AirAsia X rights issuance; Airlines under pressure to reduce fares

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By TESTCustomwebLP TESTCustomwebLP January 29, 2015 21:26

AirAsia X rights issuance; Airlines under pressure to reduce fares

It has been widely reported that AirAsia X Bhd is planning to raise RM500 million (approx. $137.7million) via a rights issue and a private placement. The proceeds will be use to strengthen the loss-making airline’s balance sheet. A launch is expected for tomorrow if the issuance is approved by the board.

The RM 400 million proposed rights issue, source says, will be one new share for every two existing shares, with the proposed RM100million private placement consists of 10% of the enlarged issued and paid-up share capital.

AirAsia X will release its fourth quarter results in February where analysts expect the airline to show a return to profit. For the third quarter, AirAsia X reported a net loss widen 84.8% to RM210.85 million from RM128.79 million in the second quarter of 2014 due to higher operating expenses, foreign exchange losses and finance costs.

The airline is also suffering from a change in top management. CEO Azran Osman-Rani is reported to be serving leave pending a replacement, while previous group head of investor relations Benyamin Ismail is now deputy CEO. CFO Chew Eng Loke is rumoured to be leaving the company, although this is unconfirmed at the time of writing

Meanwhile, parent AirAsia Bhd (AirAsia) is buying a 40% stake in Tune Money, the online payment provider, for RM10 million cash from its own funds. The low-cost carrier has signed a shareholders’ agreement with Tune Money International and Tune Money to buy 54 million new 10-sen shares in Tune Money.

AirAsia has also signed a commercial agreement and merchant agreement with Tune Money to sell and distribute prepaid card products developed by Tune Money to be targeted and marketed to AirAsia customers.

“The acquisition of shares in Tune Money will position AirAsia to take full advantage of the future growth of electronic money, projected to expand rapidly, especially in emerging markets such as Asean,” the company said in a filing to Bursa Malaysia.

“Tune Money holds an e-money licence from Bank Negara that has become more difficult to secure due to recent regulatory tightening under the Financial Services Act 2013. As a business that relies heavily on online transactions, AirAsia would benefit from acquiring a stake in a company that holds such a licence, as this would allow AirAsia to direct future development to ensure suitable products and best terms for AirAsia.”

AirAsia also plans to list Tune Money in the next five years.

Meanwhile, the mainstream media is awash with calls for the world’s airlines to reduce airfares in the wake of falling oil prices. Governments around the world are pressurising carriers to reduce fuel surcharges and pass on the benefit of fuel savings to their passengers. Some, including AirAsia X have already cut fares, others are more resistant. To quote Cowen & Co’s Helene Becker, who spoke at the Airline Economics Growth Frontiers Dublinconference last week: “Why should airlines reduce fares when demand is so high?”

It’s true. Demand is high. The latest figures from IATA show healthy air travel demand.
In the 12 months to November 2014, total revenue passenger kilometres (RPKs) rose 5.8% compared to the year-ago period, while capacity grew by 5.6% growth. Load factors are also healthy at 79.8%.

Even though airlines are slow to cut fares, governments are even slower to cut taxes. In a recent speech, IATA’s Tony Tyler made the excellent point that taxation of European aviation is now around $40 billion a year, twice that of the Asia-Pacific region. “The UK’s Air Passenger Duty is the most egregious example of excessive taxation, but taxes in Germany, Austria and elsewhere continue to hold back air connectivity in those countries. And new tax proposals keep emerging: in the last two months alone, passenger tax suggestions have emerged in Portugal and Sweden.”

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By TESTCustomwebLP TESTCustomwebLP January 29, 2015 21:26