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Malaysia's AirAsia profit jumps on cheap travel demand

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UPDATE 1-Malaysia's AirAsia profit jumps on cheap travel demand

 

Wed Aug 12, 2009 6:11am EDT

 

* Q2 net profit 139.2 mln rgt vs 9.4 mln rgt yr-ago

 

* Q2 core op profit 128 mln rgt, up 328 pct

 

* Sees positive passenger demand in Q3

 

* Shrs end down 1.4 pct at 1.42 rgt ahead of results

 

(Updates with details, quotes)

 

KUALA LUMPUR, Aug 12 (Reuters) - AirAsia (AIRA.KL: Quote, Profile, Research, Stock Buzz), Asia's largest budget airline by fleet size, reported sharply higher quarterly earnings as dwindling demand for full-fare carriers amid the economic downturn boosted discount airlines.

 

Regional budget carriers such as AirAsia and Jetstar Asia Airways, partly owned by Australia's Qantas Airways Ltd (QAN.AX: Quote, Profile, Research, Stock Buzz), and Tiger Airways, 49 percent owned by Singapore Airlines (SIAL.SI: Quote, Profile, Research, Stock Buzz), have either added capacity or increased flight frequencies to cope with higher demand.

 

"While major legacy carriers are cutting flights, grounding planes, retrenching staff and reporting massive losses, AirAsia is seeing rising demand, adding more routes, increasing frequency and securing higher profits," Tony Fernandes, AirAsia's chief executive, said in a statement on Wednesday.

 

Underlying passenger demand in the third quarter remains positive based on forward booking trends, he said.

 

Full-service carrier Malaysia Airlines (MASM.KL: Quote, Profile, Research, Stock Buzz) said last week it returned to profitability in the second quarter, boosted by revaluation gains from fuel hedging, but still made losses at the operating level. [iD:nKLR66601]

 

Lower fuel costs are helping AirAsia, which doesn't hedge its fuel requirements.

 

Prices for jet fuel in Singapore JET-SIN have dropped more than 50 percent after peaking at $167.70 a barrel last year.

 

But data from the International Air Transport Association showed conditions remained tough, with airlines carrying 16.5 percent less cargo and 7.2 percent fewer people in June than the same month a year ago. [iD:nLU173715]

 

AirAsia made a net profit of 139.2 million ringgit in the April-June quarter against 9.4 million ringgit a year earlier.

 

The airline maintained its seat load factor at 75 percent during the quarter, a 5 percentage points increase over the first quarter.

 

Non-ticket revenue grew by 89 percent to 95 million ringgit in the second quarter, representing 14.5 percent of total revenue, it said.

 

Analysts in Malaysia do not provide quarterly forecasts, but have said AirAsia's tight cash flow and high debt level are worrying given its huge commitment to fund aircraft deliveries.

 

The airline recently announced plans to raise about $170-$180 million through private placements to repay borrowings. [iD:nKLR469331]

 

It last week deferred the delivery of eight Airbus (EAD.PA: Quote, Profile, Research, Stock Buzz) A320 aircraft to 2014 from 2010, which analysts said signals potential overcapacity in the future. [iD:nKLR418981]

 

AirAsia shares have gained 64 percent since the start of the year, far outperforming a rise of only 2.3 percent by Malaysia Airlines and the broader market's .KLSE 35 percent gain. (Reporting by Julie Goh; Editing by Lincoln Feast)

 

http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSKLR40607820090812?sp=true

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Good to know that they are actually turning in an Operating Profit and not profit from hedging gains etc.

 

RM'000

Revenue 657,444

Cost of Sales (312,487)

Gross profit from operations 344,957

Other operating expenses (35,526)

Other income 13,414

Profit from operations 322,845

Net finance (cost)/income (76,618

Depreciation and amortisation (101,828)

Exceptional item (6,238)

 

Profit before taxation 138,161

Current taxation (120)

Deferred taxation 1,135

 

Profit after taxation 139,178

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Looks good.

 

1) But a simple qt will be why do they need to exercise private placements to repay borrowings?

 

2) Deferement of future deliveries : One would thot that the Indonesian op will need more aircrafts or the whole group as a whole will need xtra capacity to accommodate the high demand?

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From their Results presentation's slides:

 

Objective of Capital Raising and Timeline

Address investor’s concern over our high gearing ratio

– it was the single largest concern of the investment community

– remove share overhang

Improve balance sheet liquidity

– build up our “war chest” to fend off market adversities

– to enable us to capture opportunities quickly as and when they arise

The capital raised may be used for the following (up to 20% of issued capital):-

- repay part of Company’s borrowings

- working capital requirements

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Looks good.

 

1) But a simple qt will be why do they need to exercise private placements to repay borrowings?

 

2) Deferement of future deliveries : One would thot that the Indonesian op will need more aircrafts or the whole group as a whole will need xtra capacity to accommodate the high demand?

My guesses to the answers to your questions:

 

1 AirAsia is not the analysts' darling. In fact some analysts are very negative about them and that affected their Bursa share price last year, re fuel hedging. Private placement is a bit easier as the valuation may be accepted more easily by the private investors. However, this is a risky move since analysts can retaliate and mark down the shares that are traded in Bursa. Should be interesting although my opinion on local analysts is not that good. Overseas, analysts give profit forecasts too. Over here, they are not so clever to forecast profits! ;)

 

2 Indonesia AirAsia is loss making. They may not be strong enough to accept an accelerated rate of aircraft arriving for their limited operations. AirAsia has to be careful not to compete amongst its sister companies. Resources deployed must be optimal for total operations, not just one group company.

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My guesses to the answers to your questions:

 

1 AirAsia is not the analysts' darling. In fact some analysts are very negative about them and that affected their Bursa share price last year, re fuel hedging. Private placement is a bit easier as the valuation may be accepted more easily by the private investors. However, this is a risky move since analysts can retaliate and mark down the shares that are traded in Bursa. Should be interesting although my opinion on local analysts is not that good. Overseas, analysts give profit forecasts too. Over here, they are not so clever to forecast profits! ;)

 

2 Indonesia AirAsia is loss making. They may not be strong enough to accept an accelerated rate of aircraft arriving for their limited operations. AirAsia has to be careful not to compete amongst its sister companies. Resources deployed must be optimal for total operations, not just one group company.

 

 

1. Ok clearer now.

a) The profit forecast issue is a requirement overseas or a trend?

B) was wandering - the funds raised from private placement will be used to reduce gearing but wouldn't the net effect on the balance sheet be the same? They are still borrowing to repay the debt, rite?

 

2. Looking at each operation as an independent 'profit' center. I was thinking of a Group wide set up ( right pocket, left pocket).

 

Thanks.

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1. Ok clearer now.

a) The profit forecast issue is a requirement overseas or a trend?

B) was wandering - the funds raised from private placement will be used to reduce gearing but wouldn't the net effect on the balance sheet be the same? They are still borrowing to repay the debt, rite?

 

2. Looking at each operation as an independent 'profit' center. I was thinking of a Group wide set up ( right pocket, left pocket).

 

Thanks.

1 Private placement is equity. They are selling up to 20% of the company to the new investors.

 

2 Problem is Thai and Indonesia AirAsia are not 100% subsidiaries. They don't even do equity accounting for Thai AirAsia. So out one pocket and in the other does not really apply here...

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Yes, also up there on their website too - they are consolidating BKI as the East Malaysia hub. Taipei is going to be their virtual hub too, cos there will be FD flights from Bangkok.

 

Web site also shows the upcoming AirAsia X Abu Dhabi hub's Middle East flights starting in November.

Edited by flee

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Wah in the upcoming section of the presentation:

 

Kota Kinabalu - Taipei!

 

Put that on AK's website and I shall believe. So far no record of them putting a new route on their website and then remove it.

 

After launching a profitable route which is KUL-TPE,I wonder why they don't fly to KaoShiung :)

 

Anyone have any idea about the lod on MH flight? Not sure if the load would be good though.

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Put that on AK's website and I shall believe. So far no record of them putting a new route on their website and then remove it.

 

So far this is on the website:

 

Flight Info

 

New Destination

Kuala Lumpur - Colombo

 

New Route

Penang - Hong Kong

Kota Kinabalu - Brunei

Miri- Singapore

Tawau- Singapore

 

Added Frequency

K.Lumpur- Hangzhou (6x Weekly)

K.Lumpur- Trichy (2x Weekly)

K.Lumpur- Taipei (Daily)

K.Lumpur- Gold Coast (6x Weekly)

Edited by flee

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1 Private placement is equity. They are selling up to 20% of the company to the new investors.

 

2 Problem is Thai and Indonesia AirAsia are not 100% subsidiaries. They don't even do equity accounting for Thai AirAsia. So out one pocket and in the other does not really apply here...

 

 

Cheers Flee. Ok alot clearer now.

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