Rough patch for AirAsia shares could be temporary: analysts

The latest bad news over the past weekend for Malaysian budget airline AirAsia has spooked investors and may keep its share price dampened for a while, analysts said on Monday, but over the long run, demand for low-cost air travel will likely help th
The latest bad news over the past weekend for Malaysian budget airline AirAsia has spooked investors and may keep its share price dampened for a while, analysts said on Monday, but over the long run, demand for low-cost air travel will likely help the company rebuild its reputation. -- PHOTO: AFP

SINGAPORE - The latest bad news over the past weekend for Malaysian budget airline AirAsia has spooked investors and may keep its share price dampened for a while, analysts said on Monday.

In the long run, however, regional demand for budget airlines will stay strong and AirAsia may be able to rebuild its reputation, they said.

Disruptions to its Indonesian operations will also not have a big impact on AirAsia's profitability, analysts added.

Shares of Malaysian-listed AirAsia Bhd tumbled back down on Monday after news of yet another incident over the weekend for Southeast Asia's biggest budget airline.

An engine of an Indonesia AirAsia plane failed just before it took off from Juanda International Airport in Surabaya on Saturday evening, spooking its passengers. Most of them refused to reboard the plane afterwards.

The incident follow the tragic disaster nearly a week ago on Dec 28, Sunday, when Indonesia AirAsia Flight QZ8501 crashed after leaving Surabaya bound for Singapore with 162 people on board.

Two small incidents followed that crash. On Dec 30, an AirAsia flight bound for northeast Thailand turned back to Bangkok shortly after takeoff when pilots detected an "irregularity" in the storage compartment. It was later allowed to resume service after engineers ruled out any technical problems. Later the same day, another AirAsia jet skidded off the runway on arrival at the Philippine resort town of Kalibo, causing no injuries but shutting the small airport.

In other bad news, Indonesian authorities said over the weekend that Indonesia AirAsia had violated the terms of its license for the Surabaya to Singapore route by flying on a Sunday, the day Flight QZ8501 plunged into the Java Sea. They later suspended AirAsia's flights on that route and announced they would investigate the airline's other schedules.

The carrrier's latest woes put paid to the Kuala Lumpur-listed stock's tentative rally on Friday, Jan 2, when it closed at RM2.75, three sen higher than on Dec 31. On Dec 29, the stock had slid as much as 13 per cent to RM2.56 before closing 8.5 per cent lower.

On Monday, however, AirAsia shares opened lower at RM2.70 and was trading down 4 per cent at RM2.64 around 11.30am. The stock closed 13 sen or 4.7 per cent down at RM2.62.

Malaysia-based MIDF Research said in a recent report that Indonesia AirAsia only makes four weekly flights on the Surabaya-Singapore route. This was far less than many other airlines which offer flights on that route every day or several times each day, it noted.

"As such, we believe the earnings impact (on AirAsia) from travellers switching to other airlines could be minimal," it said.

Indonesia Airasia - in which AirAsia holds a 49-per cent stake - also accounts for only a small portion of the group's overall revenue and earnings. Indonesia AirAsia posted an operating loss of RM35.2 million for 2013 on revenue of RM1.63 billion, according to AirAsia's most recent annual report. This compares to group operating profit of RM1billion on revenue of RM5.11 billion in the same period.

As for the harder-to-quantify hit AirAsia will take on its reputation, remisier Desmond Leong said the shares "might continue to be weak for a while, since their reputation and credibility has suffered. But they can rebuild their reputation."

Remisier Wilson Tan also said that AirAsia shares should recover in the long term.

"It's a knee-jerk reaction. The fundamentals are still intact, people will still travel," he said, adding that his own relatives still continued to fly AirAsia.

He added that more clarity would come once the results of investigations into the incidents are released.