找不到输的理由

05 November 2012

Increase my investment in AirAsia.

Pump in new fund, bought 3000 shares of AirAsia...
now the investment in AirAsia had contribute ~20% weight in my portfolio.

I'm quite optimistic about the growth potential of AirAsia. Its operation in Malaysia would probably continue to grow at rate of 5~10%p.a. though the LCC market already quite matured. The growth momentum of AirAsia would mainly come from its aggressive expansions into regional markets, i.e. Thailand, Indonesia, Philippines, Japan... Taking these into account, I believe that AirAsia's profit in the coming years will grow at a rate of 15%p.a. or higher .

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Increase holdings in AirAsia.

17 June 2009

AirAsia 2008 - Operational Cashflow still Strong.

Due to its weak performance in 2008, the shareholders of AirAsia had been worried about its gearing and coverage ratios.
This article is just a simple analysis on AirAsia's 2008 cashflow, which is an important measure of the company's ability in servicing its debts.
According to its audited account, AirAsia's cashflow from operation in 2008 is negative RM 416 million. This number, however, is what we get after charging the unwinding loss on derivatives. Seeing that the huge cash outflow of this unwinding process is not neccesarily to be recurring, we should exclude them from our analysis so that we can get a more accurate picture on AirAsia's real performance.
How much cash had AirAsia actually paid in the unwinding transactions? According to its report, the total unwinding loss incurred is RM 1.1 billion. The loss is allocated and borne by three entities of AirAsia:

AirAsia Malaysia: RM 679 milion
Thai AirAsia: RM 222 million
Indonesia AirAsia: RM 207 million.

Among these losses, only the RM 679 million is reflected in AirAsia's income statement. I believe, however, that the cash outflow of RM 1.1 bllion is all paid from within AirAsia. This is because the two oversea entities have no enough cash to settle those transations -- their operation are still in loss position, and their equities are negative. And from the statements of AirAsia, we can see that more than RM 500 million of cash was injected into these entities by AirAsia in 2008.

Thus, instead of RM 679 milion, the total amount of RM 1.1 billion should be used for our adjustment on AirAsia's cashflow. After the first adjustment, the operational cashflow of AirAsia had become a positive RM 691 million.
Then, due to the reason discussed in my previous post (regarding the recurring nature of the fuel-hedging transactions), I'll charge back a cash outflow of RM136 million (equal to 20% of RM679 million) into AirAsia's cashflow account. After this second adjustment, AirAsia's operational cashflow of 2008 would be a positive RM 555 million.

* This figure is from the perspective of AirAsia company only. Because I can't get the information on the cashflows of TAA and IAA, analysis from the level of whole AirAsia Group can't be done.

Compared to the company's cash outflow on interest (RM 240 milion) and repayment of borrowing (RM 301 million), the operational cashflow can be considered as strong, and its cashflow ratios is within my comfort zone.
However, this cashflow performance is still below my initial expection. In 2009, I hope that AirAsia can make a huge improvement, generating an operational cashflow of no less than RM 1 billion.

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16 June 2009

Dissecting AirAsia's Earning 2008 (Part2)

Here, we examine AirAsia's financial performance, taking into account the profit/loss from Thailand AirAsia (TAA) and Indonesia AirAsia (IAA).
Revenues of the jointly-control-entity & associates in 2008:

TAA: RM 889 million
IAA: RM 482 million*

And their results are:

TAA: RM -118 million
IAA: RM -83 million*

* Besides IAA, AirAsia has a number of other associates. In the sense that their contribution should be quite small, I assumed that the figures of revenue/loss from associates as reported in AirAsia's statment are all derived from IAA.

The net losses stated above are after the adjustment discussed in part-1, i.e. I took out the whole unwinding loss on derivatives (RM 222 million for TAA, RM 207 million for IAA), and then charge back 20% of its amount .
The above losses are not reflected in AirAsia's reported income statement, because the associate's results are consolidated into AirAsia's statement using equity method, and their equity had become zero since few years ago. However, to gauge the economic performance of AirAsia as a grouop, these unregconized losses should be taken into account.
Consolidating the share of loss (48.9%) from these associates, AirAsia's results in 2008 will turn negative -- a net loss of RM 38 million. It should be pointed out that the shared profit/loss from the long-haul AirAsia X had not been included here. However, its contribution in 2008 should be quite small and hence negligible.

Next, we examine AirAsia's performance from the perspective of whole AirAsia Group. Here, we consolidate 100% of TAA & IAA's revenue and results with AirAsia Malaysia. In my opinion, this is the most appropriate measure of AirAsia Group's performance. (see the reasons here.)
The figures after consolidation are:

Revenue: RM 4.00 billion
Profit/loss: RM -141 million
Profit margin: -3.5%

From the Group's perspective, AirAsia was suffering a loss in 2008. I'm a bit disappointed with this performance. However, the prospect of AirAsia in 2009 is very optimistic.

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15 June 2009

Dissecting AirAsia's Earnings 2008 (Part 1)

As pointed out in my older posts, AirAsia's reported earnings need some adjustment before the numbers can be used to gauge its performance.
To dissect AirAsia's 2008 earnings, let's begin with the reported numbers in its Income Statement:

Profit before tax (PBT) : RM -869 million
Profit after tax( PAT) : RM -497 million
Earning per share: -21.1 sen

We start our analysis using PBT to eliminate the effect of deferred tax. First adjustment we had to do is taking out the non-operating gain/loss from the reported income. They are:

unwinding derivatives (interest-rate swaps): RM -152 million
unwinding derivatives (fuel hedging contract): RM -678 million
foreign exchange movement on borrowings: RM -235 miilion

After our first adjustment, the profit of AirAsia in 2008 is RM196 million, which is equivalent to 8.2 sen per share. Not bad so far...
But I would like to discuss further about the validity of the adjustments done. Those 3 items are excluded because they are thought to be non-recurring in nature. But are they really so?
In my opinion, the FX movement is quite volatile and the trend is difficult to predict, thus its short-term movement can be considered as non-recurring. But fuel-hedging is a different case. Every airlines in the world will more or less hedge their fuel consumption. AirAsia's current position without any hedge is just a short term bet on the movement of oil prices. Sooner or later, it will resume oil-hedging activities.
So, the unwinding decission taken by AirAsia last year, is like charging all the future loss into one year. This action will make its 2008 earning worse, at the same time inflate its future reported income (less loss from hedging).
I suggest that we charge a portion of the unwinding loss back into AirAsia's income.
According to its quarterly report (Sep-2008), the original intention of AirAsia when entering these contracts is to hedge its fuel cost in the remaining period of 2008 and year 2009. Lacking of any detail information, I think the unwinding loss of these contracts (RM 678million) should be spread evenly over the five quarters starting Q4-2008. As a result, a loss of RM136million (= 20% x RM678million) should be charged into each of these quarters to bring down the inflated earning.
As a result, AirAsia's adjusted earning in 2008 will become RM 60 million, or 2.5 sen per share.
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03 November 2008

Profit of AirAsia (Part 2)

The main purpose of this article is to discuss why we should examine the economic performance of AirAsia from the perspective of the whole AirAsia Group, i.e. we should consolidate the statements of AirAsia with 100% revenues and profit/losses from TAA & IAA.
First, let’s have a look at the revenues and profit/losses of the three entities in AirAsia Group, presented separately in the following table (all figures are RM illion):

(the Jan-Jun 2008 revenues for IAA & TAA are not announced yet.)
* Adjusted PBT of AirAsia shown excludes non-operating items, but not including the profit/losses from IAA & TAA.

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If we include the share of losses (48.9%) from TAA & IAA into AirAsia’s income, then AirAsia’s profit will be as shown in the following table (as discussed in my previous post):

After these adjustments, the earnings of AirAsia will be about 8.9 sen per share (twelve months ended Jun-2008). If we accept this figure, then the current PE ratio of AirAsia is just around 12x, which is a very attractive level for me due to the high potential of AirAsia's earning growth in the coming years.
However, I still think the above adjusted figure is not reflecting the real economic performance of AirAsia. In my opinion, these figures may have been distorted by two factors – the asset allocation in AirAsia Group, and the transactions between the entities in the Group.
Let’s discuss them one by one.
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1. the asset (aircraft) allocation of AirAsia.
As we know, currently there are two types of aircrafts in AirAsia Group – the old Boeing-737, and the brand new Airbus-320. And we know that the later is the more profitable one due to its oil-efficiency and low maintenance cost. So, the routes served by Airbuses are more profitable than those by Boeing, especially in recent periods of high oil price.
What happening in AirAsia Group is, the allocation of Aircrafts is not even among the entities in the Group. AirAsia Malaysia is operating almost all the Airbuses, while the old Boeings are being pushed to TAA and IAA.
For example, according to the figures announced for the quarter ended Jun-2008, out of the 39 airbuses in the Group:

35 of them are allocated to AirAsia Malaysia,
only five are in TAA,
and none in IAA.

few weeks ago, AirAsia announced that all its routes in Malaysia are now operated by new Airbuses.
In other words, AirAsia pushed the non-profitable assets to its associates, and retained the most profitable assets within Malaysia. This might be one of the reasons why TAA and IAA are suffering continuous losses while AirAsia is making great profit.
So, if we adjust AirAsia’s income statement using only 48.9% share of losses from TAA and IAA, we are giving more weight on the Airbuses, and have a lower weights on the poor-performing Boeings. As a result, we will get an upward-biased figure about the Group’s performance.
Some people may argue that AirAsia Group is replacing all the Boeings with Airbuses. Thus TAA and IAA might become as profitable as AirAsia (Malaysia) after the replacement. So, the upward biased figures of AirAsia’s statements is a more accurate measure of Group’s future performance (After all, the future performance should be most concern to the shareholders, right?)
I will not agree to this argument. Though AirAsia is accelerating the retirement plan of the Boeings, it will take several years to complete the plan. By then, the new Airbuses today may become aged, and their maintenance will become higher, and who knows, they may just become like the old Boeings today. So, to be consecutives, I think we’d better use today combination of assets (a mix of new and old) even when we are estimating the Group’s future performance.
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2. The transaction between TAA, IAA and AirAsia. (the Aircraft Rentals)
As we know, all the aircrafts of the Group are owned by AirAsia. So, to operate those aircrafts, TAA and IAA have to pay rental fees to AirAsia. This is another part that may distort the reported performance of AirAsia.
When AirAsia receive rentals from TAA & IAA, it’s recorded as an income, which is off course 100% reflect on AirAsia’s earnings. So, the higher the rental, the more it benefits AirAsia. But from the view of TAA or IAA, these rentals are expenses. That means a higher rental fees will reduce their profit (or increase their losses), i.e. a higher fee will have a negative impact on them and thus AirAsia.
Again, because AirAsia owns 48.9% stake in TAA and IAA, only half of the rental expenses in TAA and IAA would be consolidated into AirAsia’s statement, while 100% of AirAsia’s rental income will be reflected on the same statement. So, by simply charging a higher rental fee, AirAsia could increase its reported earnings without improving its operating performance.
From the perspective of the whole AirAsia Group, the rental fee among entities shouldn’t have any effect on the overall performance. So, we should consolidate 100% of the revenues and profit/losses of TAA & IAA into AirAsia’s statement, to get a clear picture on the Group’s operating performance.
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Conclusion:
By treating three entities as a group, we can eliminate the potential distortion of AirAsia’s economic performance from both its asset allocation policy and the aircraft rental fees.
The following table shows the 100% consolidated revenue and profit/losses for AirAsia Group. Profit margins of AirAsia (Malaysia only) are included in the table for comparison purpose. (Revenues and PBT are in RM million, Margins are in %).

The 3rd column (AirAsia Margin) is calculated using PBT reported in AirAsia’s statement.
The 4th column, Adjusted AirAsia Margin, are reported figures excluding non-operating items (the foreign exchange gain and selling of interest rate swap contracts), and not including profit/losses from TAA and IAA.
the Group’s PBT and Margin are also excluding non-operating items.

From the table, we can see that the overall profitability of AirAsia Group is much lower than the figures reported in AirAsia’s statement (which only reflect the non-consolidated profit of AirAsia in Malaysia).
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29 October 2008

Profit of AirAsia (part 1)

This article is some discussion about AirAsia's reported profit. By pointing out some accounting pitfall in its statements, I hope that this article can present a more accurate picture about the profitability of AirAsia.
Before we start, let's have a glance on the profit reported by AirAsia in recent years:

FY 2006 (ended June-2006): RM 86.2 million
FY 2007 (ended June-2007): RM 278.0 million
6-month ended December-2007: RM 276.7 million
6-month ended June-2008: RM 63.3 million

* (Last year, AirAsia changed its financial year end from June to December.)
All the figure above are PBT (profit before tax). I think PBT is a more accurate measure of AirAsia's profit because its after-tax-profit figures are highly distorted by the "deferred tax" item. (For more about this, please read: My Mistake - the "Defered Tax" in AirAsia's profit )
Nevertheless, there are two things we had to be cautious about these PBT figures.
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1. Special Income.
First, we should adjust the profit against non-operating income. A significant item in AirAsia's statements is the "foreign exchange gain". As we know, AirAsia has huge amount of loans that is denominated in USD. As a result of USD depreciation in recent years, AirAsia had recorded some "foreign exchange gain". However, most of these "profits" are just accounting gain, which won't generate any real cash flow or economic value.
This is because AirAsia had entered into some foreign exchange forward contracts, which help it to hedge against the appreciation of USD (these contracts had swap the future repayments of AirAsia's loan from USD into Ringgit). So when USD depreciates and the loan amount of AirAsia is decreased, AirAsia should suffer a comparable amount of loss in the value of its hedging contracts. The problem in AirAsia's income statement is, it only regconized the exchange gain from the decreased amount of loan, and doesn't take into account the loss of its foreign exchange contracts (they are "off-balance sheet item" and not reflected on income statement).
Due to some reasons, (e.g. AirAsia is not doing 100% hedge on its loan amount, the fair values of forward contracts also affected by market activities, etc.), the actual gain/loss from foreign exchange rates are more complicated. However, it's quite sure that the real total gain/loss is much smaller than the figures reported in AirAsia's income statement. So, to be conservative, we'd better exclude all the foreign exchange gain/loss to get a clearer picture on AirAsia's profitability.
Besides the foreign exchange gain, AirAsia had also recorded a gain from selling someinterest-rate swap contracts during FY2007.
The adjusted profit of AirAsia, excluding those special items, are summarized as follow : (all numbers are RM million)

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2. The Losses in Thai AirAsia (TAA) and Indonesia AirAsia (IAA).
Until today, TAA and IAA still suffering loss.
AirAsia owns 48.9% stake in TAA and IAA. Thus the same portion of losses from these two entities should be reflected on the income statement of AirAsia. However, AirAsia had stop recognizing these losses from both TAA and IAA.
Again, it's because of the accounting method used.
AirAsia's investments in TAA and IAA are accounted for in its consolidated financial statements using equity method of accounting. The following paragraph is extracted from AirAsia's annual reports:

The Group discontinued recognition of its share of further losses made by Thai AirAsia as the Groups interest in the jointly controlled entity has been reduced to zero and the Group has not incurred any obligations or guaranteed any obligations in respect of the jointly controlled entity.

Though some people may argue that the equity accounting is a suitable one, I think that the profit/loss of TAA and IAA should be included in AirAsia's statement to fully reflect its profitability.
The reason is simple. First, TAA, IAA and AirAsia are operating as a group (e.g. they share the same ticket booking system), thus they should be considered as parts of a whole body. Second, AirAsia is leasing its aircrafts to TAA and IAA, so they have to pay rental fee and maintenance charge to AirAsia. If their operation continue to face difficulties, it's possible that they will postpone the payments or, worse, fail to meet their payment obligation. Thus, the fact that TAA & IAA are "limited company" doesn't stop AirAsia from bearing the risk of their further losses.
The following tables list the related parties transactions between AirAsia and TAA & IAA, a simple illustration about their relationship.
1. AirAsia's income (RM million) from TAA and IAA:

2. Amount of money that TAA & IAA owe AirAsia (RM million):

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Conclusion:
To have a fair evaluation on AirAsia's profitability, the non-operating gain/loss should be excluded, and the profi/loss from TAA & IAA should be included. Thus, the real profit of AirAsia in the past few years should be as follow:

(* the first column is the adjusted profit excluding non-operating item).
As we can see, these figures are much smaller than the PBT reported in AirAsia's income statment.
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...... continue reading : Profit of AirAsia (part 2)

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15 June 2008

Why I'd never worried about AirAsia's debt.

One of the reasons that investors don't like AirAsia is the huge amount of CAPEX and borrowings.
In this article, I'll discuss how good is AirAsia in managing its debts.

1. Interest rate hedge
Interest rate hike is a essential risk for highly debted company. AirAsia hedges against the risk by entering into interest rate swap contract that will convert almost all of its debt into fixed rate debt.
According to its Dec-2007 report, AirAsia’s swap contract obliges it to pay fixed interest rate of between 4.78% and 4.90% instead of being subjected to the floating US-LIBOR for the entire loan amount over the entire tenor.
The hedging of interest rate will stabilize AirAsia' future cash flow, and help it to maintain the current low interest rate throughout the whole repayment period.

2. Forward foreign exchange hedge
As the borrowings of AirAsia are all in USD, it will benefit from the depreciation of USD. Moreover, Airasia had entered into forward exchange contracts for settlement at fixed Ringgit rates when the USD had depreciated.
For example, as disclosed in Dec-2007 report, AirAsia had swap its RM3.3 billion equivalent debt into ringgit at exchange rates between RM 3.000 ~ RM 3.369. Because the exchange rate of USD to Ringgit is much higher when it borrowed the money, AirAsia is actually making a profit from the repayments of principal loan amount.
These profits from foreign exchange had been recorded in AirAsia’s income statement. In the latest quarterly reports, we can see that the financial cost of AirAsia is a positive value (which means it’s an income, not expenses). This is because the foreign exchange gain from the repayment of debt is higher than the interest expenses.
The following table shows AirAsia’s interest expenses & foreign exchange gain during pass two years.

And the most important part is, these exchange profit are recurring! (because AirAsia had swapped its debt into ringgit at a favorable rate.) With this recurring income, I never doubt the ability of AirAsia to pay the interest of its loan.

3. Tax Incentive
AirAsia has been granted a great amount of tax incentive from our government, for its CAPEX in purchasing aircrafts.
How much is the tax incentive? Let’s look at the recent figures.

From my own estimation, for every dollar AirAsia spent in purchasing aircrafts, the tax incentive incurred is enough for it to pay the loan interest for at least 3 years! As the repayment period of AirAsia’s loans are only 12 years, the tax-incentives had actually helped to cover a substantial part of its financial cost.
So, why not borrowing?
Let’s look at this tax incentive from another angle of view. The following table shows the PBT of AirAsia and the tax it should have paid if there’s no incentive:
Tax

And the actual taxes paid by AirAsia during this period are:

FY2006：RM 2.2 million.
FY2007：RM 5.1 million
July-Dec 2007：RM 1.5 million

Can you see how much tax savings had AirAsia been enjoying? This a main reason why I've never worried about the high CAPEX of AirAsia.

In fact, the fast expansion of AirAsia, leveraging on financing facilities, is one of the factors that enable AirAsia to maintain its profitability. Because in the highly competitive LCC industry, only the lowest cost player (through effective cost reduction, economic scale, and fast penetration into the market) will survive and prosper.
Since it's able to manage its debts so well, I think AirAsia's way of expansion (through borrowings instead of issuing new shares) is the best way to benefit the shareholders without diluting our interest in the company.
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[updated 29-10-2008]: There's a serious mistake in this article -- the foreign exchange gain reported in AirAsia's income statement is not a real gain. Though I don't know the exact figure, I'm quite confident that AirAsia's actual (recurring) exchange gain/losses should be much smaller than the figures stated in this article. For more detail, pls read my post: Profit of AirAsia (part 1).
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03 February 2008

AirAsia: the McDonald’s in aviation industry?

Few days ago, I found that AirAsia’s business model is somewhat similar to McDonald’s -- It is going to generate a huge income from the leasing of aircrafts.
The story of my discovery started from last year, when I realised that I had made a serious mistake in analysing AirAsia -- I ignored the deferred tax item in its financial statement. Since then, I had gone through AirAsia’s financial report again, again, and again, just to make sure that there’s nothing else that I’ve missed.
Then, I discovered an interesting item in the reports —- the aircrafts.
First, let’s introduce two entities that's related to AirAsia -- Thai AirAsia (TAA) and Indonesia AirAsia (IAA). Some people may think that TAA and IAA are subsidiaries of AirAsia. But, in fact, they are not wholly owned by AirAsia. TAA is only a jointly controlled entity of AirAsia, and IAA is an associate company. Both of them started their operation in 2004, and AirAsia only owns 49% stake in each of them. AirAsia had paid USD 5.26 million (about RM 20 million) to get the 49% share of TAA, while IAA’s only cost AirAsia USD 2.00 (two dollars).
Since beginning of their operation, TAA and IAA never own an aircraft. All the aircrafts in operation are either owned by AirAsia, or leased by AirAsia from other parties. AirAsia then lease or sublease these aircrafts to TAA and IAA. They would then, of course, pay a rental fee to AirAsia.
The table below show how much money AirAsia had collected each year, from the leasing of Boeing aircrafts to TAA and IAA. I have included the PBT and Net Cash from Operationof AirAsia in this table, for comparison purpose.
lease

As we can see, the income from leasing aircrafts is quite significant when compared to AirAsia’s PBT, or operational cash.
However, the actual earning from these leasing activities should be quite small, because most of these aircrafts are not owned by AirAsia. (The company only owns six Boeing aircrafts). AirAsia lease the Boeings from other party and sublease them to TAA or IAA. I don’t think AirAsia can make a good profit out of this.
But in the next few years, AirAsia’s fleet size will grow dramatically. Due to the latest information, it has 175 confirmed order of Airbus. According to the current planning of AirAsia's management, more that half of these aircrafts will be leased to TAA or IAA. Then, the rental income may have a great contribution to AirAisa's profit.
This is similar to what McDonald’s did about 50 years ago. In the early stage of its expansion, McDonald’s signed long-term lease-contracts with some property owners to rent their properties, and then subleased those properties to its franchisees. Later, while McDonald realized the great potential of rental income, it started to buy its own properties. Then, the rental income had gradually become the most important part of its profit.
So, while AirAsia's fleet size is expanding, will the rental income (of aircraft) gradually play an important role in AirAsia's profit?
Well, maybe it's too early to make a conclusion now. Let's wait and see......
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10 December 2007

My Mistake - the "Defered Tax" in AirAsia's profit

In AirAsia's financial statement, There's a very important item, named "deferred tax". I didn't have any idea about what is it and what it means. (because I was a science-stream student, and never learn about accounting in school). I thought that it's some kind of complex taxing calculation, and I'd just ignored it in my previous analysis of AirAsia.
But, later I found that this "deferred tax" play an important role in AirAsia's financial statement. It made up about 20% of AirAsia's equity, and more than 40% of AirAsia's PAT! So, I think it's a MUST to understand what is it, and where it comes from.
After some readings and studies, I've get some idea about this "deferred tax". I understand that, due to the International Accounting Standard, this "deferred tax" is allowed to be recorded in an income statement. But I really doubt that this is a proper practice in reflecting the financial performance of a company.
The "deferred tax" item in AirAsia, for example, represent the tax credit given to the company. Though this tax credit is incurred during current year due to the company'sCAPEX, it can only be realised/utilised in the future, i.e. when AirAsia is asked to pay a tax in the future, it can utilise the the tax credit, and save a lots of cash from the taxes it should pay.
My conclusion is, a "deferred tax" recorded in the income statement of a particular year actually bring no cash-flow into the company during that year. That's not an earning (at least in my opinion), just a future savings of tax. Showing the "deferred tax" in the income statement means recording a tomorrow cash-flow in today's statement. It's some kind of accounting technique to "polish" the financial performance of a company".
So, I've to do a new valuation on AirAsia. According to it's Q4-FY2007 statement, its EPSis about 21 sen, quite a good income. But if we exclude the deferred tax item from its income statement, its EPS is only 12 sen. If we exclude also the special item ("other operational income"), AirAsia's EPS for FY-2007 will become 8 sen only. This will give aPER value of about 25, quite a high number for a conservative investor like me. So, the share price of RM1.90 now is not as attractive as what i thought before.
However, the latest financial report shows that AirAsia still pose a very good prospect in the coming years. It's quite likely to have a 50% growth in PAT this year. So now... I'll hold its stock and continue to monitor its performance. If its EPS for FY-2008 (excludingdeferred tax) can grow to a value not less than 15 sen, I'll consider to keep accumulating AirAsia's stock.

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22 October 2007

On Time Performance of AirAsia & other airlines.

one reason I think AirAsia will continue to growth is its great on-time performance. An airlines that has a consistent punctuality will win the customers' respect and build up its name, thus gain a bigger market share in long run.
In this article, I just want to show: how good actually is the the on-time performance of AirAsia?
Here's the figures I get from AirAsia's website:
* a flight is considered on-time if it departs no later than 15 minutes from the schedule time.
AirAsia on-time performance 2007-09

From the chart, its two months (Aug & Sep) average performance is about 88%, Three months average (Jul~Sep) is about 85%.
We have to make a comparison to show how good is this figures. First, Lets compare the on-time performance of Jetstar Airways. (data from jetstar's website:http://www.jetstar.com/).
Jetstar on-time performance 2007-09

We can see that the on-time performance of AirAsia is as good as Jetstar's. And, Jetstar is the winner of the Best Low-cost Airlines (worldwide) in Skytrax's World Airline Awards 2007. I think this shows that AirAsia's performance is among the best in the world. (of cource, in this comparison, we assume that the figures announced on both airlines' website are true and reliable.)
Then, how about the comparisons with others airlines?
After some searching through the internets, I found that most Airlines do not publish theiron-time performance on their web-site. However, we can get some statistics fromhttp://www.flightstats.com/. Although the figures at this website only reflect the 20 most active routes for each airlines, it shouldn't be much different from the actual values.
Here's the figures I get from the website for some of the best airlines worldwide:
(statistic period: 15-Aug 2007 ~ 15-Oct 2007)
Low Cost Carriers:

Air Berlin	80%
easyJet	80%
Jetblue Airways	76%
Jetstar Airways	81%
Southwest Airlines	83%
Tiger Airways	85%

Full Service Carriers:

Singapore Airlines	84%
Thai Airways	79%
Cathay Pacific Airways	75%
Qatar Airways	73%
Qantas Airways	73%
Malaysia Airlines	76%

(It is quite a strange phenomenon that the LCCs perform better than those full service carrier. I guess maybe it's easier to be on-time for short-range flights. )
Unfortunately, the statistics about AirAsia at http://www.flightstats.com/ is incomplete, because it contains only figures for routes to Macau (which is about 65% on-time). This figures of single destination may be very different from the overall performance of AirAsia. For other routes which they don't have any data, they just quote 0% on-time-performance and 100% flight-cancellation. This does not reflect the real situation.
So, we can't double check the reliability of the on-time performance figures announced at AirAsia's website. However, according to my own experience (I've flown with AirAsia twice in September, and each flight I took depart on-time) and some of my friends' recently, I personally believe that error on the announced figures should be within 5%. So, lets assume that the real figure is 5% lower than the officially announced, the two-month-average performance of AirAsia (Aug & Sep-2007) still stand above80% (88% - 5% = 83%).
Conclusion: AirAsia on-time performance ranks among the best worldwide. Its performance is much better than those full service carrier like MAS, giving it an opportunity to grab a bigger market share in the future. I belive LCC model will continue to shake the aviation industry, and AirAsia will continue to grow and become the leading LCC in the reagion.

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How big is the brand "AirAsia"?

27 August 2007

How big is the brand "AirAsia"?

Some people around me always travel in flight due to their job. Hence, I'd heard a lots from them about AirAsia and MAS. And from their mouth, I know the conditions of the services and performances of these airlines.Here are my observations on the growth in AirAsia during these years:
One or two years ago, people still don’t like AirAsia. They choose AirAsia just because it is cheap. People has a lots of complains like:

Attitude of its staff were bad.

The food on flight is not good enough.

It doesn’t assign seat numbers for passengers.

Boarding onto AirAsia’s flight is a bit mess up, just like getting on a bus.

Delays and cancellations are common.

Some rumors said that AirAsia sometimes combined the passengers of two flights into one.

Actually, most of these negative impressions arise from people’s over-expectation on AirAsia to meet the same standard as other airlines, because most people that took AirAsia didn’t have any experience with other LCC. They can only compare AirAsia to their previous experience with normal airline, especially MAS. We all know that, MAS is famous (worldwide) for its good service and excellent attitude. (always, I heard that MAS flight attendances are all quite beautiful too). In fact, MAS wins the Skytrax's Best Cabin Staff Award for many years. So, the quality of AirAsia’s services is just too bad as compared to MAS.
while AirAsia is keep improving, people now gradually get used to AirAsia’s no-frill style – no ticket, no assigned seat, no free meal, etc.
An important improvement of AirAsia is the reduction of delayed flight. AirAsia’s on time performance for the past six months is about 85%. Some of my friends now prefer AirAsia than MAS, even when they are on an official trip (means they don’t have to pay for the air tickets, their employers will pay for them), simply because they are fed up with the (infamous) flight-delays of MAS.
Another reason they prefer AirAsia is that AirAsia makes their schedules more flexible, because it has a higher flight frequency than MAS. They have more choice for the departure time.
So now, the name “AirAsia” means a lots.

It means “cheap”. This is the most sucessful brand image for AirAsia. When I fly, I definitely choose AirAsia; because I know that with AirAsia I'm having the lowest fare.
It also means “less delay”, as compared to MAS.
It means “more choice” for departure time, due to its high flight frequency.

AirAsia today has gradually become an airline that people prefer to fly with, not only due to the economic consideration. That’s what we call “the power of brand”.

Besides my own observations, there are some supporting points that AirAsia is a greatbrand:

In the new released World Airline Awards® year 2007, AirAsia ranks no.1 in Asia region for the Best Low-cost Airline Award. (The Skytrax’s World Airline Awards® are recognized around the world, and renowned for being the only truly global, Independent passenger survey of airline standards.)
Recently, a new AirAsia Credit Card was launched. The issuer of this new AirAsia’s card is Citibank. As we know, Citibank is the top-brand in credit card service. Citibank is now partnered with AirAsia...... I think this means something.
Couple of weeks ago, the Virgin’s Group announced that it’ll take up 20% in FAX. There are total five airlines under Virgin Group, each of them carry the word "Virgin" in their name, e.g. Virgin Atlantic, Virgin America, etc. But this time, instead of using its “Virgin” brand, FAX is renamed to "AirAsia X" to start its long-haul LCC business. As Tony said, “AirAsia brand is very big, bigger than Virgin out here.”

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21 August 2007

Reasons of buying AirAsia

In value-investment, you must be able to list downs the attractive features of a company that you're investing in. If your text can't cover for (at least) half page of a paper, it's probably that you're not quite understand this company, and this investment can't be considered a secure one.
So, I decided to list down all the reasons for every company that I buy. I start with AirAsia, because this is my latest investment. I'm still quite excited that I found this company for investment.
I invest in AirAsia, because it's a great company, due to the following reasons:-

Simple business model that I can understand.
A growing company in a growing industry.
Great management – Tony Fernandes
High profitability – It has a high profit margin compared to the other LCCs.
Leader in the industry – Best Low-cost Airline Award (rank no.1 in Asia region), year 2007 .
Strong Brand Name - high value of intangible asset.

Above reasons show how good is the AirAsia. I'll elaborate these points one by one in the following comments.But, no matter how good is a company, it's not a good investment if the price is high. I have to make sure that I'm not paying too much for it. Here's my own analysis based on its 3Q-2007 report:

AirAsia's stock price is around RM1.80 today. 9-month profit for FYE2007 is about RM0.13 per share. this means its PER for 2007 is about 10 to 12.
its 9-month revenue grow 53%, and the 9-month profit before tax grow 190% as compare to 2006.
based on its growth in fleet size from 50 aircrafts (this year) to about 150 (year 2013), my estimation for its average growing rate in the next five years is about 25% per annum.
The ratio of PE to its growth rate is less than 0.5, so the price may be considered cheap. (This is an analysis technic suggested by Peter Lynch).
its net asset per share is just 64sen. This is less comfortable for a secure investment. But AirAsia has a great value of intangible asset - its brand name.

As a conclusion, I'll continue to accumulate AirAsia stock as long as its price is still below RM2.00.
And I hope that my holding period for this stock is...... forever.
.
[updated 3/11/2008]: Months after holding AirAsia, I had found several accounting pitfalls in the statements of AirAsia. In short, AirAsia's performance is not as good as I thought before (i.e. when I wrote this post). For more details, pls refer to my other posts tagged "airasia".
.

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14 August 2007

Discover the low-cost-carrier - AirAsia

The first time I heard about AirAsia, is from friends around me.
People start talking about AirAsia.
“AirAsia’s ticket is very cheap”,
“It’s a new airline, you can fly with only RM9.99”
“now flying to Penang is cheaper than driving”
wow, this company is really cool....
I love Airasia, because she makes “every one can fly”.
and She makes me able to fly.
Before the existence of AirAsia, I never fly. The air tickets are just too expensive. Being attracted by its “One Million Free Tickets” promotion and the low prices, I had been flying with AirAsia more than ten times during past twelve months. And because of AirAsia, I and my wife can have our honey-moon in Bali.
Thanks to AirAsia.
When flying with AirAsia, I found that it is almost full-loaded in every flight, especially during weekends. When the price is cheap, just about every one likes to take a flight.
So, some voices come into my mind,
“I like this company, she really makes every one fly”
“this company must be making plenty of $$$$$”
“Buy its share!”
A lots of people don’t believe in the business model of AirAsia.
“the air tickets are so…… cheap…..!!!!”
“how can it make profit out of that….???”
“the low price is just temporarily, it will raise the price later, or it may not survive”
“how long can it last before going to bankrupt?”
But for me, I believe in the magic of Wal-Mart:
The lower is your price, the more money you make.
And I really love the phrase sound: “the more you help people to save their money, the more $$$$ you get from them”
Wow, this is the greatest idea in the world. The feeling of “earning money while helping people to save money” is just like “getting rich while doing charity”. Sounds cool……
And, you know, AirAsia is doing the same thing as Wal-Mart. So, I decided study this company.

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How big is the brand "AirAsia"?