Ringgit Depreciation Is Not an Issue for AirAsia

The anticipated depreciation of the ringgit in 2017 will not be an issue for AirAsia Bhd (AirAsia) thanks to compensation from an anticipated earnings growth in 2017.

This view comes from AirAsia’s management who guided the impact from the ringgit’s depreciation in 2017 will be more than offset by earnings growth from capacity expansion as well as higher average yield and ancillary incomes.

For 2017, AirAsia had updated its fleet plan with an expected growth of 26 net additional aircraft, which is  a 15.9 per cent growth year over year (y-o-y).

The expansion is expected to continue until 2028, with an average of 19 to 20 aircraft per year. New deliveries of A320NEO – a fuel efficient aircraft capable of reducing fuel usage by 15 per cent – has begun since September 2016, while the A321NEO, a 20 per cent fuel saving aircraft will begin in 2019.

The research arm of Hong Leong Investment Bank Bhd (HLIB Research) notes that this planned double digit capacity growth is in view of the market showing signs of strong demand growth, especially air traffic within the North Asia sector.

“Given a rational market condition in all countries, management (AirAsia) does not expect competitive pressure on its yields in 2017. As a matter of fact, management has seen strong forward bookings in 4Q16 with a load factor of 90 per cent and in early 2017,” reported HLIB Research.

The capacity expansion is also indicative of AirAsia remaining on a growth trajectory with support from both high load factors and its lower jet fuel costs from A320NEO and A321NEO utilisation.

Additionally, AirAsia’s valuation and earnings will be further boosted from the upcoming initial public offering (IPO) of Indonesia AirAsia and Philipines AirAsia.

“We view that the recent sell down presents an attractive entry point for local investors to accumulate AirAsia shares and ride with the expected corporate restructuring exercises, earnings growth and higher dividend pay-out in 2017.” concluded the research arm.

(Source: Borneo Post)

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