MAS slips on outlook, Virgin Blue gains, Cathay Pacific falls

Asian airline shares were mixed on Thursday (06-Aug-09). Leading the way yesterday was AirArabia, which rose 5.0%, its largest gain on the Dubai Exchange, after being rated “buy” in resumed coverage by Goldman Sachs.

Also up yesterday was Virgin Blue (+3.5%), although the carrier’s share price is slightly down in early morning trading after reporting its Jun-2009 traffic. During the month, domestic passenger numbers were down 4.6% year-on-year, while load factor rose 0.7 ppts, as traffic (RPKs) reductions of 3.6% were exceeded by a 4.6% capacity (ASKs) increase. International passenger numbers increased by 56.9%, as capacity increased 244.7%, due to the addition of V Australia services in 1Q2009. International load factors were down 3.3 ppts.

Virgin Blue faces a number of immediate challenges, including Qantas’ plan to increasingly target SMEs, who represent a key part to Virgin Blue’s strategy, to boost QF's domestic market share and profitability. According to Qantas CEO, Alan Joyce, “we believe that with the SME market our share has not been as good as we'd like it, and it's an opportunity as a business and it's an opportunity we're going to go after".  Qantas shares yesterday gained 0.8%.

Malaysia Airlines, Japan Airlines and Cathay Pacific were all lower yesterday, down 0.3%, 1.2% and 3.6%, respectively.

Malaysia Airlines (MAS) returned to net profitability, due to fuel hedging gains, but the market appeared to focus more on the carrier’s operating loss of USD120.3 million in the quarter, due to sharply lower operating revenue (-32%).

MAS warned that the outlook for 3Q2009 remains soft, despite “some signs of improving economic climate”, with the airline being pressured by a devastating combination of weak demand, downward pressure on yields (1H2009 yield were down 16%), a volatile operating environment and lower traveller confidence. The carrier stated it is “hopeful” of improving its performance in 2H2009 and remaining profitable in the full year, although it stated it is uncertain if full year profitability will be realistic.

See related article: Malaysia Airlines losing USD1.3 mln per day, sees “soft” outlook, downward pressure on yields

Asia Pacific selected airlines daily share price movements (% change): 06-Aug-09