RHB: AirAsia has ‘many defences’ over rival Malindo (5099)

KUALA LUMPUR: AirAsia Bhd
has many “defences” against Malindo Airways, the new low-cost carrier
start-up that will compete with it in the domestic market, said RHB Research Institute.
These
included AirAsia's lower cost structure, strong balance sheet, much
bigger size, highly recognised brand and good safety records, the
brokerage said in a report.
RHB's
aviation analyst Joshua Ng wrote, quoting AirAsia, that in the
immediate term, the company might not need to cut ticket prices at all,
or if it did, the cuts might not be significant to counter a price
cutting by Malindo, should there be any.
This was because
Malindo would not have the capacity to replicate all of AirAsia's
domestic routes, and for those popular routes that it would, its
frequencies might be just a fraction of AirAsia's, Ng said.
“We
suspect the market (ourselves included) could have been a little ahead
of itself in terms of the prediction of a price war, and the depth and
width of it,” RHB said.
“Separately, AirAsia said that it is
rethinking its plan to acquire rival Batavia Air in Indonesia for
RM240mil cash. AirAsia hinted that having got to know the Indonesian
aviation sector better due to the proposed acquisition, it now feels
that to grow its Indonesian operations organically may not necessarily
be a bad idea after all,” it said.
Ng said AirAsia's near-term
earnings growth prospects were less exciting, as growth from its
domestic operations was tapering off, coming from an enlarged base.
“Not helping either are lingering losses from its new low-cost carrier start-up in Japan and the online air travel agent Expedia JV, given the long gestation periods for these new ventures,” it added.
However,
RHB believes that value has emerged after the steep selldown on the
back of the Malindo news with a fair value of RM3.63 per share based on
12 times financial year 2012/2013 earnings.
“We do not believe
Malindo can become a meaningful threat to AirAsia's domestic operations
overnight as it takes time for Malindo to grow its operations to a
significant size to become a worthy rival to AirAsia,” it said. “Over
the longer term, its survival also depends on its ability to beat or at
least match AirAsia's extremely low-cost structure.”