Things has not been smooth in Airasia Bhd (KLSE: AIRA) lately. After the much debated share swap deal with Malaysia Airlines (KLSE: MAS) fell apart in 2012, Airasia has been facing challenges after challenges.
It is currently in a price war in its home market of Malaysia, mainly from MAS and the newly formed airline, Malindo Air. It is also faced with huge competition in India from getting the approval to start a new budget airline there. To top it all, it is pressured to move to the new airport KLIA2, even when it has argued the airport is less than ready to be operating. We are already starting to see problems with the transfer. The challenges are quite well known, the share price has since fallen from RM 3.80 to around RM 2.20 this week, which is about a 40% drop.
Are these problems permanent?
Every crisis might be is an opportunity; there is no doubt that Airasia might be facing short term earnings pressure due to the price war. However, as its group CEO, Tan Sri Tony Fernandes, often says “Low-cost is the key”. Airasia continue to be the lowest cost airline in Malaysia and in the region, it is still making reasonable profits for its shareholders while its competitor such as Malaysia Airline System ran a loss making operation for years. It might be a matter of the time the competitions throw in the white towel and revert to their normal pricing.
The move to KLIA2 might create many logistic and operation issues in the beginning. Given that Kuala Lumpur is Airasia’s main hub that might have major implication for its operation. However, this might be just an issue related to the startup of the airport, how it might affect Airasia in the long run is yet to be seen.
Value In Action
If the share price of a company drops more than 40%, most value investors should at least take a closer look at the company. Is Airasia a possible turnaround story in the making? Only time will tell.
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim own shares in Airasia Bhd mentioned above.