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Malaysia-based AirAsia Bhd, Southeast Asia's biggest discount airline, may miss its profit target for the year ending June because it lacks the aircraft needed to meet rising demand for low-fare air travel, analysts have said.
AirAsia may fall short of its 147.4 million ringgit (US$38.8 million) profit target by 25 million ringgit, or by 17 percent, Credit Suisse First Boston analyst Peter Hilton said in an April 29 note to investors.
Macquarie Securities Ltd analyst Paul Dewberry said AirAsia may miss its forecast by 3.4 percent.
"If they come short of target, it's purely because they don't have enough planes," Hilton said yesterday in Hong Kong. "Rather than enter into leases which run for several years at uncompetitive prices, they've elected to slow down their growth and await the delivery of their own cheaper aircraft," he said.
AirAsia, the largest low-fare airline in a region with 500 million people within three hours' flying time from its base outside Kuala Lumpur, may not be able to meet Southeast Asia's rising demand for air travel until December, when it takes delivery of the first of 60 A320 aircraft it has ordered from Airbus SAS. The carrier is expanding its fleet and renewing its aircraft to fly to China, Indonesia and Thailand.
AirAsia cannot get enough planes with the flight record that meets its maintenance standard, Chief Executive Officer Tony Fernandes said in an interview on Thursday in Kuala Lumpur. Both Fernandes and the carrier's Chief Financial Officer Raja Mohd Azmi declined to say if the carrier would achieve its target for the year ending June.
The airline will make a statement on the profit forecast on May 25 when it reports its third-quarter earnings, Fernandes said on Thursday.
The airline's earnings would be "in line with what's happening in the world" with surging oil prices and earthquakes in Indonesia that discouraged traveling, Fernandes said in a Thursday interview in Kuala Lumpur.
"We have stuck to our guns in not taking short-term decisions for short-term gains, and we won't make mistakes to make our profit numbers," he said. "From what we put in our budget, I think we're happy with where we are."
AirAsia's shares were unchanged at 1.65 ringgit at the 12:30 pm trading pause in Kuala Lumpur. The stock has risen 42 percent since its November 22 debut from the 1.16 ringgit offer price to retail investors. Shares of Malaysian Airline Systems Bhd, the nation's largest carrier and an AirAsia competitor on domestic routes, fell 12.2 percent in the same period.
Macquarie, JP Morgan Chase & Co and Avenue Securities Sdn in Kuala Lumpur recommend investors buy AirAsia shares. Five analysts of 11 surveyed call the stock a "hold" and three recommend investors sell the stock, according to Bloomberg data.
Boeing to Airbus
AirAsia, which began flying in January 2001 with three Boeing 737-300 aircraft, said it is replacing all 24 planes made by the Chicago-based company in its fleet with Airbus A320 models. Until the A320 planes arrive, AirAsia is using Boeing 737- 300s, under a previous arrangement.
"We're refusing to take these (Boeing) planes which are coming from all over the world, because their (flight) records are appalling," Fernandes said. AirAsia won't use an aircraft "unless we have the ability to trace how they're maintaining their planes," he said.
In March AirAsia placed a US$3.8 billion order for 60 Airbus A320 planes, with options for another 40 aircraft. The A320, which can fly up to 150 people for a maximum distance of 3,000 nautical miles, carry a list price of US$63 million each.
Noor Azwa Mohd Noor, Avenue's head of research, said he is "probably" going to cut the airline's full-year profit forecast, after the carrier's sales in the first six months fell below expectations. He declined to give details.
Crude oil futures reached US$58.28 a barrel on April 4, the highest since the contract began in 1983, pushing up operating costs.
Still, AirAsia's profit shortfall may be limited, after the carrier did a better job of managing its expenses, Dewberry said.
"Costs are running considerably below expectations, which will make up for some of the shortfall," he said. "Revenue may not be as great, but costs are developing better."
(China Daily May 7, 2005)
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