AirAsia X Berhad (AAX) Earnings Call Transcript & Summary

Hi, everyone. Good evening. Thank you very much for joining us this evening. We have AirAsia X CEO, Ben, on the right, who will share with us the results for first quarter. Over to you, Ben.

Good evening, everybody. First of all, sorry, we're about 5 minutes late [indiscernible]. So anyway just to run through first Q '24 results. Our [indiscernible], revenues stood at about MYR 908 million, up 66%. Scheduled flights revenue grew by 60% to MYR 623.9 million, while ancillary revenue surged by 95% to MYR 240 million, back of increased capacity and also [indiscernible]. Revenue from freight services up close to 45% to MYR 42.8 million driven by higher value capacity, especially on the [indiscernible] relying on big cargos. Net operating profit at MYR 125.3 million in 1Q '24, against MYR 211 million worth of reversal on provision tax exposure on investments in joint venture and travel vouchers. But just to let you know, I think the first thing is, this first quarter results, there's no surprises in terms of any reversals. This is actually normalized numbers, which our profits stood at MYR 105 million. And 1Q '24, net operating profit would have increased by 19% year-on-year. So the key headlines is net profit resilient at MYR 80.1 million. Unit cost remains fairly low at about USD 2.95. Profit margin over 8%. And of course, associate TAAX posted net profit of MYR 46.4 million. Key operational highlights coming out of a strong 1Q '24, we carried about 959,000 passengers year-on-year increase of 90%. Load factor, 83%, really driven by a strong Chinese New Year and the carryover of December holidays into January. So very well achieved up 3 points. Average fare slightly down at MYR 650, driven by the usual March weaknesses that we had right after Chinese New Year, schools starting, so down 17% while sectors flown is up due to more aircraft coming in and more utilization, which is up 85%. So I think if you go through it down, I really spoke about most of it, average fare stood at MYR 650, while ancillary revenue per passenger remained strong at MYR 251, driven by product offerings optimized by new markets [indiscernible] direct in AirAsia. [indiscernible] many who may think someone has done quite a good job in coming up with a new array of menu installations. I think a lot of it is driven by our new in-house [indiscernible] actually driven sales quite well through and [indiscernible] some of things that we've done. Sectors flown, as I said, increased by 85% and really driven by our network expansion, increasing that number of aircraft coming in over the past 1 year. Well, year-on-year, last time it was 9. So we [indiscernible] considerably as well, while CASK remains very, very tight [indiscernible] our team. And we're still among the lowest in our peers. As you can see our RASK tapered by 5% year-on-year to USD 0.18 as [indiscernible] returned across industry. At the previous quarter, RASK proved healthy as it grew 5% quarter-on-quarter from [ 17.15 ] in 4Q23. CASK recorded [ 13.93 ] largely due to rapid operational growth over the last 12 months, leading to natural increase in its operating expenses. Again, in the previous quarter, CASK improved over 11% in Q ended 2023 due to the low operating expenses as jet fuel prices eased, further buoyed by the hike in ASK capacity. CASK remains the lowest among peer airlines, evidencing the lean cost structure. This is something that Investor Relations did something before [indiscernible] based on public available information, you can see AirAsia Malaysia, we remain one of the most in this quarter versus more regional carriers like [indiscernible] and of course, you want to go into across the oceans, across Europe and U.S., there's also Norwegian and Southwest. This is [indiscernible] by the high utilization and efficiency up to 15 hours and of course, our cost per seat of [indiscernible] seats also brings a lot of the cost down as well for AirAsia X. USD appreciation against the MYR is monitored to the minute or to the second and is mitigated with natural currency hedges as close to 60% of revenue received from foreign currencies. Ancillary performance, strong, up 95%. One of it is driven by -- representing 27% of the total revenue, ancillary recorded MYR 240.6 million, surging 95% in line with increased number of passengers. This is really driven by greater takeup, seat RPP was up by 90%, baggage RPP is up by 52% and while the inflight meals is up by 61%. Basically, [indiscernible] in general for food across the board is close to say 90% as well. Ancillary revenue per pax is strong at MYR 251, the highest record charted to date. Again, we still continue to dynamic price. So I don't believe the business is [indiscernible] specifics where primary affordability is higher and also personalized marketing for people who have bought our products if you are flying on any of [indiscernible] AirAsia closer to the flight where you haven't got value for food, we'll send you reminders through your e-mails, which I know can be annoying, but I think [indiscernible] to drive sales for the business as we move forward. Just to talk a little bit about TAAX. Revenue increased by 52% year-on-year to MYR 543.4 million in 1Q '24, exceeded pre-pandemic revenue by 7%. Net OP grew by 60% to MYR 102.2 million at the back of operational recovery, while net profit stood at about MYR 46.4 million, down 50% year-on-year on the back of foreign exchange loss of MYR 55.87 million. I think looking at them, they are looking quite healthy. Hopefully, the forecast [indiscernible] we going to sharing some of the profits. I think we hopefully by was year-end, they perform better. We probably expect some positive upside there. So operating highlights. Passenger carried, 437,764, up 51%. Load factor, I think it's 89%. As you know, this expresses Thailand demand and [indiscernible] massive, especially from China and Japan and Korea. ASK capacity up 37%, while sectors flown up 50%. Network updates. Now as we know, as we come back, I mean, [indiscernible] COVID to pass, but I think the key thing is we are coming back to where we are pre-COVID. We are serving close to 22 destinations, while including also some domestic seasonal capacity to Kota Kinabalu. China routes, we're aggressively trying to grow China routes. And I think we're probably one of the first carriers that started China despite it being really slow in start. But with the announcement of the VISA removal, VOA, which actually increased our flights close to 25x per week. Generally, most of our China routes are accounting close to over 90% load factor. And really, as I said, it's also [indiscernible] the good news that the extension for VISA-free travel policy in China has been extended in 2025. Our latest market, of course, Central Asia, that's something that we started and exceeded expectations. Load factor for that is currently for first quarter, we at 94% and doing very well for us. The demand really is coming in from Central Asia, mainly passengers from Kazakhstan, potentially Russians as well coming in, but most of them coming either by Colombo and connecting to our network within the region being [indiscernible], Thailand and Vietnam, big markets for us and of course, some [indiscernible] Australia and vice-versa, so the connectivity and the shorter distance [indiscernible] is much easier, cheaper while going on [indiscernible] to Qatar, maybe even more expensive. We are evaluating more units coming to stand by to that. I think in the next few months, we will be announcing some new chapters into our new routes. Stepping into our current gross price, network line, focusing on the [indiscernible] network across more regions, where connectivity is limited. As you know, Central Asia is one. We are also looking into different continents as well, especially Africa is one of our top that we may look at and also build a market leadership on [indiscernible] expanding into China, and that's where we're taking advantage of visa. I think that has really been success story for us as well. We're currently focusing on reactivation of the 2 remaining aircrafts. One aircraft each is on the tenant on the servicing. It's coming out in about 2 weeks. Engineering [indiscernible] promised me that it will be on-time flying experts by -- hopefully by mid-June. So that's something that's great. And of course, they're pushing hard, but the second plane could be in into service by [indiscernible] by July, hopefully [indiscernible] by October [indiscernible]. We plan. We will continue to explore as many [indiscernible] potentially coming in the real probably one a year, but we are trying to focus on also bringing future planes not just [indiscernible] but also looking at XLR and [indiscernible]. Ancillary revenue is projected to grow further while a lot of dynamic pricing as we offer more offerings coming in line with pricing [indiscernible] we're coming out with duty free programs as well as our products as well shopping. So that's something that we're quite excited about. And also, partnership that we're working as well to also push FlyThru traffic into the business. Corporate focus areas, retaining our position of shareholders equity and cash balances, prudent management at all times, engaging with Capital A Berhad to progress the company’s growth ambitions for the years to come, expected to complete by year next. Safeguarding our growth ambitions for the future. As part of the debt restructuring, AirAsia X renegotiated its contracts with Airbus. We're in good financial postion. We have an order book that was downsized to 15 A330neo and 20 XLR, that's deferred until 2026. But I think the key focus now that we're working closely with Airbus to accelerate the 321XLR coming into the business. As you know, 321XLR is a good aircraft where potentially 377 Boeing may be a bit heavy on some secondary markets. 321XLR, we have great product where second-tier cities in China, into Australia with analysts of the world or held in the world down where we can potentially fly in or any of the second tier cities in India where we can serve. So this is going to be a big story line for us. And potentially, we can carry close to about over just 250 passengers on this flight. It is also critical that Asia can access immediate fleet growth through Capital A’s existing orderbook, which I think is delivered between 2024 and 2025. We can ensure as a group, the growth plans for the whole aviation business and the brand is guaranteed and make sure that we are ahead of the curve against other competitors that we see. I guess the key thing is to ensure that we build market leadership and also market share. Establishing AirAsia group with winning as one. The key thing is to ensure that we remain competitive, formally recognized as one of the largest low-cost carrier in Asia. As I said, the combined order book for the airlines to grow in limited supply environment where now we're going to go to Airbus for order one craft, potentially the further side, you can do is probably 7, 8 years out. So we -- as one AirAsia whether short-haul or long haul, we have quite early slots for all our aircrafts, whether it's 321LR or 321neo, or 31XLR and also the 330neos. We also -- the biggest thing as well is to streamline the engineering ground handling efficiency that we have, cost savings with better payment terms. But I think the really important thing is the existence of also our third-party services within the AirAsia, [indiscernible] that has come in to provide us our maintenance services as a [indiscernible] supplier, potentially with all their plans to grow the MRO business, the opportunities for us to send our [indiscernible] is going to be massive. More cost efficient and also priority slots while it saves me from trying to get slots in [indiscernible] or anywhere else in the region. So I think [indiscernible] will play a big role for us while our ground handling as well, while GTR and [indiscernible] together to grow the market across the world, we also get competitive pricing in some of the markets that we go to. The GTR has succeeded to ensure that -- they have been our main ground handler in Malaysia. And also they have also on the side, we've also been pushing third-party deals for them, especially big carriers [indiscernible] and et cetera. And as well as we bring back -- as we're back into business, the finance team is working really hard to get lines back into the business. And I think we're securing a lot of lines for LCs and also looking at some funding lines that we're looking at as well around the organization. So I think as a team is positive and is [indiscernible] of the business, I see positive upside for us. And of course, with everything else in the business as you see the [indiscernible] announcement, that's still going as it is as we complete all the final actions on the deal. And I think you'll see that in the next month or so, there'll some outside stories for that as well moving forward. So on that, I think, really to sum up, first quarter results has been quite commendable. And I really want to say thanks to the whole team, the whole AirAsia organization for making this happen and also for all the investor and analysts out there for supporting us. And for those who have [indiscernible], I think this result of this quarter is a testament of our moving forward. And the key thing as well is we continue to remain profitable in the last many few quarters, actually more than a year actually since '17. So happy for us. We remain strong, and I think there's a lot of upside for the airline. Thank you, everybody, for joining the first quarter results. We shall open to questions, and we'll try our best to address as much as we can [indiscernible].

Thank you, Ben. [indiscernible] [Operator Instructions] Hi, Sam.

Ben and Lavinia, very good numbers. Thank you for this. That's a great relief to me.

We will currently recognize your profit by end of the year for TAAX.

Good, very good to hear that. I just got 2 questions. One, the other OpEx. If I look at the fourth quarter of last year, it was MYR 47 million, now it's down to about MYR 7 to MYR 8 million. Was there a reason for that? That's one question. And for TAAX, I looked at your share of recognized losses is still a bit largish, about [indiscernible] million. Where are we in terms of narrowing that down to zero and beginning to recognize some profits from Thailand? That's all for me.

Yes. So on your question on TAAX, that will take at least the next 3 to 4 quarters for them to reverse -- to make enough profits to reverse brought-forward losses. In the first quarter, we have already -- our share of the profit was around MYR 45 million, so that has been -- that I think about 3 to 4 quarters smaller.

I think for that as well the upside as well, I think you're not mistaken, they are also bringing some, I think, close to 5 aircrafts online in the next one I think for that as well the upside as well, I think you're not mistaken, they are also bringing some close to 5 aircrafts online in the next one quarter. If I am not mistaken, I think the final state of that. So once that comes out, the revenue upside will be positive. So you'll see that the contribution will grow quite better. So it is a [indiscernible] but I think as the aircraft grows, I think the profitability will grow as well.

Right. Okay. On the other OpEx, please. What is the...

So on other OpEx, we have taken some additional adjustments in quarter 4 for the travel vouchers. And that has normalized already. So we didn't make any additional provision in quarter 1.

I see. I just thought that the first quarter other OpEx seems a bit low. Is that something which I expect going forward?

No. There could be some -- can I get back to you on the breakdown, Samuel?

Yes. Sure. I just wanted to know whether the other OpEx of $7 million to $8 million, is that recurring? Or is that -- yes, that's all.

Okay. I'll get back to you on that. Sorry, I forgot to mention, for quarter 4 '23, there was around MYR 20 million of activation fees that were payable to airports that were picked up in quarter 4. So yes, the normalized OpEx should be around that between -- within MYR 10 million a quarter.

MYR 10 million a quarter. Okay.

Anything else?

Any questions, guys?

Okay. I'm just trying to get on the sense how is the passenger you like the RASK or the [indiscernible] revenue [indiscernible] in the first quarter [indiscernible] fourth quarter as year-on-year rates have been coming down? So going forward [indiscernible].

Lat quarter, it went up. Year-on-year, we reduced because the number of aircraft have grown. So there's a bit of dilution. So I think if you're asking for the trend moving forward, I think we're trying to keep it as maintained at these levels as much as we can. But as you know, going into second and third, there will be some -- the fact that we're going to a low seasonal quarter, so potentially may come down slightly. But I think we will try to remain as much as we can more in for first and fourth, but we'll see how we perform. But I think on this quarter, I think we've performed better versus last quarter.

Okay. I will put the question this way. In -- for this year 2024, what are the sectors that you think you will concentrate and able to perform well in terms of yield, in terms of demand?

For us, I think the key thing is, I think, last year, we took a hit quite a lot on China. The reasons why we started it earlier because we didn't want to lose the slots last when we started in the loss was great, but this pure coincidence also, we will not be very hard. The visa thing came on and suddenly within overnight, our load factors for China increased by 90% now. So we're over 90% actually. So that is doing very well for us. India has been consistently very strong, also above 90s. Haneda, Osaka and Chitose also was very strong for us. As you know, Japan, has always been the outperformer for us because of the currency. As you know, the yen versus the Ringgit [indiscernible], so I think the key thing a lot of travel is going there. Haneda is close to fall actually to be fair. Korea is okay. I think we're in the 80s for intern. Taiwan is doing quite well for us. The only market that is seasonal for us is Australia. For fourth quarter and first quarter from late November up to late Feb, Australia is probably the best performing route for us. But any other times, you see a bit of pressure in terms of loads as inbound -- outbound of Australia is very weak, while also inbound into Australia is also very [indiscernible] holidays. So what we do is we tend to stimulate the pricing for Australia to ensure -- to push people to travel. But the biggest success story is [indiscernible]. I think since we started, we're about 95% load factor 94%. And certain days, we're full for the month. I think [indiscernible] February and March was 100% as well, so which is great. So I think we've done well. So we will try. [indiscernible], we're pushing the [indiscernible] up. We are the only carrier operating that route. So we'll try our best to [indiscernible].

Okay. For this year, is there any number of additional aircraft?

There is one aircraft that is coming to [indiscernible] okay, let me just take that [indiscernible] your questions. There is additional aircraft from Bangkok that is coming up from grounding since COVID. One is coming out in about 2 weeks, as what my engineering team has promised me. They said it will be exactly on time. And then also -- that one will [indiscernible], and we will start flying, hopefully, by mid-June. Then there is another aircraft going into repairs in July that will be out, hopefully, it will take 2.5 months. It will be out in September, October and hopefully serviceable by November at best. Then we are finalizing one more aircraft, 330s, coming in. Of course, not new, but secondhand. Actually, it's one of our old aircraft that was taken back by the [indiscernible], it went to do a short-term deal. So we're taking that back with our seat configurations coming in, so that I understand is coming in towards year-end, December, January after one [indiscernible]. So we are looking, as I said earlier, at about one aircraft addition 330s into the fleet.

Okay, 2 aircraft coming back from grounding, one is within 2 weeks, the other one by June.

Yes.

And then there will be one aircraft [indiscernible] will go to maintenance and it come back out in September. And then there will be another new work...

November, [indiscernible]

November, so basically, there's only 2 aircraft coming back into service and one aircraft new coming from a third party. So in total there'll be 3 aircrafts. Got it.

I can't get [indiscernible]. Now we are in May, right? [indiscernible] What is the -- how is the support forward booking period on this June, July period or August period. I think [indiscernible].

Sorry, say it again.