Short Notes on Air Asia

BT, May 17th 2012, S Jayasankaran

Quick points:

• At a time when full service carriers, incl. SIA, have begun registering losses, AA 'defied' industry trends to register 12% yoy in raw passenger traffic to 4.8m for Malaysia operations.Revenue-Passenger-kilometer (RPK) grew 9%, partially from shorter average stage length.  Maintained 80% load factor.
• Foreigners hold 51% of the stock - most foreign held company on KLSE.
• Impending listing (May...what happened?) of AA's 49%-owned Thai unit should cut debt considerably.
• Indonesia listing may not happen because of regulatory changes: require company to own at least 2 planes to be listed, but AA Indonesia leases all its planes from AA (who keeps the debt on its balance sheet).
• AA currently bears 1.9M financing attributable to Thai and Indon associates.  If removed, would reduce gearing from 1.4 to 0.9 times.  For this, the associates would have to build their balance sheets in the future and take over their own aircraft/
• Thai AA turned around in Q4 and registered profits of 200M last year (flat yoy, in spite of floods and rising fuel costs).
• Next quarter, AA can begin to recognize profits from AA Thai.  Currently still offsetting $330m in accumulated losses to clear. If accounted for now, would have added RM99M to AA's 2011 results.

I would not hold a large amount of Air Asia due to its debt and future capex commitments.  Maybe a smaller amount, as it is the market leader in a growing industry.  Need to go through their numbers again.  Wait for recession to buy (...hopefully they manage to spin off AA Thai before that).