Maybank IB Research expects Capital A and AAX to report better earnings for 4Q24.
PETALING JAYA: Next year is expected to be an even better one for the aviation industry as the government targets more foreign visitors to Malaysia in the run-up to Visit Malaysia Year 2026 (VMY 2026), with lower airfares as more planes come into service and crucially for airlines, a stronger ringgit as well as lower jet fuel prices.
Maybank Investment Bank Research (Maybank IB Research), which remains positive on aviation stocks, has a “buy” call for AirAsia X Bhd
(AAX), and a “hold” call on Capital A Bhd.
The research house noted that AAX’s ability to ensure nearly all its jetliners stay operational and the acquisition of all the regional airlines under Capital A from early next year ensures income generation and profitability even as the non-aviation assets under Capital A remain relatively promising.
“We expect it to be an even better year going into 2025. Fully 100% of Capital A and AAX’s fleets ought to have returned to service by the end of the first quarter ending Mar 31, 2025 (1Q25). While we expect fares to ease on more capacity, we do not expect them to return to pre-Covid lows,” the research house said, adding that fares for next year would average RM234 for Capital A and RM535 for AAX.
The research house expects Capital A and AAX to report better earnings for 4Q24, with Capital A expecting 88% load factor compared with 89% in 3Q24, average fare of RM235 versus RM231 and average ancillary revenue per passenger of more than RM50 compared with RM52.
“AAX expects passengers carried and average fares to trend higher quarter-on-quarter (q-o-q) on seasonally higher demand.
“It expects 4Q24 average fare to be similar to the RM619 of 4Q23, which is a marked 40% higher q-o-q. At the same time, in a positive for both Capital A and AAX, spot jet fuel prices have eased to US$87 per barrel compared with the 3Q24 average of US$92 per barrel).
“On another note, AAX hopes to complete its RM1bil private placement in December 2024 while Capital A hopes to complete the disposal of its five airlines to AAX and submit its PN17 regularisation plan to Bursa Malaysia in 1Q25 and obtain approval to remove its PN17 classification some time in the first half of 2025,” the research house said.
It pointed out that a key thematic play for 2025 would be higher foreign visitor arrivals to Malaysia in the run-up to VMY 2026, as Tourism Malaysia has targeted 31.4 million tourists in 2026 compared with the estimated 27.3 million for 2024.
“We notice that tourist arrivals to Malaysia begin to rise in the years preceding VMYs,” the research house said.
“This will be most positive for AAX as just about 100% of its routes are international.
“We do not believe it is a stretch to assume that approximately 50% of its total passengers carried are foreign visitors travelling to Malaysia. More foreign visitors will also be positive for Capital A but we estimate that foreign visitors travelling to Malaysia via AirAsia accounted for, at most, 20% of total passenger carried in 2019,” it said.
The research house said the other major themes for 2025 would be the recovering ringgit and lower jet fuel prices, both of which would be positive for Capital A and AAX as 70% to 80% of operating expenses were denominated in the US dollar and jet fuel accounts for 40% to 50% of operating expenses.
“Every five sen recovery in the average ringgit to US dollar exchange rate will add RM100mil to RM125mil a year to Capital A’s earnings and RM25mil to RM30mil a year to AAX’s earnings while every US$1 per barrel reduction in average jet fuel price will add RM45mil to RM55mil a year to Capital A’s earnings and RM13mil to RM14mil a year to AAX’s earnings,” the research house said.
