KUALA LUMPUR: AirAsia Aviation Group Limited’s (AAAGL) entry into Cambodia is positive but turning profitable could take longer than expected, according to Kenanga Research.
AAAGL, the aviation arm of Capital A Bhd
, has signed a joint venture (JV) agreement with Sivilai Asia to establish AirAsia Cambodia, a new low cost airline in Cambodia.
This new airline will allow AAAGL to operate to the various existing markets where it already has presence and operations to build scale, network connectivity and further reduce the cost of operations, it said.
Kenanga Research said the latest development by Capital A is a step in the right direction in its quest to become a dominant Asean low cost carrier player.
It noted that the foray into Cambodia enables AAAGL to operate in the various existing markets where it already had a presence and operations, thus enhancing its scalability, network connectivity and further reduce operating costs.
“This latest move by AirAsia provides greater access to its domestic market and connecting it to the international markets across Asean. Specifically, Cambodian passengers will be able to connect to over 150 other destinations in over 20 countries where AAAGL operates to by connecting to flights operated by other AAAGL’s airlines.
“However, we expect the recovery of Cambodia’s tourist arrivals to be gradual, only returning to the pre-pandemic level in 2026-27 which means the gestation period for the venture will be long,” Kenanga said.
Experts have projected flight revenue in Cambodia to grow at a 2022-2026 CAGR of 37% to an estimated US$147mil (RM646mil).
Presently, there are six registered Cambodian airlines which are operating namely Bassaka Air, Cambodia Airways, Cambodia Angkor Air, JC International Airlines, Lanmei Airlines, and Sky Angkor Airlines.
However, Kenanga said there is only one low-cost or hybrid local airline based in Cambodia with a fleet of four aircrafts.
“Given Cambodia’s population of 17 million people and 6.6 million international tourist arrivals in 2019, there is potential for growth in Cambodia,” it said.
Amplifying the growth potential are Cambodia’s low-cost carrier market penetration of 28% which offers room for growth as compared to other Asean countries including Malaysia, Thailand and the Philippines having penetration in excess of 50%, and experts’ projections of Cambodia’s international tourist arrivals to hit about seven million in 2026 or 2027, and up to 7.5 million in 2028.
“Looking into 2023, we project Capital A’s system-wide revenue seat km (RPK) to grow 52% to 35b in FY23, after recovering by 19b to 23b in FY22 based on our forecasts,” Kenanga said.
Capital A expects its passenger traffic to continue to rise moving into 2023, judging from the encouraging load factors recorded at 159 international routes relaunched in 2Q 2022.
Kenanga noted that the details of the regularisation plan are expected to be announced by end-Jan early Feb 2023 with completion by July 2023.
“However, we are mindful of it still being under the PN17 status. We maintain our SoP-TP of RM0.60. There is no adjustment to our target price based on ESG given a 3-star rating as appraised by us. Reiterate market perform,” it added.
