Equity Analysis /
Thailand

Asia Aviation PCL: Headwind? Airplanes take off against the wind, not with it!

  • 2Q22 red ink, but a good entry point …

  • …ahead of an upsurge in travel demand …

  • …in the face of limited supply growth

Kijapat Wongmetta
Kijapat Wongmetta

Equity Research Analyst

Bualuang Securities
2 June 2022

The rising jet fuel price remains a headwind for aviators and AAV will again report red ink for 2Q22. But we view this as a sweet entry point. Travel demand is recovering and will normalize by 2023, while industry-wide capacity is expanding at a slower pace. We expect the post-COVID competitive environment among airlines to ease compared with the pre-COVID era. BUY!

2Q22 red ink, but a good entry point …

Fuel costs comprise 15-20% of AAV’s expenses, so high oil prices look set to be a headwind in the short-term. But we expect the resumption of domestic and international flights to outweigh the effect of rising fuel costs, so our model points to AAV marking a shallower QoQ core loss for 2Q22. The firm is currently operating at only half of its capacity, so the effect of higher fuel costs is muted. And it may mitigate that impact by raising fares. Looking further ahead, when oil prices decline in 4Q22, AAV’s fares will already be high and its flights fully booked.