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Contrasting fortunes for Malaysia Airlines, AirAsia

Publication Date : 18-05-2012


It is going to be another quarter of losses for Malaysia Airlines (MAS) when it releases its first quarter 2012 results by month-end but its rival AirAsia will continue to grow its earnings amid rising jet fuel prices that is putting pressure on airlines' margins.

Analysts tracking AirAsia have mixed views as to how much the airline will turn in for the first quarter.

An analyst with a local brokerage is expecting 140 million ringgit or US$ 44.69 million (excludes non-cash items and any one-off item). RHB Research is looking at core pre-tax profit of 175 million ringgit ($55.86 million) to 180 million ($57.45 million) while AmResearch is pointing to a flattish growth of 160 million ringgit ($51.70 million) to 170 million ringgit ($54.26 million).

However, OSK Research analyst Ahmad Maghfur Usman is bullish on AirAsia with a 290 million ringgit ($92.56 million)  forecast that includes a 50 million ringgit ($15.96 million) contribution from associate companies and other cash items.

He believes demand for low-cost travel is still good and its load factor is holding up while earnings from AirAsia's Thai operations will mitigate the rise in jet fuel prices.

Jet fuel prices are 16 per cent higher year-on-year and 4-5 per cent greater quarter-on-quarter. AirAsia reported 171 million ringgit ($54.58 million) net profit for first quarter 2011 and it expects to release its first quarter results on Wednesday.

The bullishness aside, the same cannot be said for MAS because Ahmad is looking at a 250 million ringgit ($79.80 million) net loss for the national flag carrier for the quarter while Maybank IB Bhd expects a 332 million ($105.97 million) net loss.

Jet fuel prices is one factor but MAS has more issues in its hand and the pressure on earnings is greater because of low yields. And to top that, Ahmad said its staff morale was low and that was affecting the airline's productivity.

Maybank IB, in its report, said that the 12 per cent capacity cuts that MAS had implemented was also not translating to any improvement in load factors but had in fact putting pressure on yields.

“MAS' cost will improve slightly because it has cut staff allowances but, by right, the improvement should come from yields,'' Ahmad said.

He said MAS wanted to tap the premium market but it was still offering promotional fares, which at times were lower than that offered by AirAsia, and this made it difficult for the national carrier to grow its yields.

“They are in a tough situation,'' he added, saying that his “sell” call was based on the “confidence issue.''

“I don't have confidence (in MAS at this juncture), and its cash is depleting fast, it really needs to sort that out and a turnaround is going to be tough for MAS,'' he added.

Maybank IB said: “We estimate a cash burn rate of about 200 million ringgit ($63.84 million) in the first quarter alone and this will bring MAS' cash balance down to about 800 million ringgit ($255.35 million). If this continues and its cash balance falls below 400 million ringgit ($127.67 million), then the company will be left in a very worrying situation.''

MAS reported its worst-ever loss in history of 2.5 billion ringgit ($797.96 million) for full year 2011.

Due to expectations of a set of dismal results, Maybank IB Bhd has this week called a “sell” on the stock at 1 ringgit a share while OSK Research called a “sell” since November at 90 sen. Yesterday. MAS shares closed at 1.05 ringgit while AirAsia inched up 5 sen to 3.39 ringgit [1 ringgit = 100 sen or $0.32].

Going forward, analysts said the second and third quarters would remain challenging for airlines, especially the second as it was traditionally a weak quarter. Many are already concluding that MAS will remain in the red this year and they expect the losses to be above 500 million ringgit ($159.59 million) for 2012.

Across the causeway, Singapore Airlines (SIA) net profit for the financial year ended March 31 tumbled 69 per cent to S$336 million, weighed down by a rare loss in the fourth quarter recently.

SIA is turning its focus to Asia via SilkAir as this is where the growth is since it is also facing fierce competition from the aggressive Middle Eastern carriers such as Emirates and Qatar Airways.

Yesterday, SIA said it would cease flights to Athens and Abu Dhabi.

But Thai Airways International Pcl last week reported a surge in quarterly net profit on the back of a recovery in passenger traffic to 3.6447 billion baht ($117 million) versus 618 million baht ($19.15 million) a year earlier.

Maybank IB said “excluding the forex gains, Thai Airways' profits were 19 per cent lower but despite that, it did well given the tough conditions.''


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