Highlight AirAsia X widens 1Q losses due to unfavorable exchange rates

by **Cals** Wed 27 May 2015, 23:43

Highlight
AirAsia X widens 1Q losses due to unfavorable exchange rates

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By Meena Lakshana / theedgemarkets.com | May 27, 2015 : 9:04 PM MYT

KUALA LUMPUR (May 27): [size=14]AirAsia X Bhd (AAX) ([You must be registered and logged in to see this image.] Financial Dashboard) reported its sixth consecutive quarterly loss on higher foreign exchange (forex) loss on borrowings which more than tripled to RM89.2 million in the first quarter ended March 31, 2015 (1QFY15) due to the weakening ringgit.

The long-haul low-cost airline also recognised a net tax expense of RM8.6 million in the January-March 2015 period compared with a net tax allowance of RM36.8 million a year ago.

These factors led AAX's net loss for 1QFY15 to widen by more than 11-fold to RM125.92 million or 5.3 sen per share from RM11.28 million or 0.5 sen per share recorded in the year-ago period. The loss is the sixth in a row by AAX since 4QFY13.

On the operating level, however, AAX said it recorded a profit of RM6 million, up 118% for 1QFY15 compared with a loss of RM33 million in 1QFY14. The profit was mainly pulled by higher aircraft operating lease and maintenance expenses, which surged 116% and 42% respectively, due to the additional eight aircraft on operating lease taken after 1QFY14, it added.

AAX also saw its operating expenses for 1QFY15 fall by a marginal 1.2% to RM776.1 million, mainly due to a 32% year-on-year drop in jet fuel cost to RM274 million from RM401 million in 1QFY14. However, the airline has not been able to reap the financial benefits of low fuel prices, as unfavorable exchange rate shifts continue to negate the fuel cost cuts.

Revenue for 1QFY15, however, rose 3.5% to RM775.37 million from RM749.48 million a year ago. As a result, revenue per available seat-kilometer improved 6.9% to 12.9 sen for 1QFY15 compared with 12.1 sen in 1QFY14.

In a filing with Bursa Malaysia today, AAX (fundamental: 0.2; valuation: 0.8) attributed the higher revenue to improved average passenger fare, as well as increased charter revenue and aircraft operating lease income.

AAX said charters revenue increased to RM113.4 million in 1QFY15 from RM62.9 million in 1QFY14 as the airline had more charter contracts secured in the quarter under review.

However, its scheduled flights including fuel surcharges fell 8.6% to RM460.6 million in 1QFY15 from RM503.9 million in 1QFY14, due mainly to lower passenger flown.

"Despite the decreased in load factor of 12.2%, average passenger fare has improved by 7.8% to RM503.39 in 1QFY15 from RM467.11 a year ago," it added.

AAX's aircraft operating lease income also increased to RM47 million from RM8.3 million, due mainly to additional aircraft being sub-leased to its associate Thai AirAsia X Co Ltd (TAAX) and PT Indonesia AirAsia Extra (IAAX) joint venture.

In a statement today, AAX said the weakening ringgit at 3.62 against the greenback had "significantly impacted" its result for 1QFY15 as 92% of its borrowings are in the US dollar.

"We had also recorded an investment loss of RM15 million in joint venture of IAAX," it added.

AAX group chief executive officer (CEO) Datuk Kamaruddin Meranun said the airline is optimistic that it will see improvements starting from the second half of this year, which will lead to a better financial footing in FY15.

“There will be more integration with our partners in 2015 and this is especially with AirAsia BIG (loyalty programme) which has 13 million members, but only 2.2 million members that are active users. Hence, there is a huge potential for us to encourage travelling among the remaining 11 million inactive users," he said.

"There will also be more aggressive marketing collaboration with AirAsia BIG to raise awareness of the loyalty programme’s benefits such as redemption of BIG points for free flights and 24 hours priority booking for AirAsia sales.

"On top of that, we are introducing exclusive duty free products on-board and new sales platform to boost our ancillary revenue," added Kamaruddin.

"With the observed booking trends, we are in line with expectations for a recovery in the second half of 2015,” said AAX acting CEO Benyamin Ismail, adding that the airline has locked in 54% of its jet fuel needs at average price of US$88 per barrel for FY15.

“We have implemented a rights issue exercise which will raise RM391 million and expect to be completed by mid-June 2015. Potentially, we are also looking at refinancing of remaining finance lease aircraft and outright sales of two latest deliveries aircraft in the coming second half.

"We are also planning to defer two aircraft deliveries for 2016 to manage cash flow," said Benyamin.

AAX shares closed one sen or 3.64% lower at 26.5 sen today, with a market capitalisation of RM5.73 billion.

(Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)
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