Thursday, July 11, 2013

AirAsia X Listing / The Tony Fernandes Effect

In light of the listing of Air Asia X, I think its worthwhile to repost this which I wrote last month. When Tune Insurance came out, I think I was the only sucker touting it as a good thing. It opened weak and stayed that way for a few weeks and then surged past my fair value.

So how about AirAsiaX? It will go round the same route as Tune Insurance, i.e. open weak around RM1.35-1.40 (this was my original estimate when the touted IPO was around RM1.35, that range would be moved lower 8-10 sen based on the final IPO price) and stay around IPO price for a few weeks and then move to my year end fair value of RM1.70-1.80.

I call it the Tony Fernandes effect. While most people may not like his personality ... calling him brash, entitled, too in your face ... most will still acknowledge that he is a very good entrepreneur and business person. That also sums up my personal view of Tony.

The TF effect also has it that many critics (analysts and reporters) like to cut him down to size. Hence it is very unlikely that TF will get favourable press. Of course many will say AirAsiaX is a tough business, its not budget airlines you know, its over crowded, its cyclical, blah blah ... For all... please refer back to what you said about Tune Insurance, then talk to me.

The TF effect also has the rest of the world always thinking TF and AirAsia are always dreaming up of new companies to list and churn and make money for themselves. While that has some truth in it, it is also fair to say that TF is making use of the capital markets wisely. Tap it to enrich stakeholders and using other people's money to grow the company. Nothing sinister in that.

Its very hard for TF to get respect. Some might even say there is racial undertones involved. Whatever it is, check your biases. To me, its already very very difficult to have the lowest cost per mile as a budget airline. I think its so much easier to replicate that for long haul. There is still too much fat in long haul airline industry. 

To me, Tune Insurance is more attractive than AirAsiaX, but even so, I think it will prove to be a good investment if you hold at least 6 months-1 year. Before your bitching even ends, get your socks ready for Tune Hotels, just to grate you guys even more. That I think will be the most attractive of all.

BIG loyalty cardholders who have travelled on AirAsia X Bhd (AAX) over the past two years can subscribe for the long-haul, low-cost carrier's initial public offering (IPO) shares using the blue form. There are over 18,000 BIG members, of which 1,800 are Malaysians. However, those without the card but have travelled on AAX over the past two years and before June 10 are also eligble to use the blue form, as long as they get a BIG card before 5pm tomorrow, when subscription for the retail shares closes. This segment will pay the same price of RM1.45 a share as other investors and are also eligible for the free tickets that are being offered as part of the IPO offering. By using the blue form, they would not have to compete for the allocation of shares under the white form category, a source said.
Both the blue and white forms were for retail investors, who, incidentally, had oversubscribed for the shares by one time thus far. A total 50 million shares are being offered to retail investors under the blue form category, and 160 million shares by way of white forms.
To lure retail investors to subscribe to the IPO, AAX is dangling a zero-fare return air ticket to any destination flown by the airline to investors who buy 10,000 IPO shares, and three tickets for those who buy 100,000 IPO shares as part of its shareholder benefit programme. However, they will have to hold the shares for a minimum one year to be eligible for the free ticket, with a maximum period of three years. Of the 592.59 million new shares, the institutional offering is for 538.01 million shares and the retail offering, 252.11 million shares.
AAX intends to use the proceeds to help fund new aircraft acquisitions, as its expansion goes into overdrive over the next four years by adding 22 Airbus A330-300s to its fleet. It also has a firm order for ten A350-900s beyond that.