3Q 2013 Financial Results for MH, AK and D7

[Mohd Suhaimi Fariz 2]

The architect of the current strategy is Dr. Hugh Dunleavy, Head of Commercial,

whose contract will end in January 2015. His presence at MAS will mean that

MASs pricing and competitive strategies will continue to burden the company

for the rest of 2014. If his contract is not renewed, a new incoming Head of

Commercial may or may not rethink the current strategy.

 

 

Writing on the wall, Dr H. Dunleavy is the fall guy for the losses not opex, or opex was increased to oust him? Guess there will be a new head of commercial in the new year.

 

Anybody want to bet that there will be a new CEO come the new year?

 

Perhaps it's time to dust off the old MAS shorthaul plan.

[flee 5]

No comfort at home for AirAsia as overseas units drag

 

(Reuters) - Malaysia's AirAsia Bhd (AIRA.KL) will take up to two years to realize a profit from its Indonesia and Philippine units, income that would help prop up eroding margins as Asia's largest budget carrier wages a price war at home.

AirAsia, which has dominated budget air travel in Asia with explosive growth, is now struggling to boost earnings in its biggest market, Malaysia, where rivals such as national carrier Malaysian Airline System (MAS) (MASM.KL) and Malindo Airways are slashing fares.

Competition is also affecting AirAsia's Indonesia and Philippines units, which have yet to reverse combined losses of 203 million ringgit ($63.65 million) as of the second quarter. Its Thailand unit has completely reversed losses since the first quarter of 2012 thanks to lower fuel costs and more passenger traffic.

"They should be able to reverse the negative equity after next year," said Ahmad Maghfur Usman, an analyst at RHB Research Institute, referring to the Philippine unit which AirAsia said is the smallest in terms of passenger volume.

Maybank analyst Mohshin Aziz forecast the Indonesian unit, AirAsia's third-largest by passenger volume, will take another four quarters to contribute to overall profits as it struggles to fend off competition from Lion Air and Garuda (GIAA.JK).

AirAsia's profit margins are expected to fall to 10.4 percent in 2013 from 15.7 percent a year earlier, Thomson Reuters data shows. Within the next two years, however, margins are seen rising to around 15 percent.

AirAsia declined to comment ahead of its third-quarter financial results due on Wednesday. Earlier this month, AirAsia Group CEO and co-founder, Tony Fernandes, said a cost-cutting drive had helped deliver "good success" in the third quarter which will carry on into the fourth.

DOOMSDAY FARES

AirAsia's net profit has fallen for the first two quarters by 40 percent and 62 percent year-on-year, largely due to the price war in Malaysia. Fernandes and co-founder Kamarudin Meranun returned to the frontline at home this month to take more control of the airline after a year in Jakarta spearheading regional operations.

Analysts expect net profit in the third-quarter to decline again as costs remain a drag. AirAsia is spending big to set up a unit in India with Tata Group, where taxes make jet fuel costs among the world's most expensive.

"I think its going to show a weakness on a year-to-year basis. A big portion of their earnings are domestic and this is subjected to acrimonious competition, so we could see a huge decline in third-quarter profit," said Maybank analyst Mohshin.

"I've seen some routes go down to 'doomsday fares', especially Kuala Lumpur to Sabah, Sarawak and to Singapore. Even AirAsia can't make money this way," he added.

AirAsia's larger rival, MAS, which this week reported a third-quarter net loss from a profit a year ago, said its yields and prices were pressured by competition.

As of Monday's close, AirAsia's shares were down 8 percent so far this year compared to a 3.3 percent rise for MAS shares.

Analysts, however, said AirAsia's low-cost structure meant it was better placed than Malaysian Airlines to absorb lower ticket prices.

"There is competition from Malaysian Airlines but I think AirAsia's valuation takes this into account," said Arnaud Bouchet, Singapore-based analyst at BNP Paribas.

"Every attempt by an airline to offer very low ticket prices is usually a very bad end," he added, referring to Malaysian Airlines. "I don't think that's sustainable."

($1 = 3.1895 Malaysian ringgit)

Source: http://www.reuters.com/article/2013/11/19/us-airasia-airline-earnings-idUSBRE9AI15K20131119

[flee 5]

I disagree with this analysis. I can't think of any domestic or ASEAN routes that they'll cut back on partly because their ASEAN network to begin with is quite small for carriers in the region serving major cities that any carrier in the region ought to serve if not become irrelevant to the market. I think it would be unimaginable for them to sever SGN, HKT, RGN, HAN, etc. Perhaps BWN might see the chopping boards because of competition from BI where MAS will retain its presence through MASwings. (Then again, unlikely considering recent announcements to upgrade this to a B738 service). They might cut back IST because of TK, DXB (again), LAX (politically I don't think this will work) and FRA (in lieu of direct flights by LH) but really I don't think route rationalization will work this time round because the advent of 'irrational' routes has been wiped off in view of the last round of route rationalization. In fact, I think it may be better to expand their regional network. Work B738s longer, enjoy internal EOS and not to mention serve a gap in OW service to SEA?

I think we should not think of route rationalisation being the equivalent of route cuts. I think MH has done all that earlier and that did stem its losses.

 

What MH needs to do is to better deploy its assets - put on more seats to routes and markets that have higher demand and cut frequencies on the less profitable routes. MH also needs to data mine its bookings database to ascertain the travel pattern of its customers and optimise its flight schedules to aid better connections.

 

MH really needs to seriously look at costs now - planes are no longer flying empty, so revenue is definitely coming in. MH needs to look at cutting out unnecessary and excessive expenditure.

[leon t 0]

looks like its no surprise that MAS is losing money again and put someblame on "fuel prices". There must be leakages within MH that is still unplugged for years. MH loads are getting better and in some cases are in the high 80s to 90s. However on mainly the domestic and regional side MH is still trying hard to compete with AK which it should not be doing.

[BC Tam 2]

 

"I've seen some routes go down to 'doomsday fares', especially Kuala Lumpur to Sabah, Sarawak and to Singapore. ....." he added.

Sweet music to the ears of us 'end-consumers' - until one pauses to consider scenario of the after life

[flee 5]

Airasia Bhd 3Q 2013 Profit Takes A Dive - down 77.5% to only RM 35.5m

 

The Group recorded revenue of RM1,280.3 million for the quarter ended 30 September

2013 (“3Q13”), 3% higher than the revenue of RM1,237.5 million recorded in the quarter

ended 30 September 2012 (“3Q12”). The revenue growth was supported by a 11% growth

in passenger volume while the average fare was down 12% at RM169 as compared to

RM191 achieved in 3Q12. Ancillary income per passenger year-on-year increased from

RM40 to RM41. The seat load factor was at 77% in the same period last year.

The profit before tax for the period was RM25.1 million compared to RM259.1 million in

the same quarter of 2012 while the profit after tax for the period was RM35.5 million

compared to RM157.8 million in the same quarter of 2012.

Bursa Malaysia Filing: http://announcements.bursamalaysia.com/EDMS/edmsweb.nsf/all/EC42260883CC688748257C2900387DB3/$File/AirAsia_Bursa%20Announcement%20-%20Q3%202013_v2.pdf

Edited November 20, 2013 by flee

[BC Tam 2]

..... MAS is losing money again and put someblame on "fuel prices" .....

Not just fuel prices, the other commonly quoted (lame) excuse is "increased competition which impacted yields" - yeah right, I suppose the competitors could just have been so magnanimous before this

[M. Sofian H. 0]

 

Airasia Bhd 3Q 2013 Profit Takes A Dive - down 77.5% to only RM 35.5m

 

The Group recorded revenue of RM1,280.3 million for the quarter ended 30 September

2013 (“3Q13”), 3% higher than the revenue of RM1,237.5 million recorded in the quarter

ended 30 September 2012 (“3Q12”). The revenue growth was supported by a 11% growth

in passenger volume while the average fare was down 12% at RM169 as compared to

RM191 achieved in 3Q12. Ancillary income per passenger year-on-year increased from

RM40 to RM41. The seat load factor was at 77% in the same period last year.

The profit before tax for the period was RM25.1 million compared to RM259.1 million in

the same quarter of 2012 while the profit after tax for the period was RM35.5 million

compared to RM157.8 million in the same quarter of 2012.

Bursa Malaysia Filing: http://announcements.bursamalaysia.com/EDMS/edmsweb.nsf/all/EC42260883CC688748257C2900387DB3/$File/AirAsia_Bursa%20Announcement%20-%20Q3%202013_v2.pdf

really surprise. How about malindo?

[flee 5]

Malindo Air is a private company and does not report its accounts.

[M. Sofian H. 0]

Malindo Air is a private company and does not report its accounts.

thanks bro for the info.

[BC Tam 2]

So, both MH and AK group taking blows from this scrummage

AK is bruised

MH is bleeding (but then, what is new ?)

The Lion won't tell us either way

It's looking less like who can do better, more like who has more cash/liquidity to throw into the proverbial bottomless pit

Enjoy and take advantage whilst it lasts

[Johan Z 0]

That's why they haven't ordered any plastic planes yet. So, any loss can be blamed on high fuel cost.

[Izanee 0]

In cardiac surgery terms:

AK has just been trashed by a long bypass time

MH has been readmitted to ITU for the umpteenth time

OD is still on bypass, struggling to get off

[KK Lee 5]

Given ticket price is largely set by the market i.e. competitors, simply increase ticket price will reduce loads means overall yield or gross profit margin may not increase with ticket price. In Economics, yield and load is optimize (i.e. maximum profit) when the supply match the demand. Given MH limited number of aircraft variance, and rigid aircraft/routes allocation it is difficult for MH to optimize yield and load on most routes.

Edited November 21, 2013 by KK Lee

[Isaac 0]

Given ticket price is largely set by the market i.e. competitors, simply increase ticket price will reduce loads means overall yield or gross profit margin may not increase with ticket price. In Economics, yield and load is optimize (i.e. maximum profit) when the supply match the demand. Given MH limited number of aircraft variance, and rigid aircraft/routes allocation it is difficult for MH to optimize yield and load on most routes.

MAS can cut down their losses by first suspending all the red-eye intra-SEA flights such as the one DPS.

[Johan Z 0]

They should improve J class cabin and possibly reduce seat number and add more Y seats or offer Y+. I'm not sure what's MH load in J. But from my last few flights, J class wasn't too busy or sometimes was empty.

[alberttky 0]

Malaysia Airlines pursues rapid expansion but yields and profits are under pressure

 

http://centreforaviation.com/analysis/malaysia-airlines-pursues-rapid-expansion-but-yields-and-profits-are-under-pressure-140403

[Mohd Azizul Ramli 2]

Snippets from reports for AK and D7 from one of the analysts. In all, outlooks for all 3 airlines are quite doom.

 

On AK:

 

The weakness in Malaysia was augmented by the collapse in Indonesia's bottomline as yields also fell from competition and the rupiah depreciated. But Japan's losses have stopped and Thailand's profits grew healthily. The net effect was that the better overall associate performance helped temper, but could not completely overcome, the pressure on Malaysia.

 

AirAsia announced recently that its two founders have been redesignated to executive board positions and are moving their base from Jakarta back to Kuala Lumpur, admitting that they have been “complacent” and “taken their eye off the ball” in Malaysia. Clearly, urgent intervention is needed to fight the mother of all wars.

9% rise in landing charges from Jan 2014 onwards, the impending 9-11% rise in airport passenger service charges in Feb and the 6% GST from Apr 2015 onwards.

The termination of the Japan JV had resulted in more aircraft deliveries from Airbus than are possible for the AirAsia group to absorb. Hence, the 31 deliveries scheduled for 2014 will most likely be reduced to between 22 and 26 deliveries. We have reflected 26 deliveries into our 2014 forecasts. In addition, we assume that the five A320s that were previously deployed in Japan will be sold to third-party buyers in 2014.

 

AirAsia‟s recent announcement about Tony and Dato‟ Kamarudin Meranun (Din) returning from Jakarta to KL and their redesignations from non-executive board positions to group CEO and executive chairman, respectively, in our view suggest that the founders have realised that they need to take urgent action to tackle the growing pool of issues that has been threatening AirAsia‟s competitive position in Malaysia.

This reverses in part the regional strategy announced just 17 months ago in mid-2012, when AirAsia ASEAN was set up in Jakarta and the day-to-day management of the Malaysia operations was left in the hands of Aireen Omar, who was elevated to the position of Malaysia CEO on 1 July 2012. While Aireen will remain in her position, Tony will focus on driving cost efficiencies while Din will lobby the government and regulators, deal with MAHB and attempt to improve relations with all three. The founders‟ frequent absence from Malaysia over the past one-and-a-half years had probably weakened these key relationships. Din also admitted in an interview with The Edge Weekly (11 November edition) that AirAsia had been “complacent” and “taken their eye off the ball” in Malaysia and that MAS and Malindo had affected it.

Din also admitted during the interview with The Edge Weekly that “the competition between Malindo and MAS affects us” and that AirAsia had to defend its turf by “undertaking more aggressive campaigns”, which of course means that yields are likely to be weak in 2H13. Even the threat of Malindo launching to new destinations has been enough to cause yield pressure. The Malaysian Reserve reported on 16 October that “Malindo initially aimed to fly to Kochi and Tiruchirappalli (Trichy) but has decided to drop Trichy from its immediate expansion plan as „AirAsia is already responding in an aggressive way by offering crazy deals to Trichy‟.” Malindo‟s launch of new flights to Jakarta and Denpasar since late-September must have also caused fare declines on those routes, which may be reflected in AirAsia‟s 4Q13 results. In this context, AirAsia will have to focus its attention on costs, which will be one of the key responsibilities for Tony on his return from Jakarta. With yields on the decline, the urgency here is now greater.

We expect the passenger service charges (PSC) to be increased 9% in February 2014 and Malaysia Airports (MAHB) is applying to the government for a 10-11% increase. As a result, we expect domestic PSC from the LCCT to rise from RM6 to RM6.50/pax and for international PSC from the LCCT to rise from RM32 to RM35/pax. While these amounts may seem immaterial and PSCs are technically borne by the passengers, the heightened competitive environment in Malaysia means that AirAsia may have to absorb a large proportion of the PSC increase, which is very unhelpful to its bottomline. This explains why Din intends to lobby hard against any PSC hike and the recent experience of Tiger Airways in Singapore suggests that AirAsia‟s fears are not unfounded.

 

the fact that MAHB plans to lobby the government to equalise the PSC tariffs between the LCCT/KLIA2 and the main terminal used by the full-service carriers or at least to narrow the existing gap (RM32 vs. RM65/pax for international departures and RM9 vs. RM6/pax for domestic departures). If the government allows this, it will have a major negative impact on AirAsia‟s profits, something which Din‟s returning presence in Malaysia is intended to prevent.

The third and final series of landing charge hikes will take place in January 2014, rising by 9%. This is not new information but will come at a very unhelpful time, when yields in Malaysia are very soft.

The proposed 6% GST will be implemented from April 2015 onwards and airport PSCs for both domestic and international flights as well as domestic tickets (but not international tickets) will be subject to this GST.

In this report, we take a long and hard look at the numbers and adjust them down to reflect what we believe to be the most likely outcome for AirAsia.

On D7:

AAX will build its A330 fleet to 16-strong by end-2013, from nine planes last year. The group fleet will grow by another seven A330s to 23 by end-2014, of which 21 will be operated from Malaysia, and two to be operated by Thai AAX.

Thai AAX, 49%-owned by AAX, is expected to start operations by 1Q14. Local Thai partners, including Thai AirAsia CEO Tassapon Bijleveld, hold the remaining 51% stake.

The Bali hub will take a bit longer to start, as the application for the Air Operator’s Licence is still being considered by the authorities.

Routes on which AAX increased capacity such as Perth,Sydney, Melbourne, Chengdu and Taipei saw pressure on yields, while routes with no new flights like Tokyo, Seoul, Shanghai and Beijing saw improved yields.

MAS caused “hyper competition” by focusing on Australian capacity expansion, adding a third-daily flight to Sydney and Melbourne. Hence, the Australian region is beginning to underperform North Asia, and AAX estimates that it will need 6-9 months to “wash out” the yield pressures. Fall in loads is a trend that will continue into 4Q13, particularly to Australia, due to aggressive capacity injections by MAS and AAX.

New flights 4x weekly flights to Nagoya will start from March 2014, while two new routes to China will be launched in mid-2014. Frequency increases are planned for Seoul and Tokyo in 2H14.

As MAS keeps up the pressure, and we expect AAX to book a RM22m loss from its share in the new Thai AAX venture.