AirAsia’s JV termination in Vietnam may not impact expansion plan
KUALA LUMPUR: The termination of AirAsia Group Bhd’s (AirAsia) joint venture (JV) in Vietnam may not necessarily have an negative impact on the group’s expansion plan, analysts opine.
In a filing on Bursa Malaysia, AirAsia announced that whollyowned subsidiary AirAsia Investment Limited, together with Gumin Company Limited and Hai Au Aviation Joint Stock Company, have amicably agreed to terminate and release each other from all obligations under the transaction agreements in relation to the proposed joint venture in Vietnam, effective April 17, 2019.
However, the filing also revealed that AirAsia nonetheless remains interested in operating a low-cost airline in Vietnam due to its favourable geographical location, expanding aviation market and overall growth potential.
“While the cancellation of the joint venture may appear to negatively impact AirAsia’s expansion plan, we do not think that this is the case,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said.
“In early April 2019, AirAsia introduced Can Tho to its network of routes with a weekly frequency of four flights.
“In fact, this is the first ever international flight to Can Tho, indicating AirAsia’s lead as an international airline for that destination.
“Can Tho is AirAsia’s sixth destination in Vietnam while new services between Bangkok and Can Tho are set to commence in May 2019.”
With 8.5 million visitors visiting the Mekong Delta in 2018, the research arm opined that this destination has the potential to attract more visitors which will positively flow to AirAsia’s load factor.
“Therefore, it is not imperative for AirAsia to set up a JV carrier in Vietnam.”
On the impact on AirAsia’s earnings, MIDF Research maintained its financial year 2019 (FY19) and FY20 earnings estimates on the group as the research arm did not impute any impact from the formerly proposed JV into its estimates.
Moreover, AirAsia did not make any financial commitments to the joint venture which would have cost RM58.2 million, representing a 30 per cent stake in the Hai Au Aviation Joint Stock Company.