Air Transportation

Air Transportation Plc 

 

- Ratchaprasong Intersection bombing hurts tourism 

Yesterday, there was an explosion inside the gate of the Erawan Shrine, the Ratchaprasong Intersection, killing 20 people and injuring over 100 up until this morning. Prawit Wongsuwan, the Minister of Defence, has not found the clear reason of this attack yet, but it is clear that the bomb is meant to destroy the economy and tourism because it occurred in the heart of the business and tourism district.  

- Decreasing passenger volume depresses airlines more 

Although the incident occurred in 3Q15 (low season), the damaged area was a major tourism destination, especially for Chinese tourists (main driving force for Thai tourism), and some international tourists were killed in the bombing. Therefore, this incident may depress tourist volume for the short or the medium term; 2015 tourist volume may stay flat or decline from the weak base in 2014. We conduct passenger volume sensitivity analysis on air transportation stock, as shown below: 

1) AOT – Based on an assumption that the number of airport users at the end of FY2015 (September 2015) grows 16%, every 1% decrease in the volume would lower AOT’s net profit by 1.3% from the current forecast and fair value by B5. 

2) AAV, BA, and THAI - Every 1% decrease in cabin factors from the assumptions of 81%, 69.5%, and 74% would lower their earnings by 11%, 15.6%, and 18% and fair values by B0.5, B2.5, and B0.9, respectively. 

- Short-term negative sentiment. Stay away 

This issue has negative sentiment for air transportation stocks that are initially expected to outperform the market in the short term. We recommend staying away from air transportation stocks. After the bomb attacks in nine areas in Bangkok on December 31, 2006, AOT and THAI's share prices fell 5.1% and 7.9% at the opening and took one month and a half to rebound back to the normal (pre-incident) prices.