AirAsia X Berhad (AAX) Earnings Call Transcript & Summary

Hi. Good evening, everyone. Thank you for joining us. So for this presentation, it will be presented by our CEO, Ben. As usual, there will be a Q&A session after the presentation. [Operator Instructions] Over to you, Mr. Ben.

Good evening. Welcome to the first quarter '23 numbers. Thank you very much for your time. So I'll just go through the deck. And then as Jane said, we'll go through the Q&A after that, but more than happy to answer any more questions after that. Let's kick off. Net profit for the first Q '23 stands at MYR 328 million, which is more than 7x of MYR 43.3 million in 2019, pre-COVID, despite only having 9 operational aircraft. Barring one-off reversal of provisions, core net profit stands at about MYR 62 million at first Q '23. That shows that operations is fairly sound. Important thing is the turnaround of the shareholders' equity to MYR 40.8 million from negative equity since 2020. First Q '23 revenue increased 91% to MYR 548 million, showing a 40% recovery from 2019 period. Average base fare remains solid at MYR 785, 53% upside compared to the same period in 2019. Ancillary revenue continued to perform. It surged to MYR 123.3 million or RPP of MYR 244 per pax, an over 40% hike from first Q '19 of MYR 172 per pax, driven by bigger take-ups in baggage, inflight meals and, of course, our FlyThru connections. The key element, again, is the cost containment process and reduction that we've done throughout the 1 year past has reduced over 50% against 2019 levels, putting the company probably in the most sound and best cost structure to ensure that we continue to sustain profitability. Fleet growth, we're still in the fleet reactivation of bringing planes back from the sleep. We've got 3 more aircraft that has to go into MRO. But of course, we are taking additional aircraft as we speak on a yearly basis and also in negotiation with Airbus to accelerate some of the order books forward. We also -- due to good numbers, team has also secured some additional financing through a placement, around MYR 50 million, but more to shore up our share cap and also for cash balance. But of course, the key thing is the interest that we got from local investors into the aviation business. It's been a while, but yes, the feedback has been good. And of course, associate Thai AirAsia X posted MYR 91.9 million of net profit on the back of a hike of revenue of MYR 356 million as the number of passengers increased in line with the ramp-up of operations in Bangkok. Okay, just going through each line of the P&L. Again, revenue recovered 47% in the first Q, MYR 548 million, really driven by strong fare environment despite the number of low aircraft. And then also, scheduled flights revenue and ancillary revenue were collectively up Q-on-Q by 75%, charting MYR 389.2 million and MYR 123.3 million, respectively. Freight and cargo recorded at MYR 36.2 million as the company recalibrated its pivot on schedule flights operations. Of course, as I said earlier, the strong fare trend is evident in the ABS -- ABF, grew by 153% to MYR 785 per pax in first Q '23 compared to MYR 513 in 1Q '19. Net operating profit surged MYR 308 million from net operating loss of MYR 29.5 million in the same period in '19. AirAsia X recorded a net profit of MYR 328 million in 1Q '23 against 7x increase of the net profit of MYR 43.3 million. Removing the reversals on provision for tax exposure on its investments in joint venture and doubtful debts, core net profit remains at MYR 62 million. Again, the shareholders' equity, as I said, has turned around at MYR 40.8 million. ASK grew as we are growing a number of flights by month. The -- we pretty much increased by about 2 to 3 planes. Sectors flown increased to 1,721 sectors compared to 6Q '22. But again, compared against the same period in 2019, ASK capacity has recovered by 33% overall and 81% of aircraft -- on an aircraft basis, while sectors flown recovered by 36% for the period between January and March 2023. Key operational highlights. Load factor in the first Q '23 remains solid at 80%. You can see the trend improving from 6Q '22, and this is pretty much close to our pre-pandemic load factor of 83% in 2019. This reflects a recovery of over 96% against the same period in 2019, demonstrating that the passenger demand and that robust traffic is, post-COVID, is still high as always. High-performing routes, Delhi, Tokyo, Incheon, Australia, all posting close to 90% load factor during the quarter. A total of 504,476 were carried in 1Q '23, driven by strong demand of market due to the New Year and spring travel season, especially holidays in school that this time of year around in Malaysia was extended to about March. RASK improved 41% compared to 2019 on the back of stronger fare. And of course, cost per ASK has reduced over 50% to MYR 0.065 in 1Q '23 against the same period in 2019. I won't talk much about ancillary, but I think the key selling is basically our RPP has improved for ancillary, MYR 244. Baggage fees has increased, especially on the take-ups. We've also increased the number of kilograms that passengers can buy. There is now an option to buy 60 kilos, and the take-up of that has been great. And also, in terms of dynamic pricing for baggage has also been included into the business. Seat fees as well, the potential buying hot seats and also upgrades has done well for us. And that has -- and also the hot seats has also shown quite an improvement in our takeups. Inflight meals and beverage, even though we have not gone to 3 levels yet in terms of the stocks, but I think the takeup on the current stock that we have has also shown good improvement. This also has not shown -- on others, we have not grown yet our duty free and our merchandise yet. It's been at very low levels now due to stock shortage. But I think coming from June onwards, pretty much all the stocks for duty free will be stocked up back to pre-pandemic levels and also our merchandise. TAAX, I'll just cover a bit about it. As you know, Thailand is a natural hub for its tourism. And therefore, their revenue is MYR 356.8 million in first Q '23. EBITDA is recorded at MYR 90 million, a recovery rate of 152%. And their load factor is stellar, 88%, mainly inbound into Bangkok. And of course, the Thai's travel into Japan and Korea is fairly strong in that market. And also they are planning to also add more aircraft in the fleet in the coming years. Net operating profit at MYR 64 million, a recovery rate of 128%. Net profit sits at MYR 92 million compared to MYR 50 million. And the cash remains robust at about MYR 157 million from MYR 193 million as, again, the rehabilitation plan is still progressing as planned on that. Network overview, just to talk about a bit about the business. Currently, we are operating close to 17 destinations. 7 destinations now operate daily flights or more. Returning to China, we have just started our ramp-up in China this year. Our first route that we started was Hangzhou, then we then start to Shanghai, then Beijing and, of course, Chengdu coming up. And some flights are going over to 10 flights per week. Other markets that we're looking at, again, we're still in the progress of looking at Istanbul and also some other routes in Central Asia that -- to see how we can plan a robust demand for every year. We are also looking at high-demand cargo routes for short haul. We have just started Bangkok. As you know, the demand for palletized cargo out of Bangkok is high as we feed some of our flights into XJ, which is Thailand, Thai AirAsia X. We've also -- as you know, we are also doing Bali as well. And of course, BKI on some routes during Gawai and Raya, but that's the main routes that we're doing. Fleet activation, number of aircraft in the fleet at the moment is 17, 11 operational, 6 awaiting activation. 3 of the 6 is basically planes that are being serviced and are waiting to be serviced. The other 3 are additional 3 planes that we're taking, but awaiting for approvals and from CAAM to be inducted into the business. But yes, we'll be looking at growing that number over the next few years to go back to our potentially traditional years, our traditional 24 potentially down the road. And we're basically also adding -- as I said, we're adding more flights. But the one thing that we did also is because of the rarity of getting 330s in operation, the demands -- the supply for 330s is not great. And also when we secure this aircraft, we secure when the market was fairly slow. So we managed to -- sorry, sorry, something in my throat. So what we did is we tried to secure aircraft fast at a very low rate. So the leases that we got were in the sub-230,000s. And therefore, we took the plane as is. So some of the system configurations were slightly different than the current 377. But the idea is in the next 1 or 2 years, once the MRO starts taking in planes for this refitting, we will start submitting that in for changes. Also secondly as well, currently, as you know, there's a global shortage of raw materials everywhere in the aviation business, from tire -- from wheels to from seats and all that, so the time line for getting new seats also is taking a while. They're looking at about 1.5 years to 2 years delay. So I think this is a project that we will start converting the current different configs in about 2 years' time. Next, our priorities today is basically at our network plan. We'll try to maintain as much as we can in terms of yields to maintain at the highest level. But of course, there is seasonalities, but the key thing is to ensure that the company remains profitable. Pricing management, as I said, we're looking at potentially maybe some capacity management during the low seasons. But I think as both airlines, both AirAsia and AirAsia X grow, the more ability to have connections will be important. So as we grow, potentially the ability to have slower months will not be there. And hopefully, we will try to look at trying to reach our maximum capacity recovery probably in the next -- end of next year or as such. As I said, we're in discussion with Airbus to bring aircraft in. As you know, we are targeting to bring 330neos in 2026. We're trying our best to accelerate that faster, but let's see. But we also remain careful that MRO slots and activation capabilities is tough, but we are starting to ride on also the -- with ADE coming in, in the business, hopefully that they can start doing 330s as well hopefully next year. The good thing about manpower is we, as I said in the last call, we pretty much reactivated all our furloughed staff, and basically those are new man hires. We give first options to all our staff that we had to let go, a majority decided to come back. But for those who -- have decided to move on. But we've also started onwards in trying to hire our foreign crew that almost our foreign crew we let go during COVID. And we are giving the options on routes that are language-constrained, the Korean, the Japanese and potentially in India as well where we're currently hiring local crew coming in. Cost remains at our highest priority. The team in finance looks at our cost day by day, night by night to make sure that we remain very, very lean. Especially on our costings, cash position is monitored quite tough to ensure that we have a huge buffer during downtimes, whether it's currency or whether it's fuel, but we want to make sure that we have a sufficient buffer to move on. Keeping -- again, just to keep highlighting people, the survivability of AirAsia X also the whole AirAsia ecosystem is together with the whole group. Obviously, we have online sales distribution with AirAsia where our super app has assisted in selling our tickets on that. They helped us in making sure that they do our marketing, are selling for us. Then we also work together with short haul to ensure that we promote FlyThru connections as a key business model for us. That hasn't changed. And of course, cross-selling AirAsia X inventory to new customers moving forward. Teleport, again, has always been the key business driver for us during COVID. But as we move the passengers, we make sure that a lot of our routes are dedicated to the key strongholds of Teleport to ensure that our bellies is filled up. Average belly that we are carrying, about 6 to 7 tons, but of course, trade and e-commerce is huge. And again, there will be routes that potentially we will identify where it's a high-cargo market where potentially it will be short haul. We are keen to do that as well. There's also the removal of cross-border screening that has helped reduce costs even further. ADE, the gold mine of AirAsia Group. Basically, our Part 145 maintenance of -- had been moved to ADE. Basically, all our maintenance has now been taken care of by ADE. That reduces my manpower obligations. And basically there, we just -- we are charged with the service. Also ADE as well, as I said earlier, they're looking to secure approvals for the 330s next year. And hopefully, it gives us the ability to -- especially with the local -- the cost environment in Malaysia is much cheaper, it will probably be much better to send our aircraft into ADE in Malaysia. More coming, again, streamlining all the back-end services that we are working with. Inflight services, a lot of my inflight is run by Santan, where they service all our flights through their catering business as a thing. Sales and distribution channels, where we work with travel agents across the whole region and the world where the team supplies us with inventory. And of course, ground handling, that's one of the early companies that was spin off as AirAsia grew where they handle all our flights above wing at klia2 and all the other stations potentially around the market. So again, that's just a presentation for first Q '23. Just to sum up, it was a good quarter for us coming from the back of 4Q -- or 6Q '22. We're looking -- we're trending on the right direction. And hopefully that the next second Q will be a very good 2023 for AirAsia X. Thank you, everybody. Any other questions?

[Operator Instructions] We have one question from Daniel.

Very good set of results indeed. I just have few questions. Firstly, can you clarify more on this reversal thing? You say it's about [ MYR 261 million ]. But when we look into your cash flow, it doesn't seem to indicate. So...

No, the reversal is basically noncash items. As you know, in our -- if you recall, when we released our full year audited results, we put in through some provisions. One of the provisions that took the biggest hit in the 2022 annual report was the IAAX tax provisions. Basically, there, we are in negotiations with the tax authorities in Indonesia. And the auditors asked us to put through the potential exposure that it may have with AirAsia X. But generally, this is a local exposure. But just to be prudent, whether they come and take action against a 49% shareholder, it's another question. But just to be prudent, we put through about MYR 200-plus-million provision in the audited accounts, MYR 223 million actually to be exact. So -- but because our tax advisers there are working closely with the tax advisers, we have -- we looked at the latest report that some of the cases that are brought up on our side and potentially the ones that can be reversed out based on the success rate of negotiating with the tax advisory is we're looking at about MYR 95 million of tax reversals. So we put that back already, okay? So again, this is noncash, all right? The next...

Okay. Then the other one?

Yes, yes, wait up. One by one. Okay. And then the next one is TAAX restructuring. As you know, the TAAX one, we -- what is it right now? That's what I have. So initially, when we -- last year, during I think many quarters back, we wrote down all our exposures for TAAX. It's about USD 171 million of owing that they had to us because they were going to the rehab. But based on the restructuring that we're going to, we may -- they are looking at a 5 -- or 95% haircut and basically 5% will be paid back to us. That is still in discussion, it's 5% to 7%. But in the prudence, we've decided to reverse back that 5% that potentially will be voted in the scheme. So that totaled up to about MYR 53 million, if I'm not mistaken, yes, MYR 53 million of tax, okay? The next one is travel vouchers. As you know also that one, we wrote down, we threw the kitchen sink for all the passengers that was impacted. And basically, we are just reversing back based on this year's burn rate for people that are redeeming our travel vouchers, okay? These are people like yourself who go on holidays, then COVID happen, we couldn't give you cash back refund, we give you travel vouchers, right? So we've really provided -- we already provided that a long time ago. So now people are redeeming it. So we just assume that now currently, the burn rate of redemption per quarter is 3%. So -- and basically, the total for that is about MYR 117 million. This is in line with what we've been advised by our audit just to make sure that it's done now. But the key important message is the core operating profit is very strong. We -- these are just reversals that we have to do. Even without this also, we are still fairly strong.

The last question, it's MYR 117 million, is it?

Yes, MYR 117.1 million.

Point 1, okay. So what is the total amount for this one? Is it [ a fraction of that ]?

What was your question? Sorry.

What is the total amount? This MYR 117 million is just a portion of it, right? How much was the total then?

Well, the others are minor stuff. That is actually the big news...

Well, some vouchers, you only reverse back based on your...

Well, that's it. That's it. Everything, about [ 2,266 ]. Nothing else. No other reversals for this quarter except for those 3.

Okay. This IAAX tax provision in your note, you mentioned it's 2018, 2019 tax thing. And then...

This one is 2017, right? I don't know, 2017, '18, '19, right?

Yes, we proved it.

We proved it, yes.

For 3 years now. That's in your -- I think it's only mentioned in 2018...

For 3 years, 3 years, yes.

For 3 years, okay, 2018, 2019. And then [ deposition ] charges actually went up this quarter compared to the previous...

That one, I'll let my finance person because this is part of the auditor's requirements again. Let me -- let her explain to you.

Yes, this one is actually the same with the right of use, whereby we have actually straight-line basis recognized the depreciation of our lease. So previously, we tried to negotiate with them saying that with PBH, paid by hour, we did not actually recognize depreciation on these aircraft. But actually, the standard sales will be meet. So in that case, we're actually following whatever the RoU standard is. So it's straight-line depreciation. So it's, third quarter, about MYR 35 million.

Unfortunately, there's a bit of double counting here. So until the PBH ends, there'll be a bit of double counting there. So unfortunately, we try to -- we went all the way up to the top people at the accounting board, we got rejected, so -- because we're unique because not many people have PBH.

Yes, the paid by hour usage is until you end at...

March next year.

March next year. Okay. This paid by usage is for your current 14 aircraft?

No, only for 9.

Only for 9 aircraft.

The others are fixed because those are additional planes that we took in.

Basically, these are -- [indiscernible] is similar to obvious charges...

Yes, correct.

Okay. How do you recognize this pay-per-hour business? Where do you...

We don't -- before, it was under -- when was it before when it was...

Before, we only have -- before that you only see our aircraft lease expenses, depreciation is only for fixed lease -- our fixed leases.

No, but before this came through when we did the PBH, before that, where was it sitting? No, this -- the [ Y thing ] just came through, right?

Yes.

Before this, where did we recognize it?

The depreciation. Yes. So before this, what happened is that those PBH aircraft, we didn't recognize any depreciation.

[indiscernible] but you still have to expense it in terms of the...

Yes, expense -- the aircraft lease expense, that's the line aircraft lease expenses under user charges. Those are PBH.

I see. And then -- okay. I noticed that your TAAX -- at TAAX, you mentioned your profit for this quarter is MYR 90 million. Is this core profit? Or is it because of a reversal or something else and also across the [ WACC ]?

That one, we're not sure. I have to check with everyone. But I think if I'm not mistaken, it's core profit. I don't think there's any reversals on their side.

And then -- okay. Just want to check your number of aircraft. In Slide 18, I think you mentioned that you are going to have 17 aircraft by the end of this year, but 16 will be operational by end of December, right?

Yes. Currently, we have 18 planes, Daniel. So in that, we are currently flying about 11 to -- 11 now. I think 12 will be next week or something. So the balance, all the planes are being -- 3 is on ground, which is still sleeping, waiting for MRO slots. And the balance of that is basically planes that are just waiting for CAAM approval.

CAAM approval. Okay...

So basically, we -- say that again? What?

You need to go through MRO, is it, or CAAM approval?

No, this aircraft that come in -- I don't know. Okay, let me clarify again. There are planes that are sleeping. They need to go for MRO, okay? They need -- I cannot send it anywhere else. I can only sell it to Malaysian airlines, okay? So that we -- our first aircraft is going to go in on the 1st of June, and it will take 2 months, okay? So the 3 aircraft will go 2 months back to back. And after that, they all -- the 3 planes will complete everything. Well, one will come after 2 months. And then after, they have to get certification, and then it will be about 3 months all in total, okay? And then after that, the last plane of the 3 will be out and serviceable by April next year, okay? So all that will be 18. But already, as we speak now, there are about 2 planes that are sitting at the MRO now waiting for bridging check because these planes have been brought in from another airline. So bridging check means that we have to do just minor services first. Then once we -- that is completed, we submit that paperwork to CAAM. And CAAM will approve it, that will take about 1.5 months. So that 2 will be ready -- 1 will be ready, I think, next week or week after and the other 1 will be ready 2 months on the [ roller ].

Okay, so -- okay. Then I look at your second -- your Page 19, okay? Your Page 19, you're saying bring it in, but only will start operation then the 5 aircraft. Isn't it a bit contradictory, the numbers?

Sorry?

It is 18 and 19 -- 19 and 18 of your slide.

Okay. Added 8 aircraft to the fleet, correct. So basically, we started with 9 aircraft. When we -- when COVID happened, when all the restructuring happened, okay, we have 9 planes, all right? We have 24 planes before that, okay? So 24 minus 9, all the other planes have been returned, okay? All right? So on top of that, we have taken 2 planes in, okay, from a lessor. These are the ex-Philippine Airlines aircraft. That's 2, okay? That's flying, okay? After that, we have taken 2 of the planes that was taken back by our lessor. So these are ex-ECA planes. So that 2 has come in, okay? That is flying already, okay? Then after that, we took another 2 more from our ex-lessor when they cannot find home for it, and these are APLG aircraft, all right? So these are also flying, okay? Then after that, we've taken another 2, which is the ex-SQ planes, okay? These are the ones that I mentioned to you that are still in the bridging waiting for it, right? Okay? So you can see here, we have taken a total of 8 planes back, okay? So that is 17, plus of the 9 that I currently have in the prior and 3 is sleeping on ground. The ones that I told you, they had to go to MRO for 2 months. So out of the 9, only 6 is operating. So 6 plus 2 plus 8 plus 10 plus 12 plus 14, technically. And then the other 1 is out of the 14, 1 is a spare aircraft that we make sure that to cover the maintenance run. So actually, we only have about 12 planes operating [ out of 15 ]. You get it?

Yes. No, I mean just look at your Page 19, [indiscernible] so I'm just trying to...

Yes, yes, yes. You have Jane's rocket science table, I'm not sure, but that's how they are.

Okay. You said here the manpower management, this issue is solved. At this moment, you do not see any sort of shortage of manpower.

No, no, no.

Or you guys need to -- at a higher cost base now?

No, still the same.

I see. Okay...