AirAsia X may be beneficiary of high air cargo rates
In this report, we flag direct beneficiaries of air cargo rates that have been reaching for the sky (pun intended) as a result of the on-going COVID-19 pandemic. Private air cargo operators like MAS Kargo and Raya Airways have been generating large profits with only a handful of planes. Our research reveals that hitherto battered AirAsia X could be the next listed beneficiary of high air cargo rates. Note that we do not cover AirAsia X and thus, have no estimates or rating on the company.
Air cargo rates are sky high due to COVID-19
Air cargo rates are at multi-year, if not record, highs. This is due to less belly cargo capacity, supply chain disruptions and higher demand for ecommerce and personal protective equipment – all caused by COVID-19 – that have driven the recent rally in air cargo rates. In fact, air cargo rates appear to be tracking the number of new COVID-19 cases worldwide higher. Compare and contrast this to glove prices which have been easing due to oversupply concerns despite the still raging COVID-19 pandemic and
gloves being a necessary personal protective equipment. In summary, we opine that air cargo rates are direct beneficiaries of the aforementioned disruptions caused by the on-going COVID-19 pandemic.
MAS Kargo and Raya Airways generating large profits
Thanks to surging air cargo rates, MAS Kargo (Not Listed) and Raya Airways (Not Listed) have been generating large profits. In FY18A, MAS Kargo generated only MYR33.2m in net profit and Raya was loss-making. In FY20A, MAS Kargo generated a whopping MYR351.1m in net profit and Raya generated MYR99.7m in core net profit. Yet, air cargo rates climbed even higher in FY21A suggesting that both companies generated even higher profits in FY21A. In our view, Raya is especially noteworthy given
that it operates only 4 very old planes and yet managed to generate nearly MYR100m in core net profit in FY20A and likely generated even more profits in FY21A.
AAX to be the next listed air cargo play?
Emerging from a debt restructuring, AirAsia X (AAX MK, CP: MYR0.06, Not Rated) is now effectively debt free. AAX also managed to reduce the monthly lease rate payable to lessors for its A330-343s by c.60%. For added flexibility, AAX will not have to pay lessors if it does not fly over the next 2 years. Going forward, AAX will reduce its fleet size to 13 but it will still be more than 3x that of Raya and pivot from passenger to cargo. On 26 Jan 2022, AAX announced a major new air logistics partnership with GEODIS (Not Listed) to provide air cargo capacity. Currently, 5 planes are operational. Going forward, AAX expects to have 13 planes operational by mid-2022. AAX believes that it can be profitable with only 6 planes operational.