AirAsia X Berhad (AAX) Earnings Call Transcript & Summary

Good evening, and welcome to all sides to today's conference. You are now participating in AirAsia X Berhad's Second Quarter 2020 Financial Results Briefing. [Operator Instructions] I will now hand over this session to Mr. Benyamin Ismail, the CEO of AirAsia X. Thank you, and over to you, sir.

Hi, good evening, everybody. First of all thank you for coming in for this -- thank you for coming in for the second quarter AirAsia -- sorry, interruptions from the telco guys. Okay, let's try again. Hi, everybody. Thank you very much for dialing in for the AirAsia X second quarter results 2020. Let's just go through the presentation. I think it's going to be very short since we don't have much operations and pretty much our, I think, business has been in hibernation. Revenue dropped 91% year-on-year to MYR 91.4 million, mainly due to the hibernation of the company, as has mentioned. Also, the other revenue lines in terms of scheduled flights and ancillary also has decreased more than 100%. Again, it is not a viable year-to-year comparison. AirAsia X Malaysia, basically trends for second quarter just maintained normal operations in terms of charter flights, repatriation flights and basically, cargo. Freight services with charter amounted to about 28% of total revenue in quarter against 7% in second Q 2019. EBITDA stood at about MYR 129 million against -- LBITDA stood at MYR 129.2 million against EBITDA of MYR 120.8 million. Net operating loss increased by 40% to MYR 377 million, while tax after loss (sic) [ loss after tax ] increased by 47% to MYR 305.2 million. ASK capacity is 31 million. Passengers carried was 2.2 million and load factor at 38% and sectors flown 16 -- sorry, it's not 2.2 million, it's at 2.2 -- that was 2,291 passengers were carried, it was 16 scheduled flights. These passengers carried was merely from month of April and for the core Incheon flight where effectively where we converted that scheduled flight to cargo, we were obligated to sell seats on the plane. So there were still people doing -- buying tickets to return back to Korea from Kuala Lumpur. Well, the good side of the things. The total operating expense reduced by 76%. Staff cost down by 46% as allowances to pilots and cabin crew reduced on the back of hibernation as we're not paying them due to nonflying. Aircraft fuel expenses as well is lower due to fuel price. And -- versus -- and on top of that also against the fuel -- lower fuel consumed. Maintenance, overall, lower cost as well incurred on the back of reduced flying hours. This was also because the planes are not flying, we've deferred a lot of the maintenance program for the airline. User charges has a reverse of accruals from the previous periods, while other operating expense is just overall cost reductions just due to hibernation in the scheduled operations. In terms of AirAsia X Thailand, revenue recorded at USD 4.7 million, while ASK capacity was down (sic) [ down to ] 2 million as AirAsia Thailand remained in hibernation throughout the second Q '20. Load factor recorded 82% and number of passengers carried during the quarter stood at 309, while capacity recorded at 377. Priorities for 2020. As you're aware and read -- reading the news, we will still continue to hibernate at the moment until we see some positive turnaround in the market. As you can see, there are still markets that are still not encouraging in terms of when it's going to open. So for us, as we -- as I mentioned in the last results call, we want to open when we feel that it's the right time and also to open when we feel that we're now going to make money. We want to open routes that we think that we're going to make money from the start and not bleed from day 1. We are still outsourcing for 2 aircraft to be sold. And there are some potential buyers, which the team has been discussed. So that's something that's ongoing to ensure that we still try to reduce the capacity in terms of the fleet. We're still seeking early returns. One aircraft has been returned in July 2020 at no termination cost. We're still -- again, as what some reports have mentioned that we not -- we are avoiding paying payments, we actually -- no, we're actually rescheduling a lot of the payments and restructuring some of the payments with all the business partners and vendors. And basically, I think these key vendors are all big, important partners with us. And they know that our intention is to make sure that AirAsia X remains afloat. And again, it's a long-term investment with them. They've seen this before when -- 5 years ago, when we came in to turn around the business, the same situation happened as well where we told them that you have to believe in the company and the fact that how we turned around, we will turn around this business. And I think from there on, we made profit for 2 years, where some people were thinking that we -- it's a loss-making business for some analysts who view that. We also are looking at renegotiation of leases. That's already pretty much ongoing. Positive feedbacks as well from the lessors and something that's been ongoing discussions with them. We're also trying to see how we can rearrange as well the lease payments as well in terms of that. I think moving forward, we're in discussions to see how we can pay for use of those aircraft. If we were to pay on current lease rate program, this company will have difficulty moving forward. But I think that's the best way in order to make sure that all the aircrafts are used in this side of the world. Renegotiation with airports and charges at all stations. I think that's ongoing. I think a lot of the -- in terms of fees and charges have been reduced, some of the outstandings have been deferred to another period. And I think the key thing as well is, we're also trying to save as much cost as we can at the airports. And I think we've -- some of the airports, we've decided to vacate our offices just for the meantime until -- we're not paying rents to make sure that -- I think we don't know when some markets will come back. And we'll revisit that with -- rather than accruing any expenses to that. Onset of COVID, essential operations have been in hibernation. Again, we are still on source trying to make sure that we find as many opportunities to fly. As it is, we are flying once a week to Guangzhou. This is a charter flight that they are bringing a lot of repatriation of Chinese travelers back. That's ongoing on a weekly basis. And we also have a talk about 3 to 4 flight of cargo flights a week, potentially more on some other weeks. And so that's been pretty much the good thing about it, as we've got approval about 3 or 4 weeks back where we can store cargo on seats. That has helped to market that aircraft at least more better moving forward. So now potentially, there's the belly space and also the galley and the seat space that we can use for cargo ops. Network plan. We will still continue to view our network on a year -- on a month-to-month basis, cancellations on a month-to-month basis. As you know, the lids are closed, but we still have flights booked by passengers. As soon as we see that there is no improvement in terms of the routes or destinations that we fly, we'll announce cancellations a month prior to those flights so that we can deal with passengers and tell them ahead of time. Again, we're still behind the scenes trying to really lobby for different countries around the world, for me, around Asia Pac and everything else to make sure that trying to get them to understand that travel needs to come back, it's very important. The message is there, that we want to make sure that in terms of SOPs, it's something that let's make it less stringent than where it is now. It's very difficult to operate when you have to -- your cost of COVID test is more than your ticket. So -- and potentially, some markets require you 7 days or 14 days quarantine or some don't. And it's very difficult. So I think slowly some markets are viewing it. Well, in other ways, if there is potential opportunities where the vaccine is found, potentially, there's some more upside there, but that -- there's not a whole lot of breadth for that. But again, for us, it's minimum connectivity during this period as essential cargo. We still continue to, as well, look at further cost cutting within the organization as we go through the next few months. Minimal cash outlay as much as we can, to hold cash as much as we can, and -- while we do our renegotiations with all our partners. Fuel hedging. Again, -- this again is just historically hedged. Hedged at average price of about $61.45 for 2020. 70% of our Brent '20 hedging contracts have been restructured in one form or another. And basically, we're still consuming very low prices for fuel. Currently, as I mentioned in the last call, out of the 25 aircraft that we have, only 3 aircraft is on standby for any repatriation or cargo flights, while the others are in long-term parking as we speak. But it is opportunities where we believe that there are revenue-generated flights there, more charters or anything else, we will then start activating those long-term flights back into business and see how we go. But in the meantime, it is just cash conservation for us and see how we move forward in this. That's pretty much for us. And let's see -- let's hope for the best that we'll turn around this business anytime soon. But I think the key -- again, to highlight the key element for us is to make sure that we conserve cash as much as we can and not -- and restructure most of our creditors as we move forward. That's pretty much from us. Thank you very much for joining, and let's go into Q&A.

[Operator Instructions]

Daniel, do you have a question?

The first question is from Mr. [ Daniel from Hong Yong ].

Okay. First question is on your user charges, you have a reversal of accrual. Can you clarify more on this item, your reversal of accrual? How does it come about? And that doesn't mean you guys actually receive cash from the airports?

No. Actually -- it's Andrew here, Daniel. Actually, it's just a reversal of accruals. The reversal over accruals of about MYR 37 million. But it ends up as being a credit in the income statement, obviously, because the actual user charges are so low because, obviously, only 16 sectors operated in the quarter, and obviously, then we've ended up with a credit. I mean we normally -- as a normal course of business in every quarter, we look at our accruals, and we will reverse any over accruals. So that's why that's happened. I know it looks a bit strange, but obviously, because the level of activity was extremely low in the quarter, that's why it's there.

So does that mean these numbers can actually continue to maintain in the subsequent quarters? Or you can expect that going to reverse back to normalized negative numbers, actual expenses?

Well, I mean, logically, if any flights are operated, then there will be user charges incurred. So in the third quarter, yes, we would probably expect to see a small cost in there relative to the number of sectors that are actually operated.

Okay. So that means in subsequent quarter, it will be -- it will still be a positive number, still be a reversal of accrual, just that it's going to be a smaller number?

Which one -- you're talking about the user charges?

Yes, user charges for subsequent quarters...

It's not likely that there will be a reversal of accrual every single quarter. And obviously, there is some -- sometimes there is a reversal of accruals. But generally, the actual cost incurred will be much higher than any kind of adjustment to the accruals. It's obviously distorted at the moment because there are so few sectors being operated.

Okay. And then -- okay. On the cash flow basis, I noticed that you guys have roughly about MYR 200 million in your cash account. If you -- based on the current momentum, how long can that cash sustain?

Well, I think for that, we can sustain for a while. But I think the key thing is, there has to be a few things that has to be done. One of the key things where we are clear is, we have not announced it yet to the staff, but there will be further exercise that's going to be done. So please don't write that, that potentially will reduce a lot of our payroll costs and all that kind of stuff. So please, I beg of you, please, don't write that Raymond. So -- but I'm just trying to tell you, that's how we're going to sustain. As you know, we have 25 -- 24 -- 22 planes that is not flying. So all of my crew and pilots are not operating. So potentially, they are yet receiving some -- a reduced salary now, but we may have to look at further cuts. So -- but that's something that's being looked at. We will pretty much have presented it already, just have to do some fine-tuning and something will potentially happen. So -- and further other stuff that we're doing internally as well that's happening. So that will sustain us for -- pretty much for the year and until next year. And basically, hopefully that we can get this out of the way pretty much soon. And on the back side of things, we're working with a lot of other banks and all that in terms of funding potentials and all that. So again, please, in the -- to the respect of my staff, please don't write these as a headline in your reports, please. Thank you.

[Operator Instructions]

Okay. Again, thanks, everybody, for joining in. If you have any personal questions, please speak to my IR team or myself or Andrew. Again, we'll continue to see where we go at the moment for X. And as well for -- on behalf of TAX as well, I think they're pretty much on the same trajectory as us, we -- just go into hibernation as you know. Thailand as well is not in the best of position and the fact that they have also shelved all any travel bubbles for the meantime, and so therefore, any international travel has been put on hold. It's pretty much Malaysia as well. So even on the first international flight or domestic flight in Singapore, it's -- there were so many SOPs and stuff like that. But I think the intention is as well for the shareholders for TAX and us is that the business continues. We're trying our best to make sure that we'll continue in terms of -- and maintain the cash flow, but there will be some painful decisions that we'll have to make within the organization, which, sooner or later, you know, but you get the idea. But that is to ensure that this company continues for the meantime. So again, as I said -- I mentioned this now, please, in due respect to my staff and everybody else, please do not mention that. Just put it into your numbers or whatever, but please don't give it a headline number, and I'll get 1 million questions tomorrow by my staff to why I told you and not everybody else, and the media will call me. So other than that, thank you very much for dialing in. If you want any more personal questions, please direct it to us, and we'll see how we go, okay? Again, thanks very much for dialing in, and we'll chat again. All right. Take care.