Headline net profits were generally above/in line with our forecasts but
below consensus. 50% of the airlines beat our 1H12 forecasts, 31% in line and
19% below. 31% of airlines beat market forecasts, 19% in line and 50% below.
Top line still growing. Revenue grew 10% y/y on average but was flat h/h for
the sector. SpiceJet (+52% y/y), Jet (+28%) and Virgin (+21%) were the leaders
while MAS (-4%), Tiger (flat) and China Airlines (+2%) were the laggards.
Pax load factors quite steady but yields improved. Pax traffic (RPK) rose 8%
y/y on average, ahead of the sector’s 7% capacity (ASK) growth, resulting in a
0.4ppt improvement in PLF to 78.0%. Pax yields improved, partially passing on
the higher fuel costs. Yield rose 5% y/y on average but fell 1% h/h.
Cargo traffic and capacity fell 3% y/y on average. CLF fell 0.6ppts y/y to
66.3% on average. Cargo yield fell 1% y/y but was stable h/h on average.
Rising non-fuel cost is a concern. Unit cost ex-fuel rose 4% but fell 1% h/h on
average. China Southern (-2%), MAS (-2%) and China Airlines (-2%) did best
while SpiceJet (+27%), Tiger (+13%) and Virgin (+7%) were the worst.
EBITDAR margins held up at 14.7% on average, up 0.3ppts y/y and 0.8ppts
h/h. AirAsia ranked first at 33.8%, followed by Cebu (20.8%), Air China
(19.8%). Tiger (7.0%), Cathay (8.6%), MAS (8.9%) were the bottom three. 88%
of the airlines generated positive operating cash flow in 1H12. Operating C/F
was steady y/y on average but 5% lower h/h.
65% of the airlines were loss-making at the net profit level and 40% at the
recurring level. NP margin was 1.5% on average. Recurring profit margin was
negative 0.7% on average. AirAsia (9.3%), Cebu (4.9%), THAI (3.9%) were the
top 3 while TGR (-9.0%), MAS (-8.7%), SpiceJet (-7.0%) were the weakest.
ROE erosion continued. Annualized ROE was -5.5% on average. Cebu ranked
1st at 17.3%, followed by AirAsia (12.0%), CEA (10.0%). Jet was in negative
equity and MAS (-82.2%), TGR (-24.7%) suffered the largest equity erosion.
Aircraft purchases lifted capex. Capex rose 63% y/y and 27% h/h on average.
EVA (+617% y/y), Garuda (+298%), Asiana (+72%) increased capex the most
while QAN (-51%), AirAsia (-39%), Air China (-15%) cut their capex the most.
Leverage rose. ND/E was 1.9x on average. SIA (net cash), Garuda (0.2x) and
Cebu (0.5x) had the strongest B/S while Jet (negative equity), KAL (6.6x) and
MAS (4.1x) had the weakest. ND/E rose 35ppts y/y, 22ppts h/h on average.
Forward bookings point to a positive trend but reliability has weakened as
customers tend to book later now. Advanced sales rose 7% y/y on average and
6% h/h which is positive. China Southern (+35% y/y), AirAsia (+29%) and
Garuda (+23%) had the strongest growth in advance sales while MAS (-20%
due to restructuring), Tiger (-4%) and China Airlines (-4%) had the weakest
advance sales. On a h/h/ basis, Garuda (+43%), Korean Air (+33%) and Tiger
(+16%) led while Asiana (-28%), CSA (-14%) and Air China (-6%) lagged.
Our 2H12 earnings expectations remain more conservative than the
market: Our forecasts are c.23% below consensus. This is likely due to our
more conservative yield assumptions as the airlines are discounting more to fill
the planes as the industry is suffering from oversupply. The recent rebound in
fuel prices is negative. Rising financial leverage and financing costs will likely
put pressure on profit margins as well.
1H12 Airline Results Wrap
Net profit was generally above/in line with our forecast but below consensus
1H12 net profit results versus JPM estimates: 50% of the airlines beat our belowconsensus
forecasts, 31% were in line and 19% were below.
1H12 net profit versus consensus estimates: 31% of airlines beat market forecasts,
19% were in line and 50% were below.
Core proft was generally above/in line with our forecast but below consensus
1H12 core profit results versus JPM estimates: 44% of the airlines beat our belowconsensus
forecasts, 38% were in line and 19% were below. 1H12 core profit versus
consensus estimates: 25% of airlines beat market forecasts, 19% were in line and
56% were below.
Top line still growing
Revenue grew 10% y/y on average but was flat h/h for the sector. SpiceJet (+52%
y/y), Jet Airways (+28%) and Virgin Australia (+21%) were the leaders while MAS
(-4%), Tiger Airways (flat) and China Airlines (+2%) were the laggards.
Passenger load factors quite steady
Passenger traffic (RPK) rose 8% y/y on average, ahead of the sector’s 7% capacity
(ASK) expansion, resulting in a 0.4ppt improvement in passenger load factor to
78.0%.
On a h/h basis, both RPK and ASK grew 2% so PLF was only 0.1ppt higher.
SpiceJet (+18% y/y), Garuda (+16%) and ANA (+16% partly due to the low base last
year post Japan tsunami) led RPK growth while MAS (-12% due to restructuring),
Tiger (-5% due to Tiger Australia’s smaller operations this year versus last year
following its suspension) and China Airlines (+3%) lagged.
SpiceJet (+21%), Cebu (+18%) and Garuda (+14%) pumped in the most capacity
while MAS (-6%), Tiger (-2%) and Qantas (+4%) had the least.
Cebu Air had the highest passenger load factor at 83.8%, followed by Jet (82.3%)
and Tiger (81.8%). ANA (65.6%), MAS (73.5%) and Garuda (74.8%) had the
lowest.
In terms of load factor improvement y/y, THAI (+8ppts), ANA (+6ppts) and Jet
(+4ppts) did best while MAS (-5ppts), Tiger (-3ppts) and Virgin Australia (-3ppts)
suffered the largest decline in PLF.
Yields improved, helping to partially pass on the higher fuel costs
Passenger yield improved 5% y/y on average but fell 1% h/h. SpiceJet (+30% y/y),
Virgin (+17%) and Jet (+16%) led while ANA (-12%), SIA (-3%) and Cebu (-2%)
suffered the biggest declines.
Cargo demand still weak but yields have stabilized
Cargo traffic (FTK) and cargo capacity (AFTK) fell 3% y/y on average. Cargo load
factor fell 0.6ppts y/y to 66.3% on average.
On a h/h basis, FTK/AFTK fell 8%/7% on average. CLF was flat h/h on average.
China Eastern (+18%), China Southern (+15%) and Asiana (+4%) reported the
strongest growth while MAS (-15% due to restructuring), Korean Air (-11%) and
EVA (-11%) suffered the biggest decline.
China Eastern (+15%), China Southern (+12%) and Asiana (+2%) pumped in the
most capacity while MAS (-16% due to restructuring), Korean Air (-11%) and EVA
(-11%) cut the most capacity.
EVA Air had the highest cargo load factor at 82.6%, followed by Asiana (80.1%)
and Korean Air (75.8%). China Southern (50.6%), THAI (55.0%) and Air China
(56.9%) had the lowest.
In terms of load factor improvement y/y, Asiana (+2ppts), China Eastern (+2ppts)
and MAS (+2ppts) did best while Cathay (-4ppts), THAI (-4ppts) and Air China (-
3ppts) suffered the largest decline in CLF.
Cargo yield fell 1% y/y and was stable h/h on average. THAI (+2%), EVA (+1%)
and MAS (flat) did best at supporting yields while Air China (-6%), China Eastern (-
5%) and Asiana (-4%) suffered the biggest yield erosion.
Rising non-fuel cost is a concern
Unit cost rose 4% y/y but fell 1% h/h on average. China Airlines (-3%), ANA (-1%)
and EVA (-1%) did best while SpiceJet (+23%), Jet (+11%) and Tiger (+10%) were
the worst.
Unit cost ex-fuel also rose 4% but fell 1% h/h on average. China Southern (-2%),
MAS (-2%) and China Airlines (-2%) did best while SpiceJet (+27%), Tiger (+13%)
and Virgin (+7%) were the worst.
EBITDAR margins held up well
EBITDAR margin was 14.7% on average, up 0.3ppts y/y and 0.8ppts h/h. AirAsia
ranked first at 33.8%, followed by Cebu Air (20.8%) and Air China (19.8%). Tiger
(7.0%), Cathay (8.6%) and MAS (8.9%) were the bottom three.
Most still cash flow positive
88% of the airlines generated positive operating cash flow in 1H12. Operating
cashflow was flat y/y on average but 5% lower h/h. Garuda (+117%), THAI (+102%)
and MAS (30%) improved their operating C/F the most while Air China (-57%),
Cebu (-54%) and Cathay (-47%) suffered the biggest deterioration.
Net losses prevalent
65% of the airlines were loss-making at the net profit level and 40% at the recurring
profit level. Net profit margin was 1.5% on average. AirAsia led with a 58.2% NP
margin (due to the gains related to Thai AirAsia), Cebu Air (8.8%) and THAI (2.1%)
while Tiger (-8.8%), MAS (-8.3%) and SpiceJet (-7.5%) were the bottom three.
Recurring profit margin was negative 0.7% on average. AirAsia (9.3%), Cebu Air
(4.9%) and THAI (3.9%) remained the top 3 while Tiger (-9.0%), MAS (-8.7%) and
SpiceJet (-7.0%) were the least profitable.
ROE erosion continued
Annualized ROE was negative 5.5% on average. Cebu Air ranked the highest at
17.3%, followed by AirAsia (12.0%) and China Eastern (10.0%). Jet Airways was in
negative equity and MAS (-82.2%), Tiger (-24.7%) suffered the largest equity
erosion.
Investment in new aircraft continued to drive up capex
Capex rose 63% y/y and 27% h/h on average. EVA Air (+617% y/y), Garuda
(+298%) and Asiana (+72%) increased their capex the most while Qantas (-51%),
AirAsia (-39%) and Air China (-15%) cut their capex the most.
Financial leverage rose
Net debt-equity was 1.9x on average. SIA (net cash), Garuda (0.2x) and Cebu Air
(0.5x) had the strongest balance sheet while Jet Airways (negative equity), Korean
Air (6.6x) and MAS (4.1x) had the weakest.
Net debt-equity rose 35ppts y/y and 22ppts h/h on average. Korean Air (+318ppts),
MAS (+314ppts) and China Eastern (+90ppts) reported the sharpest rise in gearing
while Tiger Air (-86ppts post rights issue), China Airlines (-40ppts post share
placement) and AirAsia (-38ppts) saw the largest decline in gearing level.
Forward bookings point to positive trend but reliability has weakened as
customers tend to book later now
Advanced sales rose 7% y/y on average and 6% h/h which is positive. China
Southern (+35% y/y), AirAsia (+29%) and Garuda (+23%) had the strongest growth
in advance sales while MAS (-20% due to restructuring), Tiger (-4%) and China
Airlines (-4%) had the weakest advance sales.
On a h/h/ basis, Garuda (+43%), Korean Air (+33%) and Tiger (+16%) led while
Asiana (-28%), China Southern (-14%) and Air China (-6%) lagged.
Our 2H12 earnings expectations remain more conservative than the market
Our forecasts are c.23% below consensus. This is likely due to our more conservative
yield assumptions as the airlines are discounting more to fill the planes as the
industry is suffering from oversupply. The recent rebound in fuel prices is negative.
Rising financial leverage and financing costs will also put pressure on profit margins.
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