Airasia Group Bhd’s losses could sink further to almost RM800 million this year as the coronavirus has spelled doom for the global aviation sector.
It is forecasted to suffer RM796 million losses in the financial year 2020 (FY20), over threefold from a loss of RM261 million in the previous fiscal year, Nomura Securities Malaysia Sdn Bhd said in a research report.
Nomura transport analysts Ahmad Maghfur Usman and Divya Thomas said the expected figure is substantially wider than the consensus forecast of an RM2 million loss in FY20.
Unit seat revenue across the group’s affiliates is expected to drop by 11% to 12% year-on-year (YoY) in FY20, compounded by weaker loads and yields between -3% and -5%.
“Malaysia’s recent move to restrict tourist arrivals is expected to worsen near-term traffic, in our view, with only a modest recovery seen from this coming July, as the recent number of new coronavirus cases has spiked substantially,” the analysts said in the report published yesterday.
They said AirAsia’s long-haul sister company AirAsia X Bhd (AAX) will likely be in dire need of a cash injection to stay afloat.
The analysts said a privatization move for the company may not sit well with minority shareholders as they prefer the long- and short-haul low-cost airline entities to remain separate listed entities.
Ahmad Maghfur and Thomas said an inter-company loan is the only likely avenue for AirAsia to rescue AAX.
As it is, AirAsia is expected to weather the crisis with a net cash balance of RM2.2 billion as of FY19, based on actual borrowings without significantly deteriorating its balance sheet.
On a positive note, the analysts said the current crisis would weaken AirAsia’s key competitors’ positions and allow the company to win market share.
They added that the company’s high cash position would also present acquisition opportunities that could be utilized to lock in fuel price hedges for the longer term.
Nomura rated AirAsia downwards from ‘Buy’ to ‘Reduce’ with a revised target price from 70 sen to 63 sen a unit, or 10%.
MIDF Research analyst Adam Mohamed Rahim said AirAsia’s earnings are forecasted to reduce to RM145 million in FY20 due to lower passenger volume.
Adam did not rule out the possibility of AirAsia redeploying its aircraft for domestic routes, especially during festive periods following the inbound and outbound travel restrictions.
He said passengers carried in March 2020 will decline under the 14-day movement restrictions order.
“Based on our preliminary analysis, the drop in total passenger traffic for Kuala Lumpur International Airport 2 (KLIA2) could reach more than -30% YoY for March 2020.”
“As a result, we have lowered our total passengers carried forecast for FY20 by around -19%,” he said in a report yesterday.
KLIA2 registered three million passengers in March last year where 66.2% were international passengers
MIDF revised AirAsia’s target price from RM1.03 to 63 sen per share, but maintained a ‘Neutral’ call.
Meanwhile, AirAsia said flights to both domestic and international destinations remain operational and are subject to further review with strict compliance on the travel restriction as announced by Putrajaya.
The company said guests whose flights have been affected will be contacted with service recovery options and assistance.
“We continue to monitor the public health situation closely and adhere strictly to all advice by all governments, as well as local and international health organizations. AirAsia has and will continue to quickly make adjustments as needed, in response to government travel directives,” president (airlines) Tharumalingam Kana- galingam said in a statement yesterday.
Guests affected by travel restrictions with international bookings to or from Malaysia made before March 16, departure on or before April 30 only, will be offered move flight or credit account options.
AirAsia’s office-based staff nationwide have been asked to work from home, while staff from departments crucial to operations will continue to work on rostered duty from segregated locations in accordance with the company’s business continuity plan.
AirAsia’s share price closed at 62 sen yesterday, down 10.7% or 7.5 sen with a market capitalization of RM2.09 billion.