MAS heading for profit, record passenger numbers

PETALING JAYA: Malaysia Airlines (MAS) may eke out a small profit for the third quarter ended Sept 30 (Q3’13), reversing six months of losses, on the back of record passenger numbers, according to analysts.

The flag carrier is scheduled to release its financial results on Monday, followed by AirAsia X on Tuesday and AirAsia Bhd on Wednesday.

Q3’13 promises to be an “interesting quarter”, as all three airlines had seen robust traffic growth and impressive loads, Maybank IB Research said in a note to clients two days ago.

The brokerage expects MAS to break even with a net profit of RM17mil, owing to a seasonally strong third quarter and load factor of 84.8% – a historic feat for the airline.

“We applaud the management for being able to boost Q3’13’s load factor by 10.4% year-on-year (y-o-y) to 84.8%, a personal best and the highest among all of Asia-Pacific’s full-service carriers,” Maybank IB Research said.

Malaysia’s nine-month passenger traffic rose 16.6% y-o-y, the second highest in Asia-Pacific.

Jerry Lee, who tracks aviation stocks for RHB Research, told StarBiz that MAS’ Q3’13 was set to show an improvement over last year and Q2’13. MAS should also post better results in the second half of the year compared with the first half, Lee said.

The fourth quarter is usually the best season for airlines, making up some 50% of full-year earnings.

MAS’ operating statistics as at end-September had hit new highs, indicating a buoyant quarter for the full-service carrier at least in terms of sales.

Its passenger capacity grew 20.4% and traffic 37.1% in Q3’13 from a year earlier, pushing its load factor to 84.8%.

“This is an exceptional performance, given that MAS was able to churn significant capacity growth, and yet obtain load factor expansion. The results suggest it is winning market share at the expense of its competitors,” Maybank IB Research said.

In Q3’13, MAS’ international passenger load factor jumped 10.7% to a record 85.3%, while its domestic passenger load factor climbed 8.3% to 81.7%, also an all-time high.

“These numbers were the direct result of a deliberate decision by the current management to expand its capacity by deploying its planes for more hours daily, and cut its ticket pricing in order to defend its market share against lower-cost competitors such as AirAsia and Malindo,” CIMB Research said in an October report.

Maybank IB Research also explained that MAS’ load factor was driven by massive “fare-dumping”, which could send yields down by 12%-15% y-o-y, the same quantum seen in Q2’13.

“Our observation of the published ticket fares in this period evoked memories of ticket prices 10 years ago. Every airline is in a battle for market share in Malaysia, and MAS wins the best-improved category hands down.

“However, we are concerned about this situation, as the fares are not sustainable and MAS needs to overturn this yield decline trend and strive for a 5%-7% yield increase in order to be profitable,” it said.

“We think the challenging market outlook could continue into the early part of 2014. MAS’ turnaround story remains intact but the quantum of profits might be softer than our initial forecast.

“Furthermore, the goods and services tax implementation in April 2015 would add operational cost and this would add further earnings downside risk to the company,” the research unit added.

Another analyst who spoke to StarBiz believes that MAS’ aggressive pricing would mean that it was unlikely to return to the black in Q3’13.

“Competition is too keen. That seems to overshadow everything else,” he said.

Consensus estimates suggest that MAS would post a loss per share of 5.4 sen, turnover of RM14.33bil and net loss of RM728mil in Q3’13, according to Bloomberg data.

Its shares shed half a sen yesterday to 33.5 sen, almost unchanged for the year.