Tourism

Tourism 

 

The Commission and the European Aviation Safety Agency (EASA) told the press they are willing to continue to work with Thai authorities to enhance aviation safety in the country. Both bodies will closely monitor future developments and, if they deem it necessary to protect air passengers against safety risks, the Commission could then reconsider and add one or more air carriers from Thailand. (European Commission Press release on December 10, 2015) 

 

Comment:  

- Good news, lifting overhang on airline sector. This is as we had anticipated (please see our report: Possible EASA impact on Thai tourism issued December 8). This decision will give a decided boost to sentiment towards the Thai tourism sector, especially airlines, removing the clouds that have hung over this industry. Since February when the International Civil Aviation Organization (ICAO) initially noted safety concerns on Thailand and then red-flagged Thailand in June, the concerns over actions by individual countries has been a big overhang and led to more inspections by civil aviation authorities. This has pressured Thai airline stock prices down 31% on average (-6% for AAV, -36% for THAI and -51% for NOK), which we believe prices in the negatives. Of all airline stocks under our coverage, we believe this news will lift THAI the most since it is the only one flying to Europe and European routes account for a substantial ~30% of its revenue. 

- Getting better. We believe the Thai airline sector is over the hump with regards to the air safety issue. Thailand is making concrete movements toward improving its air safety standards with hopes of lifting the ICAO’s red flag by mid-2016 after completing recertification of all Thai airlines.  

- Maintain positive view on Thai tourism. AAV, ERW and AOT are top picks. We maintain our positive view on secular trend of Thai tourism and expect international tourist arrivals to be a record 33mn in 2016 (+10% YoY). Our top picks are AAV, ERW and AOT. AAV is forecast to achieve a new high in 2015 of Bt1.5bn and grow 12% YoY in 2016, propelled by growing Thai tourism, rising fares and expansion in growth markets like China and India. ERW’s earnings are moving back up in 4Q15-2016 and share price lags CENTEL and MINT. AOT is benefiting from growing Thai tourism with earnings upside from higher concession revenue from more commercial area after new terminals open at Don Mueang (Dec 15) and Phuket Airport (Feb 16).