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AirAsia hit political turbulence in Thailand


September 7, 2008

AirAsia hit political turbulence in Thailand
Budget carrier AirAsia Bhd is among the worst hit by the current political tension in Thailand due to its substantial business exposure there, a Malaysian daily quoted industry analysts as saying Friday.

However, AirAsia group chief executive officer Tony Fernandes told The Edge Financial Daily that business was still robust and the airline would market its way out of the current calamity, just as it had successfully done so in the past.

"This is another calamity but people still fly. We have no intention to cut any flight, just like when the tsunami and Bali bombing occured. We will be launching our eighth flight to Bangkok due to strong demand," he said.

But analysts are concerned about the uncertainties in the protracted stand-off between Thai Prime Minister Samak Sundaravej

and his opponents, which was turning away tourists from the country and inevitably, AirAsia's loads and bottom line would be


"AirAsia will be among the worst hit Malaysian companies in Thailand as Thailand is one of the airline's substantial destinations," OSK Investment Research analyst Chris Eng said.

He added that there could also be a lingering negative stigma on Thai AirAsia, which was previously co-owned by Shin Corporation. Shin Corp was owned by Thai's ousted prime minister Thaksin Shinawatra's family. Currently, Thai AirAsia is 50 percent owned by Asia Aviation, 49 percent by AirAsia, and 1 percent by Thai AirAsia CEO Tassapon Bijleveld.

Similarly, Aseambankers Research said in its note that AirAsia was the most exposed to the tensions in Thailand.

"With a likely downturn in the air travel industry in Thailand, AirAsia could be forced to cut down the number of flights at its Thai AirAsia associate. Thai AirAsia reported a loss of 57 million ringgit in the first half of this year and any injection of fresh capital into Thai AirAsia could lower AirAsia's forecast earnings in at least 2008 and 2009," it added.

Thailand entered its second day of a state of emergency, with the election commission formally requesting the Constitutional Court to disband the ruling People Power Party.

Malaysian Airline System Bhd and AirAsia had to cancel or postpone flights to Hatyai, Phuket and Krabi airports over the last few days.

However, the research house said the declining crude oil prices, which trend below $110 (345 ringgit) per barrel yesterday, would provide a much-needed relief for airlines. But the stronger US dollar may dampen the positive impact of lower fuel costs for Malaysian carriers.

"While there should be trading interest in MAS given crude oil's downtrending, interest in AirAsia could be capped by worries over cash requirements at its Thai associate," Aseambankers said.

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