PETALING JAYA: Capital A Bhd
, the holding company of budget carrier AirAsia, could benefit from a recession, as dropping jet fuel prices are likely to lift the Practice Note 17 (PN17) company’s margin substantially.
In a note, Maybank Investment Bank (IB) Research analyst Samuel Yin Shao Yang said lower fuel prices would require Capital A to lower its fares, which in turn could lead to more seats being sold.
During the 2008-2009 global financial crisis, Yin said that AirAsia’s operations in Malaysia passed on the lower jet fuel prices to customers by lowering fares.
He, however, noted that fares fell slower than jet fuel prices.
“We know this because it is revenue/available seat kilometre less cost/available seat kilometre spread, which is essentially a gauge of operating profit, swelling to 4.1 sen in financial year 2009 (FY09) from negative 1.8 sen in FY08,” stated Yin,
In 2009, the average fare for AirAsia Malaysia was RM168 as compared to RM204 in 2008. In comparison, the average fare of AirAsia Malaysia last year was recorded at RM204, the highest level in 14 years.
The high average fare in 2022 was the result of high jet fuel prices, which surged on the back of increased crude oil prices.
“Just 10 months after jet fuel prices surged to US$166 (RM732) per barrel in June 2022, they have fallen to US$100 (RM441) per barrel despite the recent Organisation of the Petroleum Exporting Countries and its allies, or Opec+, production cut due to lower brent crude oil prices and normalising brent crude oil-jet fuel crack spreads.
“We currently assume average jet fuel prices of US$110 (RM485) per barrel.
“All else being equal, our FY23, FY24 and FY25 earnings estimates will be lifted by a whopping RM380mil, RM494mil and RM494mil, respectively, if we impute the current jet fuel price of US$100 (RM441) per barrel into our model,” Yin said.
Meanwhile, Yin believes that Capital A and AirAsia X Bhd (AAX) will submit their PN17 regularisation plans to Bursa Malaysia very soon.
While Capital A’s deadline to submit its regularisation plan is July 7, it is a nearer April 28 for AAX. With less than three weeks away from the deadline, AAX has not asked for an extension of time.
It is noteworthy that Capital A plans to dispose its airlines to AAX in exchange for AAX shares to lift their PN17 status. Maybank IB Research has kept its “buy” call on Capital A with a target price of 90 sen per share.
