AirAsia Group (AAGB) and AirAsia X (AAX) released its 4QFY19 operating statistics yesterday. AAGB’s operating performance was within our forecast but AAX was slightly below expectation. Passenger traffic growth continued to be strong at 9% and 8% respectively for 4Q19 due to high demand from year end peak travel season. Passenger load factor was commendable at 82% and 81% respectively. We expect traffic growth to ease around 4-6% in 2020 due to global economic growth weakness. Meanwhile, profitability for airlines players is expected to remain challenging due to competition affecting yield, overcapacity and volatility in foreign exchange. We maintain our Neutral call on the sector. Results for AAGB is expected to be released on 27th February, while AAX is on 20th February 2020.

• Strong traffic growth. Passenger traffic growth in Malaysia grew 6.1% YoY in 2019 to 105m. Malaysia AA (MAA) carried 8.4% more passengers YoY to 35m, while AAX reported a marginal decline of 1.6% to 6m passengers during the year. MAA constituted 33% of the total industry growth in Malaysia. For 4Q2019, MAA added 4% seats capacity but at a softer load factor of 82% due to change in pricing strategy. It also began running commercial flights with its newly delivered Airbus A321neo in November 2019, with 236 seats (up from 180 seats in A320). Under AAGB Consolidated, its passengers carried grew 8.8% YoY in 4Q19, mainly driven by its Indonesian (IAA) (+30% YoY) and Philippines (PAA) (+21% YoY) units. This is on the back of capacity expansion of 19.6% and 24.6% YoY respectively in 4Q19. Passengers’ load however declined to 82% (vs 4Q18: 84%). Meanwhile, AAX reported 7.8% growth in passengers carried in 4Q19, with available seat km (ASK) grew at 0.5%. This was due to realignment of routes network during the year, which resulted to shorter stage length of 4,524km in 4Q19, compared to 4,745km in 4Q18. Passengers’ load was reported higher at 81% (vs 4Q18: 78%).

• Impact of novel coronavirus outbreak. Malaysia has suspended all visa facilities for Chinese tourists from Wuhan and Hubei as well as neighbouring provinces in China as part of its measure to contain the spread of the coronavirus outbreak. Meanwhile, we understand that AirAsia has also suspended its route to Wuhan until end of February. The World Health Organisation (WHO) latest reported that there are currently 6,065 cases globally, with death toll from the outbreak has reached 132. In Malaysia, seven positive cases have been confirmed by the Health Ministry, with all the patients are Chinese nationals visiting the country. We believe this could negatively affect the travel appetite within the Asean region at least for 1Q20, especially AAX that has bigger exposure to international capacity via its long-haul operations. In terms of foreign tourist arrival in Malaysia, Chinese travellers are the third largest, while Chinese and Indian tourists make up about 23.0% of air passengers in 2019.

Source: PublicInvest Research - 30 Jan 2020