HIGH FUEL COST TO TRIGGER A SPIKE IN MAS & AIRASIA'S OPERATING COSTS, SAYS MIDF

KUALA LUMPUR, Jan 14 (Bernama) -- The spiralling fuel price is expected to
trigger a spike in the operating costs of Malaysia Airlines and AirAsia by 16
per cent and 46 per cent respectively in 2011, and this may in turn force both
the airlines to impose a 25 per cent fuel surcharge.

Given that the fate of the aviation sector is still intertwined with the
trend in crude and jet fuel price, the tolerance level of the industry is around
US$117 to US$125 a barrel of jet fuel price, said MIDF Research.

It said at US$125 a barrel of jet fuel, the price should correspond with
US$110 a barrel of crude oil and with the expectation of it averaging at US$105
a barrel in 2011,the airlines will still be within safe territory for the year.

"Our sensitivity analysis for MAS and AirAsia earnings showed that for every
one per cent increase in crude oil price, MAS's earnings will drop by two per
cent and AirAsia's by six per cent, holding all other factors constant," it
added.

However, MIDF in its research report, reiterates its "neutral" call on the
sector at best, as MAS and AirAsia may impose a fuel surcharge of at least 25
per cent to cover higher operating costs.

In 2008, the airlines imposed fuel surcharges for ASEAN routes amounting to
between US$40 to US$75 or an average of 25 per cent to 67 per cent.

AirAsia has a natural hedge in terms of matching forward bookings with fuel
requirements.

"We expect both airlines to continue benefiting from hedging and the forward
mechanism to mitigate the oil risk," MIDF noted.

MAS and AirAsia have benefited from the ringgit's appreciation in the third
quarter of 2010, as evident from their unrealised forex gains of RM155.7 million
(US$1=RM3.05) and RM83.5 million respectively, and as most of their debts are
denominated in US dollars.

-- BERNAMA