AirAsia X Berhad (AAX) Earnings Call Transcript & Summary

Good evening. Thank you very much for joining us this evening. We'll begin the presentation now. I think I'm going to do [indiscernible]. 7:18

Good evening, everybody. Good to see you again. Just -- we'll go through the normal process. I guess we'll go through the second quarter 2024 results. So we'll go through the key takeaways. Good news, revenues surged 30% year-on-year to MYR 669.1 million second Q '24 on the back of very strong capacity growth and also ancillary despite second quarter being traditionally the weakest and also still being short of 2 planes being activated as we speak. So I'll talk a bit about that a bit later. But the key thing is the EBITDA remained strong at MYR 58.4 million despite higher operating expenses, which is really in line with our current operations. As you can see, while in specific quarter last year, you see a one-off reversal of operating expenses that was recorded. So I think if you look at it now, this is actually the true cost of where we are currently trading at. Net profit, surprisingly, at MYR 4.8 million for the quarter due to depreciation of the MYR into USD and also marginally higher fuel price recorded. But the key thing as well is, just to keep reminding people, that we are -- this is our eighth consecutive quarter of net profit. We expect a very, very upside in the coming quarters that looks very strong and thought -- looks stronger. And bear in mind that now we're in the benefit against the -- strengthening of MYR against the USD, which is great news for us, and the reduction of fuel price as well. So you will see that a lot of that will be working to the bottom line, will be a positive upside to the airline. The star performance for us as well is ancillary revenue per pax, sitting at about MYR 248 per passenger, which is really, really high considering the number of pax we're doing. A lot of that is driven because of the markets that we're fine-tuning, the purchasing power are great. Now of course, with Santan, menu is improving quite a bit as well. So -- and with all the other products as well, and we actually move seats, upgrades and all that which have done quite well. We'll go through that a bit later. The other thing as well is we're -- as we continue to grow the AirAsia DNA still remains fairly strong, in line with growth, as it is the collaboration and also the strength of AirAsia and AirAsia X remains very strong. And we are doing a lot of route alignments as we speak, and we may -- and also sticking to our core AirAsia mantra, where we're looking at also untouched routes or never to be flown with before in the past, where we've introduced Almaty and Nairobi, and also to collaborate with all our strong FlyThru markets, not just AirAsia Berhad but also the Philippines, Malaysia, Thailand, et cetera. So that, as well, has seen a growth on the back -- and a strong 22% of connections coming on to the D7 flight. I expect -- as it is, we're currently still 2 planes behind, 1 is on target for -- to be reactivated of fleet in the next 3 weeks. This is just pure delay from MRO, Malaysian Airlines. Fortunately, something that we've been looking at crazy, but it's been very tough for us. But -- and the final aircraft, we are trying really hard to get that out by December as well. And this -- again, without these 2 planes, the missed revenue and all that and also the cost that we have to bear with these 2 coming in, you can see that our margin will grow effectively as well, and the top line will be better. So mostly, we are trying to rush these 2 planes out. In terms of the acquisitions, you've probably read it. Currently, we've already submitted the Circular to Bursa earlier in August 2024. We're still waiting for approval. Obviously, once we get an approval, you -- EGM will -- notice will be sent out to shareholders, and that will take within 21 days. And we're also -- as it is already, the team is really working hard on the way to get the replacement of MYR 1 billion going on. So that is really on -- in the course. Our entity, 49% TAAX, posted an aggressive net profit of MYR 11 million, average base fare of again MYR 727. Obviously, Thailand, again, is the biggest market as well in terms of tourism in Southeast Asia, and they are also due to grow effectively to about 9 planes in 3Q '24 as they reinduct new planes as well into the system. Next, second Q '24 key financial highlights, just to give you an overview again. Revenue surged 30%. Scheduled flight revenue increased by 22% to MYR 403.2 million. Ancillary grew by close to 50% while our freight services revenue went up by 35% compared to the same period in 2023. EBITDA, strong at MYR 58.4 million against MYR 100.5 million last year despite higher operating expenses in line with ramp-up operations as 16 aircraft were operational during the quarter. Net profit recorded MYR 4.8 million for the quarter, lower than MYR 5.5 million in second Q '23, primarily due to depreciation of MYR. Again, as I said, significant progress on acquisitions. So we submit that to Bursa, and hopefully, EGM will be in 21 days. Passengers carried, up 42%, close to about 880,000 people; passengers load factor, which is really hard for -- really hard work by the commercial team where we pushed it up to 83%, despite a very lean season; average fare, MYR 458, down significantly well, but that's -- second quarter is really, really, really lean for us as only April was a strong quarter for us [indiscernible] 14:30. And after that, every markets that we operate to was fairly lean. But I think that on a year-to-year basis as well, we look like okay; sector flown, up 31% as we grew over year-to-year. Okay. And next, RASK against CASK. RASK improved by 4% higher year-on-year to MYR 0.1519, which is important, with a 25% growth in ASK due to 30% surge in revenue and also 42% higher take-up in number of passengers carried during the quarter under review. CASK recorded to MYR 0.139 in second quarter compared to MYR 0.1175 in second year due to operation expense up by 40% year-on-year, driven by higher operating expenses in line with the ramp-up of operations. Ex-fuel unit is healthy at MYR 0.0585 against the preceding quarter operating expenses. But just to highlight, despite cost CASK increasing, we are still the lowest unit cost CASK in the market, as you can see, against all the other airlines, in terms of Scoot, Cebu, Norwegian or Southwest. And that is driven really by really strengthening our aircraft out, high utilization efficiency up to 15 hours, prudent management of operating expenses of ramp-up operations. I think that we've been working really hard in reducing cost depreciations, bringing down -- getting in incentives, getting in lower operational costs and landing charges and parking costs with all the new markets that we operate and also rebates from tourism, et cetera. And also the positive side of things, that we have a natural hedge as a lot of the currency received and revenue are in foreign currencies. It's made -- it's natural hedge for us. Ancillary, as you can see, baggage remains also a big percentage in terms of 30% and driven -- a lot of the ancillary growth close to 33% up is driven by -- really by a number of passengers that's grown by 42%. Seat was up by 37% per year, where people are deciding to choose their seats. Inflight meal also went up 22% as new selection of menu has come through. And also baggage, the purchase of baggage with also different kinds of -- with varieties that we've offered has also been up 21%. Just to have a touch a bit on TAAX. The revenue was up 8% year-on-year to MYR 378.9 million [indiscernible] 28:28 to second Q '24. Net operating profit stood about MYR 7.6 million against MYR 33.6 million in second Q '23. Ramped-up operations are also, similar to us, driving up maintenance and overhaul expenses and increase in staff costs in line with operational growth. Net profit of MYR 11.1 million in the second Q '24 against a net loss position in '23 against higher total operating expenses this year. Passengers carried, up 16%; load factor, 84%, which is very good; ASK capacity, up 4%; while sectors flown up 7%. Network plan, as you can see, is we remain fairly, very bullish and also very aggressive in our growth as we are growing inversely. We have ramped up frequencies in China and Saudi. We launched Changsha in July and Medina in August. China routes continue to deliver with 39 flights per week in August 2024. But just to highlight as well, China being a big growth story for AirAsia Group, we currently fly close to about 22 cities across the group into China as we take advantage of the inbound traffic and also the outbound traffic and also VISA-free advantages that we get as well as from the China market. India as well has been quite a positive story as that's been a growth -- strong story for us. New markets, there, we started with Almaty, which has been a surprise for us, where it is now clocking close to about 90% in the preceding quarter. But coming close into third, we're already taking around 95% load factor, which is doing very well for us. And this just shows we're [ back ] through DNA in trying to introduce new routes. And the next thing is coming up is Nairobi in Kenya, where the forward looks remains quite commendable, actually, as a lot of the market surprisingly has been coming from Malaysia, China and Australia going into Kenya, which is great. As we work together with collaboration with AirAsia, we've also looked at certain routes where we thought that we want to do terminate. Gold Coast has been removed. Busan has been stopped, a few other routes that we'll be announcing. But I think the key things as well is also working with AirAsia, where we feel that, for some markets, it will be better for them to be selling those routes and making more money, for example, Amritsar, which pretty strong for us, but I think it looks better on a 320 or 321 operation, where we moved that now to AK AirAsia. So -- and we also have been doing Bali as well to add more capacity into that big market and vice versa. So it's been doing very well. And also, our support into Bali where we've been doing that during peak season to supplement the high demand of AK that's been doing very well as well. Current prospects, focusing on enhancing network across more regions. As we are now coming into the tail end of 2024, the team is working hard already on 2025 as we grow AirAsia to the next level. We're already identifying some routes that we want to look at and also some route that we believe that we can add a bit more capacity. So we're reaching that for the 2025 network. Obviously, as I mentioned, Kenya is coming up. Also, we're focusing as well, working hard on fleet activation to maximize revenue. So we're working hard to make sure that these aircrafts are out. As you know, as you hear from everyone in the market, supply chain is an issue. But we're trying really hard to make sure that we get really the ancillaries. It remains a big factor for us to ensure that people spend. As you can see now, just an external ancillary that we're working with and we're making sure Santan, duty-free are all trying to make sure that not people just buy on board, but also at the airport in order to make sure that -- it makes slightly easier for people. I think now we are giving opportunity people to order food and also order duty-free 1 one hour till departure and all that. So that's great news, which will drive ancillary up for us as well. And then also, we're looking -- trying to build a FlyThru market. We have -- FlyThru, basically, interconnecting markets from all the other markets, whether it's AirAsia to AirAsia X or whether it's short-haul to long-haul. We're working to ensure that both parties collaborate to make sure that the connecting is seamless. Some of the big markets, for example, into Bali, Thailand, India and all that, we make sure that the connecting is really pretty quick, within 3 hours. So that's something that we're working really hard to roll at 22% higher as it is. So as you can see, we are the Emirates or the Qatar of Southeast Asia to ensure that the network and the frequency is massive. Again, we continue to be working with Capital A in progress of the company growth ambitions, to make sure that the whole ecosystem works together, whether it's the aviation, whether it's the digital, the move or the credit cards and all that kind of stuff, the hotels. We're working really hard to ensure that it all comes together into one to make us grow to the next year of positive numbers. Well, I think the key thing as well is we're having a full spectrum of fleets across the group. As it is, we have 320, 321, 321LR and, of course, the 330s, hopefully in the future, the neos and also an XLR. Fleet plan for us is to ensure that we grow our fleet. Currently, as we speak in Malaysia, we have currently 18 planes, as I said, 16 is operational, 2 more to go, while Thailand is currently sitting at about 8, and they will grow to about 10 by year-end. So I think the key thing as well is trying to grow next year. We are growing close to about 1 aircraft next year, hopefully coming in, in February, and that will be new markets that we'll be introducing in as well while TAAX will be looking at about a fleet of 3 as well come throughout the whole 2025. So that'll be positive news for both entities. Again, just to talk about -- again, we have a very, very -- as I said, not many airlines have a very strong healthy order book. While we work with the whole AirAsia Group, AirAsia itself has huge order book as well, while, for us, we have the 330neos protected as well with 15 A330neos and also the 20 A321XLR. Not -- as you can see now, the airlines [ with Capital A ] 24:58 order books, the first probably delivery that we expecting is probably around 2030. But we've aligned in terms of delivery every year, together with the 320s, which is great. That's something that people don't realize that -- the value of that moving forward. Also -- yes, actually, I explained that already. So finally, I think beginning of a new LCC dream, we're winning as one. We are still formally recognized the largest low-cost carrier in ASEAN. I mean, also to highlight, we are also the best low-cost carrier 15 years in a row. As a group, we have a combined order book, which has value to it, and we will grow this market effectively throughout the recent AsiaPac and also new markets for the 330s and also AirAsia. AirAsia as well is focused not just on Kuala Lumpur, from other hubs, improve also our fleet, network, scheduling and revenue management as well, as it is as well, the other non-revenue, in terms of passengers, that is growing. It's also a streamline of engineering, where we are working really close with ADE, which is our engineering arm, ground handling, GTR, doing very well for us and also working to ensure that, as a group, we are negotiating with airports, ground handlers to ensure that we get the best rates in the market in terms of reducing costs. Some of the markets that we speak, like, for example, Taipei, Osaka, Bali, they're probably close to about 4 entities within the AirAsia Group that's flying in. And that just -- and we have just one team managing all these flights. So that really saves costs for the entity as we speak. And of course, obviously, with all these entities coming in, it will give us also a better credit strength and fundraising capacity as well. So that's pretty much it, guys. I think just to give -- just to sum up second quarter, surprisingly, we did okay despite the challenges. But I think the good thing is as well looking at the trends and the forecast that we see, third and fourth looks very, very good. And I think -- so I think we will be in line for a good year this year and barring any circumstances. But I think with the acquisition, with the exercise, with baseline and a good set of results, this is the key story for AirAsia. Thank you, everybody. We'll open for Q&As.

Sam.

Just want to understand about the fare environment in the second quarter. I know that in the second quarter last year, it was already quite weak. But now it seems like fare environment in second quarter was a bit weaker. Could you provide a bit more color as to why that was happening? Was that due to Almaty, Kazakhstan? And then for the whole year, where do you think that the fares will land on an average basis, given that Malaysia Airlines yesterday announced that they're going to cut some routes, which I think a couple that involve you guys? So some color on that would be nice.

Yes. I mean, I think -- in the second quarter, I think you can't compare it to last year because I think last year, a lot of the carriers haven't really come back with terms of fleet revival. So you can see that the market was driven a lot by demand exceeding capacity. So that's one. Secondly, as well, this year, a lot of the fleet has come back. And you can see, we've had 13 aircraft operating in last year, and now we're at about 16. So that's a lot of capacity coming in. But generally, I think as Kazakhstan started in March as well, we did a lot of promotional fares to drive this traffic. We've already invested quite a bit in marketing that route. So I think that done quite well for us. So I think we're -- after 2.5 months of hard work, that route is now profitable, effective June. So that's doing really well essentially as I go into 95% load factor. Fares are up for the route is [indiscernible] 30:02 quite good. But also there were also routes that were not performing as well that we have decided to cut, Gold Coast being one. We saw low loads. We were also trying to rescue that flight, it didn't work; and Busan, so these are the 2 routes. But generally, if you're looking at the entire season, I think we're okay. But I think there are some pockets of competitive pressures that we see as well but nothing to worry about. I mean, [indiscernible] 30:37 still remains very aggressive in the market. But generally, I think second quarter is just generally weak. It depends on where [indiscernible] 30:46 moves. But as I said earlier, I just want to reiterate, third and fourth, the fare environment, the load environment looks so much better than what we expected. So that's going to be a good story for us.

Is it fair to assume that we may still do like low 600s, high 500s kind of numbers for the fares?

I don't think so. Actually, we're going to be higher than that.

All right. Okay, that's good to know. [indiscernible] 31:15 Gold Coast, Busan and Amritsar, right, you were saying. Is Amritsar in the picture as well?

Amritsar is in the picture as well. So we're seizing that flight end of the month. So that will move to AK.

Right. Right. Okay, all right. Can you give me one last question? Any thoughts on the mass restructuring on the routes, restructuring the capacity? I mean, how does that affect you?

I mean, obviously, they're not really downsizing like by half of fleet or anything. But I think the key thing, there are some routes that potentially we see positive upside. Some of the markets, for example, Australia, India and China, they've cut -- they cull some of their frequencies. So what we can do potentially is on the timings that they operate actually with us. We can yield up quite effectively as well to make sure we take advantage of that. So -- and also on the positive side, with this, it's coming in into the strongest quarters, which is third and fourth. It's just -- all I can say is we can see it as a positive upside.

Next, we have question from Gerald. To quantify the operating expenses incurred by ramp-up operations and if this is recurring.

Well, the trend will be similar.

Increase or decrease?

Yes. We fly more as we can see -- we've add more flights. That cost will increase slightly. But yes, we will be sitting slightly around that range or slightly higher. That's it really.

[ Cesar ].

Okay. Looking into your report, right, I think this quarter, the MRO cost is probably around MYR 100 million, right? And this quarter also, we didn't see any freight reactivations. So I'm just wondering whether third quarter, fourth quarter, as you bring in another 2 or 3 aircraft into air, whether this MRO cost will also increase in tandem?

But -- in terms of that 1 aircraft -- actually, just to be specific, it's only 2 planes coming into the system. So 1 aircraft already -- is already being worked on. That cost already been reflected in already in here because the cost has been paid. So we're just waiting to now finalize a lot of that work already. So anything above than that, if there's any over and above cost that we need to pay on that date, you'll see that in the third quarter. On the fourth plane, that hasn't been reflected yet. So there, you'll see more in -- probably in the fourth quarter. But generally, it would not be a big part of -- anything you can see, that is the normalized. So third looks okay while, I think, you'll see the last aircraft cost would be in December.

Okay, because I've always been trying to wonder what this normalized MRO cost for your -- the default aircraft, right?

Normalized MRO cost just means that basically your normal checks, your A-checks, your C-checks, your [ HIO ], your maintenance cost that you have to pay to lessors and all that kind of stuff, so that has just been normalized. Previously, we were under restructuring. So therefore, there were some waivers that we can see. We started paying that only since March. So therefore, if you compare to last year, it may not be apple-to-apple. So this year, coming from -- I would say, sometimes, second quarter will be a good benchmark. Then our numbers are actually very, very normalized.

Next up, we have Daniel.

Just one, some bookkeeping surplus. Okay. I noticed that other expenses actually increased from MYR 7 million to MYR 20 million. Any good explanation for this? First quarter versus second quarter, I'm referring to.

All right. So basically, there are some -- I would say it would be due to the professional fees that we have incurred from all the corporate exercises that have been taking place that has caused a bump in our quarter 2 OpEx and increase in marketing costs due to new route campaigns. Yes, this has contributed to an increase in other OpEx in addition to the commissions that we paid to our travel agents and for the sales.

I see. With your so-called professional fees for this OpEx increase further in the quarter for quarter, given that you are focused on...

So those have already been accrued for.

Everything have already been accrued for. So we're not expecting some income in this other income -- other expenses again?

Yes, correct.

And then I noticed that your finance lease liability for operating aircraft was reduced to MYR 10 million this quarter versus MYR 36 million in the previous quarter.

Correct. That is a result of a lease remeasurement back in quarter 1 '24 because now we are on -- back to fixed lease rates versus previously or just paid by the hour.

So currently, the 10 -- so currently, it's a stable MYR 10 million per quarter or we're looking at more like...

Yes. That should be the rate going forward.

MYR 10 million, am I correct, MYR 10 million per quarter for your 16 aircraft.

Just a second. For 10 plus, the nonoperating? .

The lease liabilities.

Between MYR 12 million to MYR 13 million per quarter.

MYR 12 million to MYR 13 million per quarter. Okay. What else [indiscernible] 38:44. Okay. Just want to check on the -- on this restructuring thingie AirAsia Group. Seems like you guys resubmit again to further [indiscernible] 38:57 after year end for this -- any...

Resubmit [indiscernible].

I mean, resubmit the -- yes. So of course, this is actually -- it seems like it has been a continued delay and then you guys are asking for further postponement of the...

I don't know for the -- let's talk about AirAsia X itself. So the -- we are out of PN17, so we're not under restructuring.

I mean, the whole thing for you guys and AirAsia Group.

Correct. So basically, what we did is resubmitted the acquisition to Bursa, the acquisition to buy over AAB and also all the other AAAGL, which is all the foreign entities in that. So that has been submitted to Bursa. Capital A also has submitted the same to dispose the items. So we're waiting for Bursa for approval. And then once that is done, it's very straightforward. It goes to EGM for approval for 21 days. And then after that, we will go to get the court sanction to reduce the shares.

okay. So all this have to be done only after AirAsia X done private placement or before.

Yes, after.

So it means AirAsia has to complete the private placement of MYR 1 billion plus.

Yes.

MYR 1 billion, that means between this month or between September?

[indiscernible] 40:40 second. Yes.

Okay. In -- by September, between September.

Between September, basically, before the exercises. I think that we are targeting all by December.

All by December, all by December.

The approval of EGM doesnt require me to get a placement before EGM. EGM is just to make sure that shareholders approve the whole exercise.

The whole exercise. So the EGM is done prior to this placement?

Yes. How can I do -- yes, after everything with EGM. EGM is conditional of me doing placement and also the whole exercise.

When is the EGM?

Like I said, after I get Bursa approval, it's 21 days after that. More questions, guys? Okay -- I'm sorry. Carry on.

Okay. Just a few questions. First one being on the jet fuel prices rise. So is there any possibility that you would hedge jet fuel prices in the near future?

No. At the moment, I think we've -- the fuel environment is still very unsteady. So -- but the good -- on the positive side, it's coming down. So we'll just basically buy the spot and see how we go.

I see. So the rationale for not doing so is mainly because of the volatility of price, right?

Yes. If tomorrow suddenly the war starts, that's it. So it's something that we have to be wary about.

Yes, I see. Okay. And then on the -- in the other operating expenditures, I think it's MYR 20 million. So what would be the normalized other operating expenditure per quarter? Because I think you meantioned last quarter is MYR 7 million and then now it's MYR 20 million. I think the fourth quarter is MYR 47 million. Yes, just what would be the normalized other operating expenditure for your -- or perhaps every year?

Yes. As I said, I think the normalized one is what you see now. It will grow in line with capacity that we add into the business. But other than that, this is pretty much normal. You can see in comparison to last year why it's a big jump is because there were a lot of reversals in the last year. So now with all the reversals out, everything done, the balance sheet is actually -- the P&L is quite clean. So this is pretty much normalized.

I see. Okay. And then I think last quarter, there's a reversal of provision. But how much is it valued?

[indiscernible]

Sorry. Which reversal are you referring to?

Well, let me check the -- but I think it's Page 1, on the page Key Financial Highlights.

I think it's for Q2 '23, 2Q '23

Yes, 2Q '23. Yes.

Yes. What's the question?

How much was it?

It was close to MYR 130 million.

MYR 1-1-3 million.

MYR 1-3-0 million.

MYR 1-3-0 million, okay. And this is relating to travel vouchers or...

There were travel vouchers. There were activation fee accruals that were no longer required.

I see. Okay. So you wouldn't be expecting any provision or reversal of provision...

No. [indiscernible]

All right, okay. And then my last question is on your fleet size, right? I think you expect 2 more aircraft to be reactivated this year. Any addition of aircraft, perhaps not a new aircraft, but rather leasing or second hand?

As I said as well, there will be another one coming in 2025, hopefully, February or March. So that's an addition into the fleet. So that's one [indiscernible]. 45:33

I see. So that would be 18 -- I mean, 18 plus another one in early next year, right? Yes. So are we expecting 19 aircraft by end of next year?

Yes.

Yes.

Thank you, [ Charon ]. Okay. Sam, you have one more question?

Yes. Sorry. Maybe I would need you to keep repeating the answers. On the oil price like the jet fuel, how long does it take for you to -- for the reduction in the fuel prices to reflect in the profitability?

immediate. I mean, basically -- yes, it's immediate. So because at the end of the day, we price our fare based on the older [ FIFO ] 0:44 the higher fare slot. So some of those are FIFO quite early in the day. So as you can see in our balance sheet, there's also sales in advance. So once you recognize that potentially in the P&L, once it's live, there is actually a gain there effectively because you would then do a benefit in terms of ForEx unrealized -- realized, sorry. Secondly, as well is currently, as we maintain also our operations, our P&L in terms of each individual routes will improve as our cost of margins will go up as now the fuel has come down effectively. So that's a positive side on us. If we maintain the current fare and also bring it up higher, then the spread will be much higher for us. So those are the key things that is driving for us. So hopefully, it will be beneficial. But we will still continue to push us higher and make sure that we have a larger spread.

Okay. So you don't do back to back when you sell your ticket then you go and book with the supplier in term of the jet fuel, right? [indiscernible] 1:57

No, no. Yes. It's based on spot. So we would -- basically, what happens is we do with PETRONAS or Shell, we will prepay based on our capacity on a weekly basis and then basically based on the forecasted load. And that's, for example, I will fly those forecasted loads, they will refund me the balance. That's what happens with PETRONAS, and it's on spot.

Okay. On with [ MILA ], basically?

Yes, correct. Daniel, it seems like MAS is having issues with staffs resigning as mentioned by the Ministry. Does AAX have a similar issue with it? No. I think so far, we've been okay. In terms of pilots, crew, we're fairly, fairly stable. Obviously, the support of also the engineers, ADE and all that seems to be in line. So we don't foresee any issues at the moment. Okay. All good, guys? All right. I think if there are any more questions, you can call Jane 24 hours. She'll be contactable. So other than that, I think thanks everybody for joining second Q results. Hopefully, to see you guys soon on the road. So take care, and have a good week. Thank you, everybody. Take care.