By MARK RAO / Pic By RAZAK GHAZALI
AIRASIA Bhd (AAB) and AirAsia X Bhd’s (AAX) profit-sharing agreement for the Kuala Lumpur (KL)- Singapore route will help AirAsia Group Bhd consolidate its leading position in the world’s busiest flight route while providing an immediate earnings uplift for AAX.
As part of the agreement, AAB — the low-cost carrier (LCC) wholly owned by AirAsia — will transfer two slots in the KL-Singapore route to AAX for a one-year period from Nov 10 this year, with a one-year extension possible if mutually agreed upon.
In exchange, AAX will share 50% of the net operating profit registered on a monthly basis from the route over the term of the agreement.
AirAsia controls an estimated 26% share in the KL-Singapore route — currently the world’s busiest and the company’s most profitable flight path, MIDF Amanah Investment Bank Bhd analyst Adam Mohamed Rahim said.
“Via the slot share agreement, AAB can make use of the route’s high density of traffic, while increasing and further strengthening its dominance in that route,” he told The Malaysian Reserve.
“The tie-up will also allow AAB to more than double its capacity for the route by leveraging on AAX’s 377-passenger capacity A330 Airbus model. AAB’s own A320 Airbus model has a 180-passenger capacity.”
The agreement could also prove to be a useful short-term initiative for AAX to generate immediate profits, while increasing its aircraft utilisation by 0.2 hours per day from the current 14.3 hours per day.
“This can potentially be raised to a total of 16 hours per day if the slot share agreement is well-executed, in addition to the expected introduction of the KL-Taipei-Okinawa flight in the first quarter of 2020,” Adam said.
AAX, which raked up RM163.78 million in net losses for the first half of 2019, said the slot share agreement with AAB is estimated to generate RM2.42 million in profit over the one-year term period, it said in an exchange filing yesterday.
The exercise will also maximise AAX’s aircraft utilisation, generate revenue to minimise existing sunk cost and make use of small pockets of unutilised aircraft time, the company said.
In a separate filing on the same day, AirAsia said the slot share agreement is an opportunity for the airline to heighten its fly-thru market, which has been stagnant since 2017, and to double its current capacity.
The fly-thru market refers to passengers transferring from one flight to another without having to go through immigration or collecting your baggage before arriving at your final destination.
Both Tan Sri Dr Tony Fernandes, who founded and helms the LCC as its group CEO, and executive chairman Datuk Kamarudin Meranun, have abstained from all management and board deliberations and voting in relation to the deal. This is due to their respective interests in AirAsia.