AAX's fuel hedging policies bearing fruit
KUALA LUMPUR: AirAsia X Bhd's (AirAsia X) fuel hedging policies are bearing some fruit despite the current rise in jet fuel price, analysts observed.
MIDF Amanah Investment Bank Bhd's research team (MIDF Research) pointed out that the impact of fluctuating fuel price was tamed in the first quarter of 2019 (1Q19) for AirAsia X.
It noted that the average sector length saw little changed at 4,791km but fuel expense declined by 12.5 per cent y-o-y despite the 14.9 per cent increase in Singapore jet kerosene price in 1Q19.
“As such, AirAsia X's revenue per available seat kilometres (RASKCASK) spread was back in positive territory compared to the preceding quarter.
“The reduction in fuel expenses indicates that AirAsia X's conservative hedging strategy at an average hedge ratio of circa 50 per cent at an estimated jet fuel price of US$78.5pb for FY19 is bearing some fruit,” it said.
“Nonetheless, we remain sanguine on the oil market outlook amidst ongoing geopolitical tensions simmering in Venezuela and Libya in addition to President Donald rump's crackdown on Iranian oil exports,” it warned.
Meanwhile, on AirAsia X's 1Q results, MIDF Research pointed out that the MFRS16 adoption coupled with higher maintenance and overhaul expenses amidst a few aging fleet of five to six years have pushed AirAsia X's financing costs higher.
It noted that excluding exceptional items such as deferred taxation and foreign exchange losses, AirAsia X recorded a normalised net loss of RM30.1 million, missing consensus' expectations.
It added that AirAsia X saw its revenue in 1Q decline 8.1 per cent y-o-y to RM1.17 billion due to a 4.8 per cent y-o-y decline in passenger. However, it pointed out that while the freight services segment was lower at 7.8 per cent y-o-y, it opined that revenue would improve following the arrangement of Teleport (AirAsia Group's logistics arm) with Oman Air to provide customer with access to Oman Air's network covering Africa, the UK and Europe.
Nevertheless, it highlighted that while the load factor still remained healthy at 83. per cent for the quarter under review but this came at a cost of average fares which were lower by down 2.7 per cent y-o-y.
“A load active strategy stood well in handling competition but only positive in routes that reached over capacity,” it opined.
Moving forward, MIDF Research believe that the decline in ASK and RPK to be short lived as the termination of non-core routes will enable AirAsia X to redeploy capacity into main markets in Greater China, Japan, India and South Korea.
“The main routes under focus are Taipei-Osaka which have seen strong load factors since commencement in January 2019 and Kuala Lumpur-Fukuoka which will enhance its brand presence before the Tokyo 2020 Olympics,” it added.
“With no planned addition of aircra for AirAsia X Malaysia, AirAsia X would be able to maximise aircra utilisation when new routes in the said markets are launched in 2HFY19.
“Consequently, we believe further improvement in cost structures such as flights to more cost effective airports; Avalon Airport, Melbourne and lower costs related to flight operations, engineering and ground handling could sustain earnings in the near future,” MIDF Research said.
Despite the optimism, the research team said a downward adjustment to AirAsia X's earnings is necessary in the near term.