Airline

Airline CEOs are on cloud nine as current fuel prices have made almost all routes profitable. Maybank-KE highlights the thoughts of CEOs in 2015: 1) Many airlines (if not all), would raise traffic growth guidance in 2015. Since unfeasible routes are now strong money makers, airlines will push to maximize aircraft utilization to in turn maximize profit. Yield and load factor concerns are secondary, the house opines. 2) Whether to hedge fuel costs will also be a constant nagger. Un-hedged airlines have the flexibility of time to decide. Those stuck with big hedge positions will be more difficult to commit due to existing hedge burdens and encumbered capital. To complicate things further, crude oil futures curve is very steep and the cost of hedging has soared to the highest level since ’08-’09. 3) M&A. CEOs are not keen on another painful battle for market share. CEOs of larger airlines who feel rich will eye smallish airlines with niche qualities. Regionally, most airlines have seen soaring gains over the past week, particularly Chinese mainland and Taiwanese mainline carriers. Singapore Airlines (Buy, TP $12.00) saw gains of 5.4% last week. Main exceptions were AirAsia (Buy, TP RM3.00) and AirAsia X (Hold, TP RM0.62), as they were bogged down by the QZ8501 crash. Cebu Pacific (Buy, TP Php83.00) was also weighed, because of a government directive to terminate its fuel surcharges.