues. Their smaller, no-frills rivals are weathering the recession better with a low-cost model that relies on high passenger volumes, stripping out costs through strategies such as taking the cheapest landing slots at airports and turning full service features like meals and check-in baggage into profit-making extras. In Asia, budget aviation has seen exponential growth since the start of the decade and now has a 16 percent market share, Sadubin said. The market share of low cost carriers could cross the 20 percent mark in the next one to two years, he said, as they open up new routes across the region and give travelers an option to fly at a fraction of the cost charged by full service airlines. Malaysian-based AirAsia, the biggest low-cost carrier in the region, posted a record profit of 203.2 million ringgit ($56.4 million) for the quarter through March, up 26 percent from a year earlier. Passengers soared 21 percent to 3.15 million during the period while falling at regular airlines. It has ordered new planes, made its debut in Europe with flights to London in March and is eyeing plans to enter the U.S. market. "We are in the McDonald's, Wal Mart category. Business is booming as people are looking for value," AirAsia Chief Executive Tony Fernandes told The Associated Press in a recent interview. AirAsia's success has generated rivals, the best known of which are Singapore-based Tiger Airways and Qantas Airways-owned Jetstar. Tiger, which is 49 percent owned by Singapore Airlines, is rapidly expanding and has a total 56 new aircraft on order for delivery through to 2016. Tiger expects business travel to account for 15 percent of its total traffic by March 2010, more than triple from current levels. Budget aviation has put down even stronger roots in the U.S. and Europe, with about a one-third market share in both regions, analysts said. In Europe, Irish discount airline Ryanair remained on an expansionary course and forecasts a net profit of up to 250 million euros ($350 million) for its 2010 fiscal year. It is eyeing plans to order up to 300 more aircraft in a deal that would make the Irish carrier more than double the size of British Airways. In the cash-rich Middle East, analysts said budget aviation penetration is still low at less than five percent but new carriers have sprung up in recent months. FlyDubai, based in the United Arab Emirates, was launched last month and has unveiled ambitious expansion plans after ordering 50 Boeing 737 aircraft. The intense competition from budget carriers has changed the rules of the game for some major airlines. Many full service carriers are regularly churning up promotional offers - with tickets at a discount of up to 80 percent - in an effort to protect their market share. Others like India's Jet Airways, Korean Air, and Malaysian Airlines have set up low-cost offshoots, relying on a two-brand strategy to cushion earnings. Some carriers have taken more drastic steps to focus on lower-fare volume business. British Airways has announced it won't configure any new planes to offer first-class cabins. Qantas has also scrapped first-class service on several long-haul routes and is considering reducing the 72 business seats in its Airbus A380 superjumbo jets. But Singapore Airlines, one of Asia's top carriers, remains confident of a recovery in the premium market. It has cut fares and capacity this year but said it would not crop the 60 business seats in its A380 planes. "It's a cyclical business and positive growth will return. We are not going to fundamentally change our business focus overnight just because of the downturn," said spokesman Nicholas Ionides. - AP Source: http://biz.thestar.com.my/news/story.asp?file=/2009/8/5/business/20090805150757&sec=business

I have not looked at the actual comparisons but I do think that efficiency has something to do with it. MH might not be as efficient as SQ, so it cannot afford to have too much reduction in revenue.

Yes, why not, if the fares are good! However, by the time the MH A380's arrive, I would have flown on them with other airlines already. For domestic routes, I would fly on Firefly or MASWings if it is on the ATR 72. But even then, today's Bangkok Airways crash is some food for thought. Maybe its the airport that is not safe!

Unfortunately incidents like these happening to the same passengers can be very unnerving for them. That is why I avoid flying MH - I just do not feel safe on the old B734's and A333's. It is not that I do not trust the maintenance regime at MH. I am just taking my insurance policy. I know that new aircraft also do experience problems. But peace of mind is more important to me!

I think the source is here: http://malaysianinsider.com/index.php/business/34174-airasia-to-cut-debt-with-funding Anyway, I suspect that Tony does not want the hassle of a public offering due to the pathetic understanding of the AK LCC model by local analysts. This caused a write down on their share price last year, due to their incorrect reading on the fuel hedging issue. AK was then forced to hedge fuel to please these analysts. That resulted in huge losses in Q4 as fuel prices tumbled. The analysts are a big business risk for AK! I think they would have secured the agreement of the big shareholders for this excercise - probably already offered the placement to them for first refusal. If they did not, then they would be morons. For Bursa shareholders, I am not sure if any of them are big enough to have their voting rights diluted.

Yes AK operates an All Airbus fleet. But it still has about 16 (or so) B733s that are leased to FD and QZ. QZ and FD still need them for some airports that cannot take the A322's.

Not the oldest bird, AK has some 25 year old 733's! But yes, 9M-AFA was the first A322 that was delivered in 5 Dec 2005

Accountants will tell us that cash reserve and profits are two different things. AirAsia pays a great deal of attention to cash management cos if this is done well, profits will look after itself. AirAsia has forward bookings that go to April 2010 - all these fares are 100% paid. So there should be plenty of cash generated from operations. However, we do wonder how well they are managing their cash from operations. That was why Tony Fernandes recruited (from online sources) 5 people for their Ancilliary Income department - this is the department that looks after cash from non core activities, I guess.

SEPANG: AirAsia Bhd, which is looking to raise about RM500mil from the private placement of 20% of its share capital, is targeting RM1bil cash reserves by year-end. Group chief executive officer Datuk Seri Tony Fernandes said the RM1bil cash to be raised might or might not include the RM500mil from private placement, which the board approved yesterday. “The RM1bil cash reserves will be achieved from various activities that include improving efficiency, increasing seat load factor and other expenses wherever possible,” he told a media briefing after the company’s AGM and EGM yesterday. Fernandes said the fund raised from the private placement would be used mainly to reduce the airline’s gearing and help restructure its finances. An analyst with TA Securities said post-private placement, AirAsia’s gearing ratio was expected to fall to 2.7 times from 3.7 times now, which is a key concern among investors on the stock. On the airline’s fuel-hedging strategy, Fernandes said: “AirAsia is currently on spot fuel buying, which is now proven to be the right decision, and we’ve managed to unwind our fuel derivative contracts.” On why the board did not equity-account the airline’s share of losses in Thai AirAsia Co Ltd (IAA), Fernandes said it was the advise given by auditor PricewaterhouseCoopers. AirAsia deputy group chief executive officer Datuk Kamarudin Meranun said the company had wanted to equity account the losses of IAA into its books. “But we were advised not to do so by our auditors as there were still some outstanding issues then relating to IAA’s former stakeholders Shin Corp and later Temasek Holdings,” he said. On AirAsia eating into Malaysian Airlines’ market share, Fernandes refuted the claim. “We have not done so. In fact, we have opened up new routes to allow more people to fly at budget fares never done by any other airlines.” On the dispute with Malaysia Airports Holdings Bhd over various outstanding charges, Fernandes said: “We are hopeful that the issue will be resolved in two weeks.” Asked about AirAsia’s performance going forward, he said: “We expect to be profitable this financial year, which goes to say a lot for us, when most other airline companies are making losses in these challenging times.” He also said AirAsia’s second-quarter results (which are soon to be announced) should be reasonable. The budget airline recorded a net profit of RM203.15mil in the first quarter ended March 31, up 26% from RM161.28mil in the previous corresponding period. Source: http://biz.thestar.com.my/news/story.asp?file=/2009/8/4/business/4449119&sec=business

My list - reason it is a short one is that I mainly travel on SQ. But the past 2 years, I mainly travel on AK and D7! Malaysia Singapore Airlines Malaysian Airlines System Qantas Thai International British Airways Singapore Airlines AirAsia AirAsia X

Well Airbus does have the benefit of hindsight from those air crash investigations. Furthermore, with modern diagnostic and repair techniques, I think that the rebuilding of the tail section should be up to their normal standards. Time will tell...

That Borneo Post's report is full of errors and I am not sure what the real facts are. Lets wait and see. However, I believe that no one is completely right on this issue.

But then, AK would not need to dispute the amount owed, so it will be a non issue. AK debts is a result of poor negotiation and issue resolution management by MAHB. Why is it that AK only has problems with MAHB and not other airports? Surely it owes SATS a significant amount since they are using Terminal 1 and they have a far amount of flights in and out of SIN. MAS is only making paper profits because it is a paper company. They used to have their HQ building and had to sell that. They used to have planes but now the taxpayers own in. Now, their workers even have the cheek to ask for lease payment waivers??? What a joke! MAS, like MAHB is not a business. They are just crony companies to enrich those associated with them. Actually AirAsia isn't in some people's good books either. They are also accused of being a crony company during Tun Badawi's administration days. So it looks like in Malaysia, most businesses are run by cronies!

If this were to happen in the US or Europe, the anti-competition authorities would have a field day. This is the equivalent of a taxpayer subsidy/bailout.

AirAsia X to boost Kuala Lumpur-Gold Coast flights Daily news, 31 Jul 2009 KUALA LUMPUR – AirAsia X is increasing its four-times-weekly flights between Kuala Lumpur and the Gold Coast, Australia two six-times-weekly effective October 21. The new flights will depart the Gold Coast every Wednesday and Friday at 09:05 (AEST) and arrive in Kuala Lumpur at 15:25 the same day, local time. AirAsia X Chief Executive Officer Azran Osman-Rani said the Gold Coast had proved to be an enduring route for the airline, which also flies to Melbourne and Perth in Australia. “Despite a shrinking global aviation market, AirAsia X continues to buck the trend by delivering growth on all of our routes,” Osman-Rani said. “For the Gold Coast market alone, our passenger traffic grew by almost 15 percent in the first half of 2009 versus the same period in 2008.” The increased flights coincide with the rollout of new Premium Class seating, which will replace the existing XL Class and includes larger, reclining seats - particularly attractive to long-haul passengers flying with AirAsia to Europe. Source: http://www.travelweeklyweb.com/article-24524-airasiaxtoboostkualalumpurgoldcoastflights-Asia.html

ATR 72-500 http://www.atraircraft.com/public/atr/html/products/products.php?aid=506&PHPSESSID=a0d74599ae0c3917eb27a6a0215eba82