Falling Jet Fuel Prices A Boon For Capital A: MIBB

After being vexed by high jet fuel prices in financial year 2022, they have eased substantially which is a huge positive for Capital A. While falling jet fuel prices may be a harbinger of recession which would require Capital A to lower fares, history reveals that fares will fall slower than jet fuel prices and lead to substantial margin expansion.

“We also gather that Capital A will submit its PN17 regularisation plan very soon,” said Maybank Investment Bank Bhd (MIBB) in the recent ESG@Maybank IBG Report.

10 months after jet fuel prices surged to USD166 per barrel in Jun 2022, they have fallen to USD100 per barrel despite the recent OPEC+ production cut due to lower brent crude oil prices and normalising brent crude oil-jet fuel crack spreads.

“We currently assume average jet fuel prices of USD110 per barrel,” said MIBB.

During the Global Financial Crisis, Malaysia AirAsia which contributed 80% of group earnings passed on lower jet fuel prices by lowering fares which grew the number of passengers carried by 21% in financial year 2009. Yet, fares fell slower than jet fuel prices.

Recall that Capital A plans to dispose of its airlines to AirAsia X in exchange for their shares to lift both their PN17 statuses. While Capital A’s deadline to submit its regularisation plan is 7 Jul 2023, it is a nearer 28 Apr 2023 for AirAsia X.

With less than 3 weeks away, AirAsia X has not asked for an extension of time. This strongly hints to MIBB that both Capital A and AirAsia X will submit their PN17 regularisation plans to Bursa Malaysia Exchange very soon.

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