Friday, November 2, 2012

I think I'll say "X" to AirAsia X's IPO

The draft to SC just published. I had a quick view to see how this low-cost long haul airline is doing and for the IPO, would it be attractive. Let me provide some of the numbers which I have captured.

Still loss making despite profits in FY2010. Seems like FY2012 will not be a good year either. Note the deferred taxation in earlier years of FY2009 and FY2010
Notice the tapering off in revenue especially for FY2012. This could be perhaps due to the moving of routes from London, Paris, Christchurch to other shorter lower priced destinations like Sydney, Osaka and Beijing. It seems that competition is different for Airasia X. Airasia, the parent had a good headstart of competing against a poorer and weaker MAS. However, probably for the long haul, competition is different. It could be against many other airlines which uses Malaysia as hub. They could also be of much stronger competitors as compared to MAS. AirAsia X additionally could be selling more discounted price seats as compared to short haul flights.

One example, anyone who flies to Sydney, may opt for connecting via Singapore and uses SIA. In a short haul flight, if I am to fly to Bangkok, my options are lesser. No stopover for sure, hence the short haul Airasia is a very good point to point airline. In a short haul flight, a 30% lower in air-ticket price is an important decision making factor for someone to choose.

For a longer haul flight, it will be harder for AirAsia X to reduce costs as the major cost, it seems is fuel costs - up to 60%, which is a major problem for a low costs airline as it is much harder to reduce that part of the costs. Ancillary revenue does not seem to be a major factor than I thought it would. As much as Airasia X is trying to sell the extras, I think it does not translate to enough income yet for it to turn into good profits.

On its major costs, See below.

Balance Sheet

For Airasia X's balance sheet, it will be looking for immediate cash (similar to the IHH's IPO symptom) to beef up its balance sheet. In fact, more than 55% of the funds to be raised will be for debt repayment. Also look at the cash level. Remember, a huge sum of Airasia's model is based on early cash collection. Hence, it is collecting upfront ahead of its flights which would be scheduled later on. Look at the accounts payable as well as sales in advance figure (a whopping RM271.5 million against cash of just RM24.8 million as at 30 June 2012). Those upfront collected cash are parked under the sales in advance until the flights take off. The more it is in this situation, the more dire it needs to sell early and at very cheap price.

AirAsia X's Balance Sheet is obviously not strong which is why it needs funds quick. Look at the cash level while long term debt is almost RM1 billion.

Shares on offer

AirAsia X is offering 790,123,500 shares out of which 197,530,900 are offer shares from current shareholders. According to reports from Bernama via, it is trying to raise RM760 million. An updated report says that Airasia X is trying to price the shares at between RM1.20 to RM1.40. Assuming it is priced at the low end of RM1.20, hence could potentially be valuing AirAsia X a whopping RM2.844 billion. That's very expensive for an airlines which is still small although riding on Airasia's branding.

Enlarged share capital upon listing

As in other IPOs of recent, the shares are being offered to again mostly institutions. There are only 3% on offer to retail investors. After Astro's IPO which I think most of them are still underwater, I wonder how many will pick up - especially the MITI's portion. Hence, people will learn that there are no free lunches in IPOs.

With the limited routes and just 11 planes in the balance sheet, I think I'll give this a pass especially with the assumingly high price for still a loss making company.

Purchased aircraft

For any potential investors, it is a high price for purchasing hope. From here, I can say that a low costs long haul may be a different ball game. I like Airasia, but not this one although I myself like the cheap flights.

For update on Airasia X's IPO, please read here.


Malaysia Stock Talk said...

Correct me if I am wrong. I think AirAsia X has to pass profit test before being listed.

Aggregate after-tax profit of RM20m over 3-5 financial years, with at least RM6m after tax profit for the lastest financial year.

That the case, maybe we will see turnaround in AirAsia X FY12 full year results?

khengsiong said...

I remember reading an article which says to fly from Los Angeles to New York, it is best to make a stop in between for re-fueling. This is because flying with full tank can reduce the fuel economy of an aircraft.

felicity said...

HI Malaysia Stock Talk

I think it does achieve the aggregate RM25 million needed for the last 3years.

Malaysia Stock Talk said...

at least RM6m after tax profit for the LATEST financial year

felicity said...

Ya, could have missed that. under infra?

tohff7 said...

I think why AirAsia X is not as profitable as AirAsia is because of the type of travelers it caters to.

I don't think the differential in price will make a very big difference in its customer behaviors. If you are flying to Sydney, you probably have a decent budget already and a couple of hundreds more won't really affect you in a big way.

And if you look it another way, it is also hard for AirAsia X to raise prices because it will make them less attractive vs. premium carriers.

So to me, they are like caught in between with not very big addressable market that willing to pay the price of its service