Asia Aviation Public Company Limited (AAV) Earnings Call Transcript & Summary

Hello, analysts, investors and fund managers. Welcome to 2023 Fiscal Year Results Briefing. Today, we have our CEO, Mr. Santisuk Klongchaiya and our CFO, Mr. Phairat Pornpathananangoon here with us. Ms. [indiscernible], Financial Controller; and Mr. [indiscernible] and myself, [indiscernible], IR team are also here. Let's start with Mr. Santisuk.

Hello, analysts, investors and fund managers. First of all, thank you for your interest and a follow-up on our fiscal year report. It has always been followed by a large number of people. Therefore, thank you very much for your interest regarding our share. Today, we will talk about our performance results in 2023, especially our fourth quarter, which was the last quarter of 2023. We have to admit that 2023 was a challenging year. It was the first year after COVID pandemic. We spent quite amount of time to manage all uncertain issues whether it was about travel demand. Some markets that we thought were good, but it wasn't and some of the market that wouldn't thrive well but it actually did. Moreover, we have to manage all other uncertain issues about changes of supply management, including repairing center, spare parts, labor, manpower, and more importantly, cost such as maintenance cost, rising ground handling costs in some countries. We have been through year 2023 quite nicely in terms of our business performance, especially our last quarter, which was one of the best quarter that we had even including the time prior the pandemic. Our sales and revenue were quite high. We had a great load factor. Our performance showed good stats and numbers. To give you further detail, I'd like to invite our CFO, Mr. Phairat, to describe to you, and I'll come back to talk about 2024 guidance on how we plan and what are our projects.

Hello. Today, we opened our market with a good result. Our share prices increased. Let's have a look at the financial results in the fourth quarter of 2023. We will also have whole year numbers to show as well. We have chosen the highlighted information starting from numbers of passengers. We have transported 5 million passengers in quarter 4. Throughout the year, we transported 18.9 million passengers which was under our estimation a little. We were trying on pushing this number up. As you can see from load factor that in quarter 4, we could reach 90% and this is a percentage that we remained throughout the year or so. This 90% is also blended between domestic and international flights. Looking at the passenger split ended at 63% and 37% for domestic and international flights, respectively, which is a satisfied level for us compared with what we made prior the pandemic. Domestic load factor showed a remarkable number of 94%, while international one showed 85%. Our aircraft operated more flights per day. The utilization rate reached 12.7 hours per day per aircraft in quarter 4. ASK increased noticeably. Right now, it has been recovered by 85% of that in 2019. Number of flights per year was approximately 114,000 flights. We've got a longer average stage length because we consecutively resumed international flights since the beginning of the year on to quarter 4. OTP declined slightly, showing 80% as a result in quarter 4. But overall, in 2023, we remained at 83%. We expect to improve our OTP by operating more aircraft in 2024. In the fourth quarter, we had a large number of passengers as such. It was a little rough for some destinations. Nevertheless, we maintained our number to be over 80%. Average fare noticeably increased by 24% year-on-year as a result of a rise of domestic flights. Whenever we can increase our load factors, the average fare rises consecutively as well, altogether with the rise of resuming international flights, the average fare for international sections grew consecutively also. Ancillary per passenger showed THB 407 per one passengers, which was a satisfied level for us. At the end of 2023, our operating fleet contained 56 aircrafts. However, some of these were not able to fully operate it. Therefore, our operating fleet ended at 52 aircrafts at the end of the year. We will discuss this further under a title of engine and aircraft shortage cost pressure. Next, revenues. In quarter 4, 15,051 million was a quarterly record, and it was the highest number for quarterly record that we have ever reached. It was a robust quarter in 2023, 42,950 million illustrated 135% year-on-year growth. It was a result of a robust domestic flight operation. In a short while, we will share information regarding our market share. [indiscernible] revenues grow accordingly because of the rising number of international passengers and checked baggage for other income, it came from unrealized FX gain that could normally find in every quarter that it would swing on down like this. In 2023, revenues have been driven by 90% growth in passengers and higher fares. Next, average fare. It reached THB 2,000 in the fourth quarter compared with the pre-COVID period in 2019, our average fare was THB 1,508 that annual price was just right before COVID officially spread it. So that price dropped a little from the beginning of 2019. After all, this fourth quarter of 2023, we have already reached THB 2,029. If you look at the trend, you will see that it rose from THB 1,590, THB 1,755, THB 1,720 and THB 2029. It dropped slightly in quarter 3 due to low seasonality. International ratio for pre-COVID period was 60 to 40, and we nearly reached that same ratio now. For ancillary products, checked baggage gained the highest income from this pie chart, which was 57% of the breakdown. We made it better from THB 162 million to THB 231 million for year-on-year and THB 245 million on a quarterly basis. Expenses, we have been facing with many challenges like fuel cost, which was a huge cost for us. Fuel price rose up dramatically, which, of course, directly affect expense. Especially, we faced higher excise tax for domestic flights. The government designated 5.2x at per liter rate since July 2023. Even though jet fuel has been reduced, but this benefit has been offseted because we had to pay for the excise tax as a result throughout 2023 we have faced the same issue, which was the fuel cost. The second challenge was maintenance cost. This cost also rose up highly as we have mentioned earlier, in a subline chain in an industry ecosystem session that maintenance was not 100% fully functioned. So the price that we have to pay was still high for this cost. If you see some granted aircrafts, it means that we still need some engine repayments while the ecosystem was not fully recovered, the engine repairment could not have been done on the designated time consequently. First, we have been catching up the progress as much as possible to reduce our cost. Moreover, included another cost of sales and services, there were airport charges in there for some stations, especially international stations mostly spent more ground handling cost than domestic stations. This is one of the reason why ticket price worldwide are rising or professional cost at international destinations increased quite significantly. Let's move on to RASK and CASK. In quarter 4, year-on-year RASK increased from THB 1.95 to THB 2.01. Meanwhile, CASK decreased from THB 2.02 to THB 1.84. Ex fuel also decreased from THB 1.23 to THB 1.08. Looking at annual basis, you will see a nice trend towards CASK between 2019, 2022 and 2023. RASK itself also increased. As we have discussed in many previous quarters that the more we fly our aircrafts, the less CASK will become. For 2023, RASK, it went up 6% driven by strong performance in quarter 4 exceeded 2019 level by 21%. Ex-fuel hardly dropped 37% from normalized business operation. As mentioned previously, there will be some challenging cost we will need to handle managed and minimize in 2024. It might have not been noticeable, but we think that it can be reduced to some extent because surely, we can't operate more aircraft this year. Let's have a look at our bottom line. Fourth quarter EBITDA was THB 3.85 billion. Meanwhile, the total 2023 EBITDA was about THB 7 billion. Fourth quarter EBITDA margin was a bit high, which was 25%, 2023 EBITDA margin was 47%. Next, net profit in quarter 4, we showed THB 2.814 billion, showing net profit also shows FX gain loss at the same time, an FX gain loss was THB 2.314 billion. Calculate the number, and you will see the cooperation showing how much profit, excluding FX gain loss. On a yearly basis, we have a net income of THB 466 million containing hitting THB 672 million FX gain loss. It might look like we were in the red for THB 200 million, but it was way much better than 2022. If the investors dig deeper for the detail, you will see that in previous year, we have many expenses which were one-off expenses. If you take into account, the number THB 200 million, which was in the red will look as if it was in the black. This page shows cash flow and our financial flexibility. Cash balance improved significantly, which was THB 1.225 billion, and it was enough to spend its cash flow for our operations. We believe so that the cash flow won't longer be our company's issue. Cash flow as of 2023 was THB 492 million. It might look like it isn't much, but we can sustain our company and do our jobs as we continue to gain in coming [ for ] sales. In terms of ratio, they were all controllable. Cost of funds stood at 5.3% which was an effect from higher interest rates in many countries, including Thailand. The latest rating has not been updated yet. It will be updated after we release this result briefing through Tris. Please stay tuned to the update.

Let's continue with business updates and outlook, which direction we are heading to this year, what our guidance is, how our numbers and stats. Let's start off with the overall picture, numbers of travelers visiting Thailand are the numbers that we will link them with our passengers because a significant contribution, bringing in these tourists comes from AirAsia airline. In 2023, 28 million travelers coming to Thailand were Chinese tourists for almost 4 million people, about 3.5 million, 4.6 million, that number. Still, Chinese tourists are only 13% from overall tourist profiles pie chart on the right of the screen. Whilst pre-COVID period, we had 28% of them. Still, we have some room to grow this market this year. Tourism Authority of Thailand set the target of 35 million tourists, in which 8 million of them are Chinese as of now. These numbers to be adjusted because 49 days after New Year were just 1.5 months, there are approximately 5 million tourists already. I think as you noted the first quarter, Thailand might have 7 million to 8 million tourists. Therefore, multiplied by 4, I think it is possible. Accordingly, we are looking forward to seeing the direction and adjusting the numbers. This page shows recovery. Let's look at these bar charts on the left. Black bars, are domestic percentages, red bars are international percentages. The first 2 bars on the left show AOTs numbers of flights traveled via AOT's airport, you see recovery of 80% in domestic market and 64% in international market. The next 2 bars show Thai AirAsia numbers of flights for both domestic and international markets which indicates the higher recovery than country's overall percentage higher than AOTs overall percentage. The recovery presented for domestic market is 91% and 77% for international flights, divided markets into regions. ASEAN market recovered fully 100%. South Asian markets or India recovered over 100% because we expand our routes still potential markets that we need to work on them continuously are China and East Asia. Passengers from China have recovered back to only 38% and its ASEAN market themselves also have potential to grow further. These are 2 regions that we are keeping our eyes on them. Capacity development plan. To use aircraft, we won't only look at the current operating aircrafts but when we look at the number of our fleet. In 2023, we ended up having 56 aircrafts. By the end of 2024, we will have 60 aircrafts whilst the numbers from 52 to 57 are operating aircrafts of course, the rest must be all spares. We definitely need spares under maintenance circumstances just like our cars that need checkups. We need spare aircrafts in case repairment delay. If we found some other issues while checking up, this won't affect the OTP even though it will be exceeding the designated schedule because we have our spares. Looking at our bar chart numbers in the first and the fourth quarters are now normal. This is a usual trend that indicates high seasonality which requires a lot of aircraft. Meanwhile, in between, we will manage and balance our capacity wisely. As we are aiming for profit more than aiming for market share or new market. We will manage flights wisely and bring back our robust performance result. Capacity resumption plan. We are spreading our capacity to a different market. You can see that it is not 100% yet for China, and we are keeping our eyes on this matter. The trend is improving but not as much as we used to see. In common groups are not as huge as before. We still don't see a large group of Chinese tourists coming in as a group at once. At the same time, free Visa program for both inbound and outbound travelers encourages people to travel without applying for Visas. In the past, to apply for Visa is somehow enough staple for Thai, whether it's about the Visa cost, the procedures needed or preparation to apply for Visas. If we don't need any visas. It will be much easier like going to Japan. Hopefully, we will have more outbound Thai tourist travel to China. Important markets such as Shanghai, Guangzhou and upcoming destination like Beijing are route to the Thai people might highly interested in going to starting from the 1st of March. We start seeing both to a group and solo travellers booking. This will be accelerated after some travelers have gone through the process and witnessed how convenient it is, how faster it is to travel to China, it sounds like we need to see some experiment routes first. And then we will clearly see after the latter half of March, after Songkran, Thailand's New Year that Thai travelers will go to China even more. Now this page, this page represents Thai AirAsia's pride that we have 39% of domestic market share, nearly 40% which is an all-time high, we are an absolute market leader. The second and the third players only have around 10% of the market share. Each fragment in the market holds only around 10% individually while we are in the lead with 39%. A picture on the left shows Thailand and its regional market share. We are a strong leader in Northern region, Northeastern region, and we hold 74% of cross-regional route network. For Southern region we might have lower percentage compared to the overall percentage because Bangkok Airways holds some amount of the market share for [ zhanli ] Island destination. Nevertheless, we still have room to expand our capacity. Therefore, investors and fund managers, these numbers perhaps can incur to you that we are an absolute leader in domestic market share. As the load factors always shows a number over 90%, which indicates that it is a full loaded every single flight. Average fare is approximately THB 1,000 starting from THB 1,200 to THB 1,500. If you have been following up with our domestic air fares, you will see that we normally sell our ticket around this price. For the matter of expensive tickets, we will discuss this issue later on because, in fact, our airlines average fare, it's only around THB 1,000. Therefore, if you see the last seats or the last 2 seats left on the flight or even you want to book the ticket today and depart tomorrow you might see high-priced tickets, obviously. And that would be the cause why the tickets are expensive. These numbers are numbers that have been shown publicly even though it is higher in quarter 4, but it is still 1,500. International market. Next year, we will focus on China. Both Thailand inbound and outbound flights to China. I believe -- sorry that we have opportunity with new routes. We have our team there, so we still have our slot and wait for the opening of the new routes any time when the trend is better, when the chance comes, when the time is right. Another interesting point that I would like to inform all of you is a term fifth-freedom flight. Fifth-freedom is to fly to one country and depart from that same country to another country. In our future plan, we will designate Taiwan as a fifth-freedom destination. In order to fly continuously from Taiwan to Japan, we have a day flight from Bangkok to Taipei. We have a daily flight from Shanghai to Taipei. We have one another daily flight from Bangkok to Kaohsiung. Altogether, 3 flights land in Taiwan will be operated to Japan. Air traffic between Taiwan and Japan is very high. Taiwanese enjoy traveling to Japan and likewise for Japanese, their distance is close to each other, just like the distance amongst Thailand and Singapore and Malaysia. You will spend only around 2 hours to fly about between these 2 countries. Therefore, it is a huge market over there. Taiwan allows us to operate a fifth-freedom flight as we have been planning to do so as we have been asking for slot. And as we have been working on the processes, we will start operating very soon. The first route starts from Bangkok to Taipei and from Taipei to Osaka. On the way back, it starts from Osaka back to Taipei and from Taipei back to Bangkok. There are 2 sectors included. Passengers can travel from Bangkok to Taipei or if they wish to go to Osaka, they can continue their flight to Osaka. At the same time, we can board passenger embarking from Taiwan to Osaka as well. The second route starts from Chiang Mai to Taipei and from Taipei to Okinawa. Meanwhile, route starts from Bangkok, Ko Chang will continue the second sector from Ko Chang to Narita, Tokyo. With this fifth-freedom initiative and with these destinations, we can produce a really high yield, we will launch this plan during midyear, while passing from the second quarter to the third quarter, which is our low season period. This will produce revenue during our low seasonality as a great option. For other market, such as South Asia, like India, we are still looking for opening more routes to new cities like Visakhapatnam India or Kathmandu, Nepal. Regarding top negotiation, the right to fly amongst Thailand and India just in case there are questions. I will inform that at this moment, we have had an official discussions. As we all know that there is a route limitation when flying to and from metros such as Delhi and Mumbai, therefore, we couldn't expand the route. Right now, India start discussing and offering more flights. Previously, outbound flight from India to Thailand were not full. Only on inbound flight that the passengers were full. The number is now going up, and I believe that they might have purchased more aircraft. As a consequence, they are okay to talk about this. We have been always been ready to talk about increasing the flight to increase the flights. We need bilateral cooperation from both sites. Within March, [indiscernible] Aviation Authority [indiscernible], will fly to Delhi to have a discussion. We are hopeful for good news within this year regarding flight growth. Definitely, numbers of passengers traveling from India will be distributed to airlines operating flights to and from India, and we hope that we will get the quota from this. Forward booking guidance. Impressive load factors with strong sign of forward bookings. We nearly reached the end of the first quarter, our load factor will be better. Let's see it as a trend. In January, domestic load factor was 95%. In February, early half a month. The domestic load factor was 97%. 97% means that flights are full every single flight. Even Thai AirAsia employees couldn't use staff tickets, we have to buy regular tickets. At the same time, from January to February, international load factor was rising from 87% to 91%. One reason was maybe because of the Chinese New Year. In March, we predict that our load factor will be above 90%. We see a robust forward booking in March and during Songkran, Thailand's New Year. In this second quarter, we still have some jobs today because the volume might decrease after Songkran, Thailand's New Year has passed. Marketing team will come up with interesting promotions definitely. We think that our first quarter is a great quarter passing on for the last quarter and hopefully, we were heading continuously towards the same direction throughout the year. In conclusion, 2024 guidance. [indiscernible] profitability, we are determined to deliver a positive return in 2024, focusing on yield and performance results. Numbers of passengers growing is approximately 20 million to 21 million compared with 18.9 million in 2023. Revenue will increase by 22%, 23%. Load factor is 90% and shouldn't be less than 90%. Critical period is midyear period, and we will handle that wisely to maintain our performance. Utilization is 12 hours per aircraft. Number of aircraft is 60. OTP. We have been given our recognition for 2 years consecutively, with top-tier on-time performance ranked by Cirium, the most trusted source of aviation analytics. In 2023, within Asia, we got the third place. Thai AirAsia was the third airline rank who operates on time the most in Asia. We were behind Japan, Japan Airlines only [indiscernible] Airways but we won the rest. For low-cost carriers airline worldwide, we were seventh in rank, which was in top 10. I think this is the pride for our company. At the same time, it is the greatest benefit for passengers because this is what we call a quality service. When we travel, we need to be on time. And you will be able to handle your business or even personal matter effectively when you are on time. Last but not least, sustainability highlights, we still hold on to good green growth. Good is about governance. We have been rated excellent in terms of OTP. Like I said earlier, we are the first one in Thailand and the third one in Asia. Green is about clearly showing numbers of CO2 emission, operational management and fuel savings. Growth. We have 0 severe and fatal accidents. Also, we have many projects regarding local tourism and sustainable tourism, such as JourneyD programs, which we will bring them back this year. All in all, these are what we are working on them currently and publicly announce all crucial matters in our annual report. Thank you very much. If you have any questions, please feel free to let me know.

Before moving forward to a Q&A session. May I correct some typo for international market page, actually, quarter 1, the average fare was THB 2,400 and it reached THB 2,780 in quarter 4. I'll correct this.