SOUTHEAST Asian budget airlines may raise a combined US$750 million (RM2.33 billion) from initial public offerings this year, Malayan Banking Bhd's investment bank said, as no-frills companies take on full-service carriers with cheap fares.
Nok Airlines Co, backed by Thai Airways International Pcl, Bangkok Airways Co and two units of AirAsia Bhd, are among companies preparing for IPOs, said Tengku Zafrul Tengku Abdul Aziz, chief executive officer of Maybank Kim Eng, in an e-mail. His estimate would mark the biggest year for such deals since 2010, according to data compiled by Bloomberg.
Economic expansion across Southeast Asia is enabling more people in Indonesia, Vietnam and Cambodia to get on a plane for the first time as budget airlines challenge full-service carriers, such as Singapore Airlines Ltd and Malaysian Airline System Bhd. Carriers are betting the growth potential is enough to convince investors to overlook share declines among other low-cost airlines that went public in recent years.
"Budget airlines are the biggest beneficiaries of the growth in air travel," he said. They "tend to enjoy premium valuations when compared to legacy full service carriers".
Budget airlines in Southeast Asia are planning the industry's first IPOs since Tiger Airways Holdings Ltd and Cebu Air Inc sold shares in 2010. Tiger shares are down 51 per cent since its January 2010 listing in Singapore, while Cebu has lost 47 per cent since its debut in October that year in Manila.
Shares of AirAsia, Southeast Asia's biggest budget airline by market capitalisation, have more than doubled since the 2004 IPO. The stock gained as much as eight per cent, the most since May 3, to RM2.85 and traded at RM2.84 as of 9:26am in Kuala Lumpur. Tiger was unchanged at 73 Singapore cents in Singapore and Cebu Air rose as much 1.4 per cent to 66.95 pesos.
Asia will account for 33 per cent of global passengers in 2016, according to the International Air Transport Association. Budget carriers' market share in the Asia-Pacific region rose to 24 per cent last year from 1.1 per cent in 2001, according to the CAPA Centre for Aviation, an industry consultant.
The region's passenger growth, both domestic and international, is expected to add about 380 million travellers between 2012 and 2016 to 1.2 billion, IATA forecast in December.
"Asia is the fastest growing market for air travel globally," said Tengku Zafrul. "Airlines in Asia are seen as offering better returns and hence investors across the globe have a strong appetite for listings out of Asia."
The number of aircraft in the region's fleet will almost triple to 13,670 in 2031 from 4,710 in 2011, according to Boeing Co, the world's biggest planemaker.
"There's not too much of a surprise why airlines are coming to the market, they need the capital," said Andrew Orchard, an analyst at CIMB Group Holdings Bhd in Hong Kong. "The market in general has been better this year, so it's not a bad time to be looking at raising capital."
AirAsia is targeting an IPO for its Indonesia budget unit in the third quarter, which may have a market value of about US$1 billion when listed, according to Tony Fernandes, group chief executive officer of the airline.
The carrier is also planning to debut its long-haul arm, AirAsia X. The Indonesian unit is "about to be listed," Fernandes said in a Bloomberg TV interview yesterday.
More low-cost carriers may tap the market and there could be "a lot of activity" in the sector over the next 24 months, according to Tengku Zafrul.
In the medium term, Indonesia-based PT Lion Mentari Airlines and Citilink, the low-cost airline unit of PT Garuda Indonesia, may hold IPOs, Tengku Zafrul said. Later on, India-based Indigo and Go Airlines India Pvt could also consider listings as the country looks to ease regulatory restrictions in the aviation sector, he said.
"There's plenty of investor demand from Asia for good aviation stories with growth potential," said Chad Parker, a Hong Kong-based managing director at Morgan Stanley's investment-banking unit, who focuses on transportation. "The outlook for growth in Asia is intact." Bloomberg