What’s the outlook for AirAsia after S$310 million Q1 loss?

AirAsia Group’s share price opened over 4% lower a day after it posted record losses.

AirAsia reported largest quarterly loss on record

Malaysian budget airline AirAsia Group on Monday 06 July 2020 reported a net loss of 953 million Malaysian ringgit (S$310.5 million) for the quarter ended 31 March 2020.

This is a reverse from the 102 million ringgit (S$332 million) in net profit recorded in the same quarter a year prior.

The group said that the loss – its largest ever – was caused by a shortfall in revenue amidst impacted travel demand throughout the Covid-19 pandemic, and higher maintenance and overhaul costs by 54% due to the accounting impact from a change in aircraft ownership.

A loss on settlement from fuel hedging amounting to 110 million ringgit, as well as fair value losses on derivative investments of 270 million ringgit, also contributed to the decline.

In terms of revenue, the group posted a Q1 2020 revenue of 2.3 billion ringgit, down 15% from 2.7 billion ringgit year-on-year.

In terms of passengers flown, the group’s consolidated AOC (air operator certificate) routes reported a load factor of 78%, which AirAsia said was ‘within expectations’. The number of passengers carried was down 21% year-on-year to 9.9 million as capacity was reduced by 11%.

What’s the AirAsia share price outlook?

Following the release of its Q1 earnings, AirAsia’s share price opened 4.44% lower a day later on Tuesday 07 July 2020.

AirAsia shares – tracked by IG's Malaysia 30 index – are trading at 0.87 ringgit apiece as at 11:25 SGT on the same day.

The stock has an average target price of 0.55 ringgit a share, based on the latest batch of analyst ratings. This represents a downside of 36.7% from the last traded price. Three out of the four analysts have also given the stock a ‘sell’ rating.

The most optimistic of the bunch is Public Bank, which gave AirAsia a ‘hold’ rating and a share price target of 0.78 ringgit. However, analysts there ‘remain cautious’ on the airline’s earnings outlook for the rest of the year as they ‘expect weaker results in Q2 due to loss in revenue after hibernation of fleet from late March 2020 as travel restrictions increased’.

They also stated that excluding non-operating losses, the group’s core net loss stood at 412.4 million ringgit.

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AirAsia’s guidance for the rest of 2020

On the group’s business outlook and performance, AirAsia Group Berhad CEO, Tan Sri Tony Fernandes, said:

‘This is by far the toughest challenge we have faced since we began in 2001. Every crisis is an obstacle to overcome, and we have restructured the group into a leaner and tighter ship.

We are positive in the strides we have made in bringing cash expenses down by at least 50% this year, and this will make us even stronger as the leading low-cost carrier in the region.’

Looking ahead, AirAsia Group expects to resume its international flights by the third quarter of 2020. It also expects the travel market to normalise in late-2021.

The group has also guided for its capacity – in terms of average seat per km – to decline between 40% and 55% year-on-year for the 2020 financial year, with load factor at between 70% and 75%.

Fernandes added that the airlines has also restructured a major portion of its fuel hedges (around 70% of its FY20 Brent contracts so far), and are still in the process of restructuring the remaining exposure, in a bid to reduce hedging losses.

To shore up liquidity and ensure sufficient working capital, the company has applied for bank loans in its operating countries and sought payment deferrals from suppliers and lenders.

Read more: AirAsia share price in massive decline following oil rout

How to trade Malaysia companies with IG

Are you feeling bullish or bearish on AirAsia Group and other Malaysia KLCI Index stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

  • Create a live or demo IG Trading Account or log in to your existing account
  • Enter <Malaysia 30> in the search bar and select the instrument
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

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