Better quarter for airlines
Year-end holidays, festive season to boost Q4 ticket sale
PETALING JAYA: The fourth quarter, which is traditionally the strongest quarter for airlines, is expected to bring positive news to carriers after the relatively rough patch in the first half of this year.
Analysts said that aside from poor consumer sentiment following two major unprecedented events early this year, most of the air tickets for travel in the fourth quarter had already been locked in or pre-sold in the earlier quarters.
They expect the load factors in the last quarter of 2014 for both Malaysia Airlines (MAS) and AirAsia Bhd to average at their norms of 70% and 75%-80%, respectively.
“The fourth quarter is usually the best season for airlines, making up the bulk of airlines’ full-year earnings. Air travel demand will pick up during this quarter due to the year-end holidays and festive season,” a local bankbacked analyst said.
He noted that Malaysia Airports Holdings Bhd (MAHB) recorded a slower growth this year at 7.9% with 54.6 million passengers for the January to August period.
Analysts expect MAS results to be poor but somewhat in line with consensus and AirAsia to turn in relatively better results after higherthan-expected operating costs in the first half.
Consensus estimates among analysts are for AirAsia to post a net profit of RM 550.8mil for the financial year ending Dec 31 (FY14) and for MAS to turn in a RM1.2bil net loss and AirAsia X a net loss of RM143mil.
Kenanga Research said it was keeping its “neutral” call on the aviation industry at this juncture although the fourth quarter was always the strongest quarter for airlines due to seasonality factor arising from year-end festivities and school holidays.
“We believe that the yield for airlines will continue to be flat and MAHB’s passenger traffic growth continue to be moderate due to global geopolitical events especially in the Middle East and Hong Kong,” it said, adding that it might downgrade the sector to “underweight” should the current geopolitical events worsen.
The research house said the results for AirAsia and MAHB in the first half were disappointing while MAS’ results, even the losses were still widening, were within expectation. It said Airasia and MAHB results’ disappointments were mainly driven by higher-thanexpected operating costs.
It added that AirAsia was bogged down by higher-than-expected fuel and maintenance costs while MAHB’s earnings saw a major hit as a result of higher-than-expected depreciation and financing cost arising from the opening of KLIA2.
On the bright side, Kenanga Research said jet fuel prices had been relatively steady, trading at an average price of US$121.50 per barrel in the first quarter and at US$120.60 a barrel in the second quarter. However, it went down by 3.5% to an average of US$116.40 per barrel while the ringgit continued to strengthen against the US dollar in the third quarter to RM3.19 from RM3.23 in the second quarter.
“While we view steady jet fuel prices and the strengthening of ringgit as boons for the airlines as most of their costs are denominated in ringgit, especially jet fuel and interest costs, we note that the current operating environment remains highly challenging.
“Yield in airfares has not seen much improvements due to the stiff competition within the region especially in Thailand due to the domestic capacity expansion by Thai Lion Air while the overcapacity and intense competition in Singapore’s short-haul market have not seen much improvement despite the capacity cutback strategy adopted by most of the short-haul low-cost carriers,” Kenanga Research said.