AirAsia’s strong earnings trend expected to be sustainable

PETALING JAYA: AirAsia Bhd is expected to continue charting yield growth in the second quarter of 2016 (Q2’16) with strong earnings, according to HLIB Research, which maintained its “buy” call on the stock.
The research house said given the combination of strong Q2’16 statistics; expectation of yield improvements and low jet fuel, it expects AirAsia to report core earnings of RM350-RM400 million in Q2’16, which excludes contribution from Indonesia AirAsia (IAA), AirAsia Philippines (PAA) and AirAsia India (AAI), and RM850-RM900 million in 1H16.
HLIB said the ongoing low jet fuel price (in tandem with low crude oil price) with stable forex continued to work towards AirAsia’s benefit, given that 40%-50% of AirAsia’s operational cost is attributed to jet fuel. AirAsia has hedged 74% of jet fuel requirement for 2Q-4Q16 at US$55 per barrel and 40% of requirement for FY17 at US$58 (RM233.40) per barrel.
“We expect jet fuel price to range bound at US$55-60 per barrel (while forex at RM4.00-RM4.10 per US dollar) in 2H16, indicating AirAsia’s average jet fuel cost at US$56 per barrel in FY16, lower than HLIB’s assumption of US$60 per barrel and consensus US$60-US$70 per barrel. The net benefit of 30% year-on-year drop in jet fuel cost in FY16 is more than offset the impact of 2%-5% year-on-year depreciation of the ringgit per US dollar,” HLIB said in a report yesterday.
AirAsia group continued to record strong operation numbers in Q2’16, with new record high load factor of 85.1% for the group. Three additional aircraft were deployed into Malaysia AirAsia and Thai AirAsia in Q2’16, given the strong demand growth. IAA and PAA continued to report strong load factors at 82.4% and 90.0% respectively in Q2’16.