Long Haul Network Expansion And Ancillary Revenue Will Drive Stronger Earnings Ahead

Catalysts

About AirAsia X Berhad

AirAsia X Berhad is a medium haul low cost airline connecting Southeast Asia to North Asia, Australia, Central Asia and the Middle East.

What are the underlying business or industry changes driving this perspective?

• Continued recovery and redirection of travel demand from China and other North Asian markets into ASEAN, coupled with strong forward bookings into core destinations like Japan, Korea and Australia, positions the airline to lift average fares and passenger volumes, supporting revenue expansion and higher earnings.
• Network optimization toward longer haul, higher yielding routes and the build out of emerging markets such as Central Asia and Istanbul, together with planned Middle East hub development, is intended to deepen connectivity and capture intercontinental traffic, lifting overall revenue and improving net margins.
• Persistent strength in ancillary income from duty free, travel flexibility options, insurance and Fly Thru connectivity, already contributing more than one third of revenue, provides a scalable high margin revenue stream that can expand faster than seat growth and directly enhance operating margins and net profit.
• Structural cost advantages from high fleet utilization, disciplined expense management and a strategy to standardize and reconfigure aircraft to higher density layouts are expected to keep CASK among the lowest in the industry, supporting margin expansion even in a competitive fare environment and strengthening earnings resilience.
• Planned fleet developments, including reactivation of remaining A330s and the induction of A321LR aircraft from 2026, will allow the group to right size capacity into secondary and developing markets worldwide, unlocking new revenue pools while preserving a low unit cost base, which may support both top line growth and improving net margins.

Assumptions

This narrative explores a more optimistic perspective on AirAsia X Berhad compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming AirAsia X Berhad's revenue will grow by 10.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.5% today to 5.9% in 3 years time.
• The bullish analysts expect earnings to reach MYR 262.8 million (and earnings per share of MYR 0.58) by about December 2028, up from MYR 113.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as MYR154.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.4x on those 2028 earnings, down from 7.2x today. This future PE is lower than the current PE for the MY Airlines industry at 7.1x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.83%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent weakness in Thai tourism and geopolitical concerns affecting key source markets like China and Korea may prolong the downturn at Thai AirAsia X. If recovery is slower than management expects, group-wide network synergies could be delayed or diluted, weighing on consolidated revenue and earnings over the long term.
• Structural overcapacity and intensifying competition on China–Malaysia routes from Chinese carriers could eventually erode the currently healthy fare environment and load factors. This would pressure average base fares and ancillary spend per passenger and could reduce revenue growth and net margins over time.
• Reliance on favourable jet fuel prices and a firmer ringgit to support current profitability, combined with a policy of not hedging fuel, leaves AirAsia X exposed to cyclical spikes in oil prices and currency volatility. This could quickly reverse recent cost gains and compress net margins and earnings.
• Ongoing MRO bottlenecks, engine delays and rising maintenance costs, including annual escalations and upcoming reconfigurations, risk constraining fleet availability and increasing CASK ex fuel over several years. This may limit capacity growth and undermine the low cost advantage that underpins net margins and long term earnings.
• The ambitious multi hub and long haul expansion strategy into Central Asia, the Middle East and Europe depends on new routes like Tashkent and Istanbul maturing as planned. If demand in these emerging markets ramps up more slowly than expected, prolonged low load factors and heavy marketing spend could depress revenue quality and group earnings for an extended period.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for AirAsia X Berhad is MYR2.47, which represents up to two standard deviations above the consensus price target of MYR2.08. This valuation is based on what can be assumed as the expectations of AirAsia X Berhad's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MYR2.47, and the most bearish reporting a price target of just MYR1.68.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be MYR4.4 billion, earnings will come to MYR262.8 million, and it would be trading on a PE ratio of 6.4x, assuming you use a discount rate of 14.8%.
  
• Given the current share price of MYR1.82, the analyst price target of MYR2.47 is 26.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.