Financing costs, forex lead to higher net loss for AirAsia X
The adoption of a new accounting standard MFRS 16, deferred taxation, loss on disposal from the sale and leaseback of three aircraft and foreign exchange losses all led AirAsia X Bhd (AirAsia X) to widen its losses in the second quarter of financial year 2019 (2QFY19) to RM207.1 million.
Excluding exceptional items – deferred taxation, loss on disposal from the sale and leaseback of three aircraft and forex losses – AirAsia X recorded a normalised net loss of RM114.1 million.
This brings the cumulative 1HFY19 normalised net loss of RM144.2 million, missing MIDF Amanah Investment Bank Bhd (MIDF Research) and consensus expectations by a variance of more than 10 per cent.
“The negative variance was due to the substantial increase in financing costs following the MFRS16 adoption. We expect the effect to be until end of FY19 when a new base is established,” it said in a note yesterday.
The airline's revenue in 1HFY19 dropped 6.4 per cent year on year (y-o-y) to RM2.18 billion due to a decline in passengers carried. Subsequently, ancillary revenue dropped by 4.7 per cent y-o-y but still maintained a robust contribution to total revenue, at 19 per cent
“Looking ahead, AirAsia X will boost a stronger take-up of ancillary offerings especially with the expected introduction of WIFI onboard the fleet,” MIDF Research said.
“While the freight services segment was lower at 5.4 per cent y-o-y in 1HFY19, we opine that revenue will improve following AirAsia Group's logistics arm, Teleport's shift to higher margin contracts.”
In line with the drop in revenue and lesser passengers carried, both revenue per kilometer (RPK) and average per seat per kilometre (ASK) fell during the first half of the year.
Notably, the 6.4 per cent decline in RPK outstripped the 5.1 per cent drop in ASK for 1HFY19.
“This was caused by the capacity management and operation of shorter stages routes compared to last year. The destinations involved were Gold Coast and Taipei.
“As such, capacity to Gold Coast post-termination of Auckland in February 2019 was reconciled, in line with AirAsia's goal of network optimisation.
“The consolidation of capacity explains the ability of AirAsia X to maintain a healthy load factor of 81 per cent for 1HFY19.”
Manwhile, the regional airline saw tamed impact of fuel prices as MIDF Research saw that average sector length was little changed at 9,441km but fuel expense declined by 6.2 per cent y-o-y despite the 6.1 per cent y-o-y increase in Singapore jet kerosene price in 1HFY19.
“The reduction in fuel expenses indicates that AirAsia X's conservative hedging strategy is bearing some fruit,” it added. “For FY19, the average hedge ratio is about 65 per cent at an estimated jet fuel price of US$78.3 per barrel.
“In a longer term perspective, we opine that risks related to fuel costs will be tempered by the swap of existing A330ceos to the more fuel efficient A330neos, earliest by the end of 2021 which enables approximately 11 per cent additional fuel savings.”
For the remainder of the year, MIDF Research believed AirAsia X's number of passengers carried will be supported via the addition of high density shorthaul routes done through code sharing with AirAsia Group such as from Kuala Lumpur to Singapore.
This will also help to drive the aircraft utilisation from the current 14.3 hours per day to around 16 hours per day. Moreover, the network rationalisation undertaken in 1HFY19 will allow AAX to strongly focus in its key markets such as Northern Asia, India and Australia while letting other routes in infancy to grow naturally.