Analysts surprised by AirAsia’s fleet expansion plan
By WONG WEI-SHEN
weishen.wong@thestar.com.my
PETALING JAYA: Low-cost carrier AirAsia Bhd is coming out with gloves off as the airline fights to retain market share in Malaysia and expand in anticipation of the open skies policy in 2015.
The open skies policy would allow travellers choice where travelling within Asean is concerned.
However, analysts noted that airlines operating in Asean would have to up their ante to fight for market space. AirAsia is among those gearing up their capacity to compete against other airlines.
Analysts were surprised by AirAsia's commitment to take delivery of 36 planes next year, 15 more than what it took up this year. The expansion represents a group fleet expansion of 30%.
“AirAsia unveiled its pre-emptive attack on Lion Air's plans to enter Malaysia in mid-March 2013 by starting Malindo Airways,” CIMB Investment Bank Bhd analyst Raymond Yap said.
During a quarterly analyst conference call in conjunction with the release of AirAsia's financial results for the third quarter ended Sept 30, the company said the local operations would take up 10 planes while the Thai and Indonesian operations would take nine planes each. AirAsia Japan would take five plane deliveries while the remaining three planes will go to AirAsia Philippines.
Yap said the expansion for the local operations was double the previous guidance for a five-plane expansion.
The expansion for next year would be the highest ever in AirAsia's history in terms of the number of aircrafts. “While it is a strategic long-term move against Lion Air's regional ambitions, it could cause yields to deflate faster than we had anticipated,” Yap said.
Of the 36 planes to be delivered, 23 would be from Airbus. Besides these orders, the company has also decided to enter the market for 13 additional leases from third-party lessors on five-year terms.
But analysts noted that the aggressive pre-emptive strike against Lion Air could cause negative returns in the near-term.
Yap has cut AirAsia's earnings per share forecasts for 2013 and 2014 to factor in this aggressive stance.
“We cut out core EPS forecasts by 14% for 2012,” he said. However, Yap has retained target price-earnings multiples of nine times with the target price cut to RM3 from RM3.50 previously.
Credit Suisse Group AG analyst Annuar Aziz said in a previous report that the accelerated roll out of aircraft locally was a good defensive measure against the start of Malindo Airways' operations here in March next year.
He expects AirAsia to be able to endure the challenge.
On the onslaught of the open skies policy, AirAsia had announced that it would order 100 more aircraft to prepare itself. Malaysia Airlines was also preparing strategies to stay relevant in the current and near-future environment.
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