KUALA LUMPUR: AirAsia Group Bhd’s US$30 billion deal with Airbus to buy 100 units of the A330neo sends a positive signal to investors for the airline’s long-haul operator AirAsia X Bhd, analysts said.
Asian transport equity research firm Crucial Perspective chief executive officer Corrine Png said the low-cost carrier has a stronger relationship with Airbus that went back a long way when the airline was Airbus’ biggest customer for the Airbus A320, which helped to raise the A320 aircraft’s popularity in Asia.
“AirAsia X already operates the A330 aircraft so transitioning to the A330neo will be easier for its flight crew. In addition, AirAsia and Airbus will also explore the possibility of establishing an Aeronautical Centre in Malaysia focusing on aircraft maintenance and training,” she told NST Business last week.
Corrine believed AirAsia X had gotten a better deal from Airbus, with the delivery waiting time shorter than the Boeing 787.
She said it was pragmatic for AirAsia X to future-proof its business by investing in a newer aircraft type, given the higher fuel prices.
“The A330neo is 14 per cent more fuel efficient compared to the airline’s current A330. However, as this is a substantial order, investors may be concerned about whether AirAsia X can finance this given its thin profit margins and whether it can really fill up all these aircraft profitably,” she said, adding that some of these aircraft were likely to be deployed by Thai AirAsia X and Indonesia AirAsia Extra.
Corrine said AirAsia X already operated the A330 aircraft and the transition to the A330neo would be easy for its flight crew, citing that the new plane has five per cent lower maintenance cost.
“Thus, it will help lower its breakeven unit cost, boosting its competitive cost advantage versus peers,” she added.
Corrine said the Malaysian long-haul market looks underserved ever since Malaysia Airlines Bhd underwent restructuring and downsizing.
“Currently, there are only 35 flights per week from Malaysia to Europe, well below 185 flights from Singapore and 174 flights from Thailand. Therefore, travellers from Malaysia will certainly welcome AirAsia X launching more flights to new destinations in Europe,” she added.
MIDF Research aviation analyst Danial Razak said the deal was a positive development for AirAsia X in line with the commitment to expand its fleet size, raising confidence for the airline’s value based long-haul model.
“With more new generation aircrafts expected to fill up its fleet, we expect further reduction on cost per available seat kilometres (ASK) across the group,” he said.
Danial believed the deployment of new generation A330 aircrafts was strategic, taking into account AirAsia X’s ability to induce higher cost-saving in comparison with the older its A330-300 models.
“Few advances made with A330neo include the incorporation of new generation Rolls-Royce Trent 7000 engines, a new optimised wing and increase use of lighter composite materials.
“Altogether, the model is able to bring significant reduction in fuel consumption by 25 per cent than the older generation aircrafts of similar size. Coupled with five per cent saving in maintenance cost, A320neo is able to reduce cost by up to 12 per cent,” he added.
Although the financing structure of the deal had yet to be finalised, he said possible method the airline could take in the form of internal cash flow, debt, or sale-and leaseback agreement.
“According to the company, all the options are equally possible. We believe more clarity will be given moving forward, once they were able to confirm on aircraft deliveries,” he said, adding that the contract period for aircraft deliveries was set to conclude in the next 10 years.
AirAsia co-founder and AirAsia Group Bhd chief executive officer Tan Sri Tony Fernandes said the aircraft would be used to introduce long-haul destinations to Europe including Prague, Vienna and Sweden.
Fernandes said the airline's new long-haul destinations would be operated by its AirAsia X Thailand for the first three units of the A330-900 model. The aforementioned new destinations will be taking-off from Bangkok.
“While the introduction of European route is possible, we incline to believe that ultra-long flight is likely to be shelved at this juncture. This is stemming from the unfavourable oil price trend this year which has averaged at US$68.81 per barrel, an increase of 25.7 per cent since the beginning of the year,” said Danial.