Company Name: AIRASIA BHD
Research House: CREDIT SUISSE
KUALA LUMPUR: Credit Suisse Research remains positive on AirAsia as it believes the low-cost'' carrier'' can weather the high oil price environment.
In a research note issued on Thursday, March 17, it said AirAsia's management was not in favour of imposing a fuel surcharge, preferring instead to raise loads and ancillary income (higher baggage fees, new services, etc).
Credit Suisse Research said AirAsia management was comfortable with its margins with jet fuel at US$150 per barrel but could impose a surcharge if prices are sustainable at around these levels.
"We estimate that the company needs to raise total fares by merely RM1 to compensate for a US$1 per barrel increase in jet fuel prices. If jet fuel averages at US$120, fares would have to rise by RM10 to compensate. This is less than the price of a large McValue meal (RM11.20), thus, in our view, would not significantly impact demand,' it said.
Credit Suisse Research forecast US$110 for FY11-FY13 jet fuel (+20% on-year versus FY10). AirAsia effectively pays the market rate, as it only hedges 25% of its forward quarter requirements.
It also said AirAsia's management had been actively addressing market's various concerns over the company by improving transparency, strengthening its team and reducing aircraft rollout in an effort to contain gearing.
The research house said AirAsia had also proposed to monetise its 'other business units' including the AirAsia Academy (pilot and crew training) and 16%-owned sister-company, AirAsia X (AAX, unlisted).
The future listing of its long-haul carrier AAX, and its subsequent spin off, is the final part of the restructuring to counter the perceived dilution in AirAsia's short haul business model.
Credit Suisse Research said AirAsia was considering paying its first maiden dividend. In its view, the potential dividend would be a small but symbolic amount to signal the market that it is on a better financial footing.
'We estimate that a 10% payout ratio would result in a dividend yield of 1.2%. We believe that this move will be well received by local institutional funds in Malaysia, which could reverse the stock's low local shareholdings and provide fresh impetus to the share price,' it said.
The research house said it remained positive on AirAsia, which has the second largest airline fleet in Asia, with a combined fleet of 93 aircraft. Although Singapore Airlines has110 aircraft, the company 'only' carried 16.6 million passengers in 2010 which is 35% less than AirAsia's combined total of 25.7 million.