Author: Tan KW | Publish date: Wed, 2 Sep 2015, 10:45 AM
September 1, 2015
By V Bharathi
AirAsia CEO Tony Fernandes isn’t known as someone who likes explaining his decisions. His management style seems to be good old-fashioned hard work with a smile.
One would think he has seen it all. Not quite, as he now gears up to meet the mother of all crises in moving his business to the next growth phase.
So when a major crisis erupted early this year on issues related to accounting procedures within the group, Tony’s quick and forceful response came as a major surprise to the corporate world. It clearly reflected the urgency of the issue. If not handled with tact, it could leave a damaging public perception of the airline business. Earlier, Maybank Research had noted that there were plenty of uncanny cost fluctuations relating to aircraft disposals and termination charges which it didn’t anticipate.
Tony steadfastly maintains that all is well and that a turnaround is around the corner. He sticks by his claim that a strategic investment is underway, which would substantially help him deal with his many problems and put the airline back on a strong flight path.
But over the past few months, very little has changed in the troubled airline.
The latest blow came on August 21, when the airline’s half year financial statement acknowledged its difficulties. Its share price subsequently plummeted to hit the historic low of 0.765 sen, reflecting falling investor confidence. At one point since its listing on Bursa Malaysia, the stock traded at a peak of RM4.00. That was in 2011.
AirAsia is no doubt an undisputed leader, a powerful brand in the world of low-cost travelling. It has attracted the attention of travellers worldwide with its unique business approach. Now it finds itself up against a serious image problem which this year alone has wiped out billions in market capitalisation.
As one research analyst says, “AirAsia, with such dominance of the marketplace, has found itself boxed into the corner.”
Analysts agree that the following are the main factors that have turned the tide against Tony:
Looking back, it has been a long downward journey for the airline. Yet, there are still hurdles going forward, some related to raising capital requirements, finding new investors and tackling the debt woes in an economic environment that is increasingly worrying to the corporate community.
Yet, optimism remains high in some corners. This is attributed to the presence of the man himself, the “indomitable” Tony Fernandes.
Most research analysts agree with one who said, “If there is one positive factor with AirAsia, it is Tony. You can bet on him to ride this out. He is one of the most capable guys, with a phenomenal ability to understand customers and evolving trends in the airline business. He remains much admired by the business community.”
Another analyst adds, “Always remember how he started with a RM1 stake in a loss-making airline and turned it into the most recognized brand in the world. The airline business is tough. There’s a long history of ugly problems, but most have recovered and are thriving well today.”
Consolidation phase
So can Air Asia shares be bought now? The consensus with most research houses is “Yes.”
It all comes from a slew of reports issued by TA Securities, MIDF, Public Investment Bank, Maybank Kim Eng, Affin Hwang Capital,
Kenanga and Hong Leong investment among many others, pointing that the current weakness represents a good opportunity to accumulate. A consolidation phase should come next.
These bullish calls are being governed by a single major factor: that the fundamentals of the airline are intact.
Tony has a daunting task at hand – to regain the confidence of a wide group that includes bankers, investors, employees and, most important, AirAsia flyers. And although this isn’t the first time he has faced tough decisions in his long career as chief of the airline, this arguably would be his toughest, given that the airline business is highly capital intensive with high operative costs and razor thin margins.
He therefore is under tremendous financial pressure. The markets will have a clear indication of his plans when he attempts to meet Indonesia’s September deadline for compliance with equity restructuring requirements.
The hope of Tony winning his battles is bright, but the key to success rests with three factors within the operational parameters: robust demand, better pricing power and cost control to improve margins.
Meanwhile, a sense of calm and tenuous spirit conciliation has emerged within the airline as it seeks to meet the tough challenges ahead.
V. Bharathi is an FMT columnist.
With a firm belief in freedom of expression and without prejudice, FMT tries its best to share reliable content from third parties. Such articles are strictly the writer’s personal opinion. FMT does not necessarily endorse the views or opinions given by any third party content provider.
Most analysts are betting that he can.
COMMENT
By V Bharathi
AirAsia CEO Tony Fernandes isn’t known as someone who likes explaining his decisions. His management style seems to be good old-fashioned hard work with a smile.
One would think he has seen it all. Not quite, as he now gears up to meet the mother of all crises in moving his business to the next growth phase.
So when a major crisis erupted early this year on issues related to accounting procedures within the group, Tony’s quick and forceful response came as a major surprise to the corporate world. It clearly reflected the urgency of the issue. If not handled with tact, it could leave a damaging public perception of the airline business. Earlier, Maybank Research had noted that there were plenty of uncanny cost fluctuations relating to aircraft disposals and termination charges which it didn’t anticipate.
Tony steadfastly maintains that all is well and that a turnaround is around the corner. He sticks by his claim that a strategic investment is underway, which would substantially help him deal with his many problems and put the airline back on a strong flight path.
But over the past few months, very little has changed in the troubled airline.
The latest blow came on August 21, when the airline’s half year financial statement acknowledged its difficulties. Its share price subsequently plummeted to hit the historic low of 0.765 sen, reflecting falling investor confidence. At one point since its listing on Bursa Malaysia, the stock traded at a peak of RM4.00. That was in 2011.
AirAsia is no doubt an undisputed leader, a powerful brand in the world of low-cost travelling. It has attracted the attention of travellers worldwide with its unique business approach. Now it finds itself up against a serious image problem which this year alone has wiped out billions in market capitalisation.
As one research analyst says, “AirAsia, with such dominance of the marketplace, has found itself boxed into the corner.”
Analysts agree that the following are the main factors that have turned the tide against Tony:
- Travellers were shocked by the crash of AirAsia’s Flight QZ8501 in stormy weather en route to Singapore from Surabaya, which killed all 162 people on board. The airline had often been viewed as a safe travel option.
- When allegations emerged that it was an unauthorised flight breaching Indonesian regulations, there was widespread selling of AirAsia shares.
- GMT, a research outfit in Hong Kong, released a devastating report questioning AirAsia’s accounting deliberations. This became a nightmare for Tony.
- There was the disappointing financial performance, where for the current six months of 2015, the net profit dropped 22.6% to RM392.36 million from RM506.87 million while revenue was flat at RM2.62 billion.
Looking back, it has been a long downward journey for the airline. Yet, there are still hurdles going forward, some related to raising capital requirements, finding new investors and tackling the debt woes in an economic environment that is increasingly worrying to the corporate community.
Yet, optimism remains high in some corners. This is attributed to the presence of the man himself, the “indomitable” Tony Fernandes.
Most research analysts agree with one who said, “If there is one positive factor with AirAsia, it is Tony. You can bet on him to ride this out. He is one of the most capable guys, with a phenomenal ability to understand customers and evolving trends in the airline business. He remains much admired by the business community.”
Another analyst adds, “Always remember how he started with a RM1 stake in a loss-making airline and turned it into the most recognized brand in the world. The airline business is tough. There’s a long history of ugly problems, but most have recovered and are thriving well today.”
Consolidation phase
So can Air Asia shares be bought now? The consensus with most research houses is “Yes.”
It all comes from a slew of reports issued by TA Securities, MIDF, Public Investment Bank, Maybank Kim Eng, Affin Hwang Capital,
Kenanga and Hong Leong investment among many others, pointing that the current weakness represents a good opportunity to accumulate. A consolidation phase should come next.
These bullish calls are being governed by a single major factor: that the fundamentals of the airline are intact.
Tony has a daunting task at hand – to regain the confidence of a wide group that includes bankers, investors, employees and, most important, AirAsia flyers. And although this isn’t the first time he has faced tough decisions in his long career as chief of the airline, this arguably would be his toughest, given that the airline business is highly capital intensive with high operative costs and razor thin margins.
He therefore is under tremendous financial pressure. The markets will have a clear indication of his plans when he attempts to meet Indonesia’s September deadline for compliance with equity restructuring requirements.
The hope of Tony winning his battles is bright, but the key to success rests with three factors within the operational parameters: robust demand, better pricing power and cost control to improve margins.
Meanwhile, a sense of calm and tenuous spirit conciliation has emerged within the airline as it seeks to meet the tough challenges ahead.
V. Bharathi is an FMT columnist.
With a firm belief in freedom of expression and without prejudice, FMT tries its best to share reliable content from third parties. Such articles are strictly the writer’s personal opinion. FMT does not necessarily endorse the views or opinions given by any third party content provider.
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