PETALING JAYA: The threat of cheap flights by AirAsia X for long-haul destinations come July, has yet to dampen the stock price of national carrier Malaysia Airlines (MAS).
MAS shares were, in fact, among the top gainers in yesterday’s trading. The counter climbed to a day’s high of RM5.20 before settling at RM4.98, up 12 sen. In contrast, AirAsia Bhd (AirAsia X’s sister company) closed four sen lower at RM1.52.
The full impact of the cheap flights will only be felt in the second half of the year and travellers will be the obvious winners with better fare offerings and more choices.
But, for now, analysts remain bullish on MAS and the pace of restructuring the airline has charted. After an investor briefing early this week, some analysts have reviewed their target price for MAS, with one research house changing it from RM5.20 to RM6.25 a share. Others have bets of nearly RM7. To them, the MAS restructuring story was “truly compelling” and the target price of RM6.25 was based on a “high forward price earnings multiple of 12 times” by the research house.
In its note, the research house said the “impact of AirAsia X is hardly noticeable at this juncture, given that the new long-haul low-cost carrier may not be able to fly to the same international cities that MAS services, at least for some time.”
That may be true. But the Malaysian Government has given AirAsia X rights to 36 destinations. More will be added over time. For now, AirAsia X is preparing to fly to Britain (probably Gatwick Airport) by July. Tanjian and Hangzhou in China will be next.
Melbourne and Osaka should follow and its entry into India may be via Amritsar. A source said currently, Singapore Airlines (SIA) enjoyed good load factor on the sector and that might be the cue for AirAsia X.
A research house also had a “hold” call on AirAsia and the listed target price was RM1.72 a share. The house said “AirAsia is set for explosive growth in the coming years, but it would need to raise funds for fleet expansion.
That aside, the aviation scene in Malaysia is set for a dramatic change when AirAsia X takes to the skies. Experts are saying that with fares at below RM10 (excluding taxes) for one-way travel to Britain, even though only a small pocket of the travellers will enjoy that rate, full service airlines are not going to sit back and let AirAsia X enjoy a free ride.
A price war can be expected. Full service carriers would want to guard their turf and improvement in service levels could be expected, said an aviation expert.
Currently, 48 airlines fly out of KL International Airport (KLIA) and two more are expected this year – Eithad Airways is likely to make its debut next week and Finnair in May.
A check on the respective airline websites showed that flights from KLIA to London’s Heathrow Airport for end-January cost RM2,950 to RM3,011 for a return trip. MAS is charging RM2,950, SIA RM3,000, and Emirates (stopover in Dubai) RM3,011, all excluding taxes and other charges.
Thus far, the only low-cost long-haul carrier in the region that flies to Britain is Hong Kong’s Oasis for HK$1,000 one-way and that fare is applicable throughout the year.
Besides the RM9.90 tickets, AirAsia X is promising to charge half the fares offered by full service carriers. That will certainly bode well for tourism. If AirAsia X can manage its cost and not over-stretch its low-cost model, it can help the Government turn the Low-Cost Carrier Terminal (LCCT) into a hub in the region.
And while starting the long-haul low-cost carrier is a superb idea, many will still ask when the Malaysian and Singapore Governments will agree to open the much-protected KL-Singapore-KL route to budget carriers.
Source : STAR
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