Airasia X - jet fuel priced in USD

It may have to contend with costlier fuel in the third quarter ending Sept 2013 as the US dollar strengthens against the ringgit.

As jet fuel is priced in USD, the long haul budget airline may have to pay more for fuel in ringgit terms.

While Airasia X’s fuel cost declined 5.3% in 2QFY2013 from a year earlier, it is believed that this trend will reverse in the coming quarterly as fuel cost in ringgit terms should rise in tandem with the strengthening USD. It is noted that a 1% appreciation of USD vis a vis ringgit will reduce Airasia X’s earnings by approximately 8% to 13.7% for FY2013 to FY2015.

Investors are advice to be cautious on the impact of a weakening Australian dollar versus the ringgit on Airasia X.

In addition, AUD is also depreciating against the ringgit. Passenger yields in ringgit terms will be affected if AUD continues to weaken going forward. This will adversely impact Airasia X, as the Australia market is its most profitable segment.

Despite being optimistic of Airasia X’s long term potential investors are advice to wait and see in view of the strengthening USD and the delay in the opening of KLIA2 both of which may hamper Airasia X’s near term growth prospects.

Instead Airasia Bhd is preferred for its exposure to the aviation sector. This is given its cheaper valuation versus Airasia X, lower implementation risks and lower sensitivity to USD.

Meanwhile critics say that the airline has strong growth potential arising from its aggressive business expansion backed by Airasia.