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Fewer Russians? Still prefer AAV and NOK
Fewer Russians? Still prefer AAV and NOK
Maintain positive view. AAV and NOK are better positioned. Russia’s economic
problems are fostering concerns over the effect on Thai tourism as Russia provides 6%
of total international tourist arrivals. Our assessment suggests 3% downside to our
forecast of 30.2mn total international tourist arrivals in 2015 if the number of Russian
tourists falls to 1.0mn in 2015 (half of our forecast of 2.0mn or -40% YoY from 2014).
Even if this proves true, Thai tourism will still grow 17% YoY in 2015. In today’s climate,
we see low-cost carriers like AAV and NOK as best positioned as they are not only
enjoying more tourist arrivals in high season with less exposure to long-haul market
such Russia but also sharply lower jet fuel price, their primary cost component.
Downside assessment from weaker Russia. Russia is one of Thailand’s key tourism
markets, accounting for ~6% of Thailand’s total international tourist arrivals. Arrivals
from Russia grew at a 42% CAGR in 2005-13, with positive growth even in 2009 when
the global financial crisis emerged. In 2014, the number of Russian tourists into
Thailand has slipped YoY since April, with a sharp contraction of ~20% YoY in Aug–Oct
as Russia’s economy began to get bogged down and its currency depreciated.
We run a scenario to assess the downside to our forecast of 30.2mn international
tourist arrivals in 2015 brought by fewer Russian tourists coming to Thailand. If we
assume the number of Russian tourists will fall to 1.0mn in 2015 - half our forecast of
2.0mn or -40% YoY from 2014’s 1.6mn, by our calculations, there is downside of 3%,
reducing our arrivals number for 2015 to 29.2mn. Still, this will reflect 17% YoY growth.
AAV and NOK best positioned. We continue to be positive towards the recovery of
Thai tourism. AOT reports total passenger pass-through growth of 14% YoY over
December 1-8 vs. +11% YoY in November. Proportionately, the largest growth was seen
in international passengers, up 9% YoY in December 1-8 from +5% YoY in November. In
this environment, we see low-cost carriers such AAV and NOK as best positioned, as
they mainly serve tourists from the short-haul and domestic markets, with less
exposure to long-haul markets such Russia. Also, the plunge in oil prices is a huge plus,
as the major cost component is jet fuel (44% of total cost for AAV and 40% for NOK).
Thus far this quarter, average jet fuel price is at US$96/bbl, down 17% from the 3Q14
average. Assuming QTD average jet fuel price stays on through 2015 (vs. our
assumption of US$120/bbl), we see large 2015 earnings upside at ~70% for AAV and
~80% for NOK (Please also see our strategy report “Mood Swing” of December 16, 2014.
Hotels may feel a pinch. Hoteliers may feel some pinch, as Russian guests contribute
11% of hotel revenues for CENTEL, 7% for ERW and 4% for MINT. Nonetheless, we
continue positive toward Thai tourism recovery and earnings improvement in 2015.
