Yields for AirAsia to improve with klia2 move

by **Cals** Fri 18 Apr 2014, 02:23

Business & Markets 2014

Written by Cynthia Blemin of theedgemalaysia.com

Thursday, 17 April 2014 09:59

KUALA LUMPUR: Analysts expect a 5% to 6% improvement in yields for AirAsia Bhd and affiliate Air-Asia X Bhd once the airlines move to klia2 in Sepang.

“We expect low-cost carriers operating from the current low-cost carrier terminal (LCCT), such as AirAsia and AirAsia X, to be able to command a higher fare at klia2 as the new terminal with its better connectivity and amenities will provide a more pleasant travelling experience for passengers,” said Alliance Research in a report yesterday.

It noted that AirAsia’s management had previously guided that it expected yields to improve 5% to 6%, once it moves into klia2.

Analysts are bullish on the prospects for the two airlines following their about-turn on Tuesday to move into the new terminal by May 9, the date on which the LCCT will be shut down following the official opening of klia2 on May 2.

Earlier, the AirAsia group said it would remain at the present LCCT even after May 9, stating that the security and safety issues at the new terminal would need to be addressed before it can move into its new home. Later, it changed its mind after Prime Minister Datuk Seri Najib Razak stood firm on the transport ministry’s decision to shut down LCCT on May 9.

Deputy Transport Minister Datuk Abdul Aziz Kaprawi told The Edge Financial Daily that the ministry sees the latest decision by Air-Asia as a positive progression. The action committee overseeing klia2 is headed by the transport ministry.

“I believe they [AirAsia] are prepared to move. They have showed their commitment by taking part in the familiarisation aspects for the operations of the new terminal. They have also sent personnel to observe the processes,” he said.

All the necessary approvals from the various departments, including the Fire and Rescue Department for klia2, are in place, he assured, and the ministry has been advised that “it is only pending the paper work”.

The AirAsia group said that all necessary preparations to move into klia2 are being undertaken in line with the Operational Readiness and Transfer (ORAT) specifications, such as airside and operations trials. With Malaysia Airports Holdings Bhd’s (MAHB) assistance and support, the airline expects to be able to comply with all ORAT requirements to move in by the deadline.

Alliance Research is optimistic about AirAsia’s announcement as it represents the final key milestone in the successful opening of klia2, which marks the beginning of a new growth phase for both the domestic low-cost carriers and MAHB.

It added that AirAsia’s management had guided that the passenger service charge (PSC) at klia2 will remain the same as at the current LCCT for the foreseeable future, thereby removing a possible de-
rating catalyst for the domestic low-cost carriers.

Nevertheless, while the opening of klia2 represents a significant rerating catalyst for the sector, Alliance Research said it is maintaining its “neutral” recommendation on the sector, owing to its expectation of airlines’ persistent negative earnings momentum driven by a weaker ringgit.

The shares of AirAsia closed one sen higher at RM2.28, while the those of AirAsia X and MAHB closed flat at 75.5 sen and RM8.08 respectively.

This article first appeared in The Edge Financial Daily, on April 17, 2014.