AirAsia’s recovery remains an uphill battle

If borders are reopened once 70% of the population has been vaccinated, it will put a dampener on the recovery outlook of the sector


AIRASIA Group Bhd faces an uphill task to recover from the impacts of the pandemic as travel restrictions have not been fully lifted.

MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Ummar Fitri said while the firm is hopeful of the industry’s recovery, it maintained a level of caution in assessing the viability of the recovery.

The research firm maintained its ‘Sell’ call for the group, with an unchanged target price of 21 sen per share as the fundraising exercise gets underway.

“While the course chart seemed conservative, we consider it as a precautionary and reasonable move at a time when sentiments that lifted the share prices of aviation players may be excessive, given uncertainty surrounding the introduction and administration of vaccines,” Ummar said in a recent note.

He added that the restructuring plan for Thai AirAsia Co Ltd could mean the group’s stake will be partially diluted to account for the bigger share base if restructuring plans go through.

The restructuring plan included an IPO for Thai AirAsia by liquidating Asia Aviation Public Co Ltd (AAV) — the listed holding company of Thai AirAsia — in addition to conversion of debt-equity and obtaining loan from an investor in the form of convertible bonds and share offerings to AAV’s current executive chairman.

“Based on the details disclosed, we estimate the IPO proceeds could potentially reach RM358.43 million with an additional convertible bond issued to hit a maximum amount of RM409.5 million. The partial conversion of Thai AirAsia debts into shares will further aid the company’s cashflow,” Ummar said, adding that he viewed the plans positively, both for Thai AirAsia and the group.

“Previously, we postulated that AirAsia Group might potentially need to inject capital to other airlines under its wings, but with the proposed restructuring plan, it might prove that these airlines can tap into capital markets to raise funds on their own. We look upon the development favourably,” he said.

Nevertheless, he expects aviation players will continue to deepen their losses despite the partial upliftment.

“This will still be insufficient to carry the group to profitability. Even with the removal of travel restrictions, there will be a lagging effect between current low passenger traffic to full recovery.

“Thus, the reopening of borders or at least the easing of travel restrictions are key for the return of air passengers,” Ummar said.

The research house said if borders are reopened once 70% of the population has been vaccinated, it will put a dampener on the recovery outlook of the sector.

“Given the government targets for 80% inoculation by December 2021, the 70% benchmark might only be feasible on the tail end of 2021. There is a fair chance the industry will see similar or even lower passenger volumes than last year, potentially turning the year of recovery to another washout year,” it said.