Translate This Page

Monday, September 29, 2014

AirAsia X a ‘buy’, says MIDF (BT)

MIDF Research expects more rational competition among airlines as fare yield recovers and cheaper jet fuel raises operators’ bottom line.

The firm said after the excessive capacity expansion since mid-financial year 2013, fare yield is expected to recover in the fourth quarter of 2014.

Malaysia Airlines’ (MAS) restructuring, it added, should lead to industry-wide yield revival.

“MAS may cut 10-15 per cent of its routes possibly by the end of FY14 (financial year). As such, we view that the capacity cutback may help trigger industry-wide yield recovery after the excessive capacity expansion in 2013.

“Moreover, Indonesia agreed to open up Jakarta for Asean open sky. Under the agreement, Asean airlines are allowed to fly without capacity and pricing restrictions to Jakarta,” MIDF Research said in a report yesterday.

This will allow for higher traffic growth and cheaper fare among the Asean capital cities.

“Manila has yet to join the air liberalisation agreement, but we are confident that it will follow suit before the deadline of December 2015.”

It noted that another four cities in Indonesia, namely Medan, Surabaya, Denpasar and Makassar, are set to liberalise their aviation market.

“This would be the game-changer for the regional airlines as it allows for the opening up of new routes,” MIDF Research said.

Airlines will also benefit from lower fuel bills in view of the easing jet kerosene price.

“Jet fuel bill may ease on lower average price. Industry report suggested that the slump in crude oil price was due to mixed factors, notably the ampleness of United States shale oil supply and the weaker China growth prospects.

“Most of global airlines have reduced their fuel hedging exposures in reaction to the falling price and waning volatility in crude oil market. As the peak travelling season in the final quarter looms, we expect the domestic carriers to benefit from lower fuel expenditure should the trend continue,” it added.

MIDF Research has reaffirmed its “neutral” stance on the sector with AirAsia Bhd the top pick.

It rated AirAsia X a “buy”, but was “neutral” on MAS and MAHB.

No comments: