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Monday, September 25, 2017

CIMB Research sees strong performance from AirAsia in H2 of 2017

ANALYST REPORTS
Monday, 25 Sep 20178:11 AM MYT

KUALA LUMPUR: CIMB Equities Research views AirAsia image: https://cdn.thestar.com.my/Themes/img/chart.png’s strategy to entrench itself strongly in Malaysia is a brilliant move to edge out its rivals.

It said on Monday with an absolute decline in total domestic capacity from KLIA, but no signs of a decline in domestic passenger numbers, it expects AirAsia’s domestic yields and domestic load factors to be very strong in 2H17F.

“AirAsia is taking advantage of its competitors’ pullback by expanding its fleet by 10 planes in Malaysia in 2H17F after adding none in the first six months,” it said.

To recap, CIMB Research said Malaysia Airport’s passenger traffic numbers have resumed growth since mid-2016, after two consecutive years of low single-digit growth.

So far in 2017F, the growth has been driven primarily by international passenger traffic growth (+14.5% year-on-year for January to August), against slower growth for domestic passengers (+6% year-on-year for January to August).

“This is explained by the weak ringgit encouraging inbound tourists into Malaysia, as well the mature state of the domestic travel market,” it said.

CIMB Research said passenger traffic at KLIA’s Main Terminal Building (MTB), where full-service carriers like Malaysia Airlines (MAS) and Malindo are based, have seen a dramatic decline in passenger traffic growth from May 2017 onwards.

Traffic growth slowed down to 12%-13% year-on-year, from more than 20% year-on-year growth in the preceding months, while in July and Aug 2017, MTB passenger traffic growth slowed down to the low single-digits.

There are two reasons for this. First, Malindo rebranded itself as a full-service airline and moved to KLIA MTB from 15 Mar 2016, so the year-on-year slowdown in passenger traffic growth at MTB was due partly to the high base effect.

The second reason is that MAS and Malindo have both cut domestic capacity from KLIA. Malindo deployed around 25,000 one-way domestic seats/week from KLIA at the start of 2017, but this declined to about 15,000 seats in early-Apr, and is expected to remain at this level for the rest of the year.

MAS started 2017 with about 75,000 domestic seats/week from KLIA but with its capacity cuts in July-September, the airline is expected to end the year with 62,000 seats. The cuts may be related to MAS’s plans to return six B737-800s to lessors by 4Q17F.

As a result, KLIA MTB’s domestic passenger traffic saw a massive 20% year-on-year contraction for two consecutive months in July and August.

Altogether MAS and Malindo are expected to reduce their domestic capacities from KLIA by 23,000 seats/week by end-2017F, or a substantial drop of 23% measured from the start of the year.

“Conversely, AirAsia started this year with 102,000 domestic weekly seats, but is expected to end 2017F with around 114,000 seats/week from KLIA, an increase of 12,000 seats/week.
“As a result, AirAsia’s market share of domestic seats from KLIA may rise from 51% to 60% by end-2017F,” it said.

Read more at http://www.thestar.com.my/business/business-news/2017/09/25/cimb-research-sees-strong-performance-from-airasia-in-h2-of-2017/#Y83cK23cozpI5XTH.99

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