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Nikkei Markets

Co-founder expects 2019 to be AirAsia X's best year ever

Fewer cuts, renegotiated leases, higher utilization, cost cuts to help carrier

AirAsia X has only been profitable in 2016 and 2017 since the airline’s listing on Bursa Malaysia in 2013.     © Reuters

KUALA LUMPUR (Nikkei Markets) -- AirAsia X is expected to enjoy 2019 as its "best ever year" after the Malaysian long-haul budget carrier cut routes, renegotiated leases, raised utilization rate and reduced costs, Co-Founder Tony Fernandes said Thursday.

Business in Thailand is "roaring", while competitors in Indonesia have stopped being subsidized, Fernandes said in a series of twitter posts. He also flagged "big" development in ancillary activities for the airline.

AirAsia X is "the most undervalued airline," Fernandes said, adding that he and another co-founder Kamarudin Meranun has been buying shares of the company.

Shares of AirAsia X rallied 4.4% to 0.24 ringgit following Fernandes' tweet. The benchmark FTSE Bursa Malaysia KLCI ended 0.5% higher.

Analysts, however, aren't as optimistic as Fernandes as they expect a potential rise in jet fuel prices and sluggish demand for longer-haul air travel continue to pose challenges to the company's earnings.

AirAsia X is expected to report weaker earnings in 2019, said Affin Hwang Capital's analyst Isaac Chow, who kept his Sell call on the stock. "Our stand is that the oil price will strengthen in 2019," he said. "Our assumption hinges on an oil price assumption which is not in line with his (Fernandes') view."

The company, an affiliate of Southeast Asia's biggest discount carrier AirAsia Group, has only been profitable in 2016 and 2017 since the airline's listing on Bursa Malaysia in 2013.

Net loss widened to 197.47 million ringgit ($47.67 million) during its most recent quarter ended Sep. 30, while quarterly revenue fell 3.6% year-on-year to 1.08 billion ringgit. The company blamed the wider loss to lower revenue and higher average fuel price.

For the nine months period, AirAsia X swung to a net loss of 213.43 million ringgit from a net profit of 14.47 million ringgit a year ago. Revenue for the period grew 1.6% to 3.4 billion ringgit versus 3.34 billion ringgit a year ago.

Global airlines have grappled with fickle input costs in 2018 as crude oil swung between a gain of nearly 30% and loss of 23% before ending the year at $66.73 a barrel. Jet fuel price averaged $86.8 per barrel for 2018, according to the International Air Transport Association.

"We are quite negative on the stock and we are very concerned on their very thin capital base now," Maybank Investment Bank Analyst Mohshin Aziz said. Even if the company makes a profit, it would be "very small," he said.

"Demand is also not that strong, which is pressuring the ticket prices," said Mohshin, who also rates the stock as Sell.

-- Gho Chee Yuan and Jason Ng

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