Monday, March 2, 2015

AAX ... Any More Hope !!!

For shareholders, it has so far been a bumpy ride.

While low cost model has worked for Airasia’s short haul flights, investors might be spooked by AAX’s inability to return to profitability thus far (Dec 2014).

The fall in jet fuel prices will be good for AAX’s bottom line, but it will be not sufficient to return the carrier to the black (Fy2015) due to the competitive operating environment. AAX is likely to pass on a significant portion of the fuel cost savings to consumers.

If crude oil trades lower than USD71 per barrel, AAX will be able to survive. But the question is what happens when prices are back to normal USD100 and above per barrel.

When times are tough, AAX might not have what it takes to weather the storm as seen in its financials for FY2013 and Fy2014. That is when times are tough it would be predictable that all in the market would lower their fares. When that happens, AAX will lose its competitive edge completely because there is not much of a price gap left.

When it comes to such price competition, many consumers do not mind paying a small premium for the comforts of a full service carrier when flying long distance.

Another challenge for AAX so far (Feb 2015) has been loss making routes. It had discontinued its flights to Adelaide and Nagoya that were incurring losses to the group. It also slashed the frequency of flights to Sydney, Perth and Melbourne late 2014.

In this low price environment, AAX’s short term strategy is to survive, recapitalize and conserve capital.

Its balance sheet is not looking good as it used to be. Its cash and bank balances almost halved to rm125 million as at end Dec 2014 from rm263 million at end FY2013. Meanwhile its trade payables soared 63% to rm656 million from rm347 million in the same period.

Still AAX has managed to scale back total borrowings to rm1.58 billion compared with rm2 billion as at end FY2013. Of this rm1.07 billion consists of long term borrowings, while the remaining rm513.2 million is short term.

It is worth nothing, a whopping 95% of the total borrowings comprised the USD denominated debt, with the rest in ringgit.

It has also proposed a cash call on Jan 30 2015 for a rights issue with free warrants. This could raise rm395 million that the carrier intends to use for working capital and to service its loans.

Airasia executive chairman and co founder Datuk Kamarudin Meranun steps in as group CEO of AAX.

He will spearhead the development of AAX group and alongside Benyamin will lead the reorganization and turnaround exercise to strengthen the airline’s balance sheet and to maximize profitability.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.