Air Astana JSC has published its financial results for Q2 2026. Despite moderate revenue growth, operating expenses increased significantly faster, resulting in an almost zero quarterly net profit, which was largely supported by a one-off gain from the sale and leaseback of four engines. Cost pressures related to the Pratt & Whitney engine issues remain, along with higher fuel expenses amid elevated oil prices. Quarterly EBITDAR margin declined from 26.5% to 21.6%. The main positive development during the quarter was some improvement in resolving the PW engine issues. In our valuation model, we lowered our forecast for the company’s passenger traffic but improved our fuel cost forecasts due to lower oil prices since our previous valuation, while also reducing the WACC. As a result, the updated target price is KZT 810 per share, with a 15% upside potential. Recommendation: Hold.
Core Valuation Factors. The main positive factor was a turning point in resolving the Pratt & Whitney engine issue. The company managed to triple the number of engine repair slots in 2026. In the first half of the year, the group additionally contracted 11 spare engines, bringing the total number to 26. As a result, the number of grounded aircraft during the 2026 summer season was reduced by approximately half compared with the previous year. Management expects zero aircraft groundings by summer 2027. On the other hand, the key valuation risk remains the faster growth of expenses relative to revenue. In the second quarter, CASK increased by 24% YoY to 7.29 cents, while RASK increased by 18.5% to 7.78 cents. The spread between the two metrics returned to positive territory after the first quarter. Fuel prices were an important factor, with the average price paid abroad increasing by 98% YoY. In addition, ground handling and air navigation expenses increased due to a higher share of international flights, while the appreciation of the tenge against the U.S. dollar increased the dollar-denominated cost of the tenge portion of expenses. Combined, fuel and ground handling accounted for 44% of the increase in unit costs. An additional risk is the absence of open hedging positions as of the end of June: management deliberately refrained from locking in prices, considering current levels to be too high. Nevertheless, approximately 80% of fuel uplift in the second quarter was sourced from the domestic market in Kazakhstan, where pricing remains relatively stable.
Revenue: increase despite stable capacity and lower passenger traffic. Quarterly total revenue amounted to KZT 207 billion (+10% YoY). Passenger revenue increased by 5.7% YoY to KZT 194 billion, with scheduled services up 10% YoY, while charter revenue declined by 34% YoY. Performance varied by brand: Air Astana increased passenger revenue by 10% YoY, driven by international routes, while FlyArystan revenue fell by 5.5% YoY amid stagnant domestic revenue and lower revenue from European and Asian routes. By region, the main growth driver for the Group was the CIS region (+30% YoY), while revenue from the other three regions increased by only 2–5%. Total Group passenger traffic declined by 2% YoY, driven by FlyArystan, where passenger traffic fell by 10% YoY. Revenue passenger-kilometers (RPK) remained virtually unchanged year on year. Therefore, revenue growth was driven not by higher volumes, but by higher pricing. Revenue per RPK increased by 18.5% YoY in U.S. dollar terms. Cargo revenue increased by 6.1% YoY to KZT 3.6 billion.
Margin: expenses are growing faster than revenue. Operating expenses in the second quarter amounted to KZT 193 billion (+15% YoY), outpacing revenue growth by 5 percentage points. Among the main expense categories, the fastest growth was recorded in engineering and technical maintenance (+33% YoY), fuel (+23% YoY), and passenger services (+20% YoY). Other major expense categories, including personnel costs, airport services, and depreciation and amortization, increased by 4–6% YoY. For the Air Astana brand specifically, operating expenses increased by 19% YoY, compared with 14% revenue growth. As a result, operating profit declined by 36% YoY to KZT 8.4 billion. At FlyArystan, quarterly operating expenses increased by only 2% YoY while revenue fell by 5.5% YoY, resulting in operating profit of KZT 3.9 billion (-29% YoY). Cost per RPK increased by 24% YoY to 7.29 cents, remaining below revenue per RPK of 7.78 cents, resulting in an EBITDAR margin of 21.6%. By comparison, the margin was 26.5% a year earlier. Cash on the balance sheet decreased by 16% YoY, while the cash-to-revenue ratio stood at 30.9%, compared with 38.5% a year earlier and the target level of above 25%. The net debt/EBITDAR ratio continued to increase, reaching 2.1x, compared with 1.3x a year earlier, while management's target remains below 3.0x.
Our Opinion and Changes to the Valuation Model. Second-quarter results continue to show the same trend: margin pressure from engine-related issues persists, while passenger traffic in Kazakhstan and across the Group is weaker. In addition, high fuel prices in international markets could put further pressure on margins in the absence of hedging. Nevertheless, oil prices have declined since our previous valuation, while the Group continues to demonstrate growth in revenue per RPK and a relatively high load factor. We also note some improvement in the situation with the affected engines. In our valuation model, we reduced our fuel cost growth forecasts and brought forward the expected timeline for resolving the engine-related issues. At the same time, we lowered our passenger traffic forecasts for both Kazakhstan and the Company in light of weaker actual results. The WACC was reduced due to lower base rates and government bond yields. As a result, our updated target price for one Air Astana share is KZT 810, with a 15 % upside potential from the latest market price. Recommendation: HOLD.
Author: Daniyar Orazbayev,
CFA, Investment Analyst
(+7) 727 311 10 64 (688) | [email protected]