UPDATE 2-AirAsia X in lacklustre debut amid caution over low-cost model
* AirAsia X climbs 1.6 pct vs IPO price
* Long-haul budget carrier business model still quite new
* Airline stocks seen carrying many risks - fund manager
* Other Asian airlines also tapping capital markets
(Recasts on risks of long-haul budget carriers)
KUALA LUMPUR/SINGAPORE, July 10 (Reuters) - Malaysia's AirAsia X Bhd made a modest market debut on Wednesday, with investor reticence towards the stock underscoring uncertain business prospects for long-haul budget carriers as competition in the sector heats up.
Fast-growing short-haul carriers like Europe's Ryanair Plc and easyJet Plc as well as sister firm AirAsia Bhd have shown it is possible to make money and return value to shareholders in the low-cost segment.
But the low-cost long-haul business model is relatively new and other airlines have tried and failed, hit by higher fuel and operating costs as well as keener competition from full-service carriers willing to drop ticket prices to preserve market share.
Six-year-old AirAsia X, which flies to destinations in Australia, Japan and China among others, has been the most ambitious of long-haul budget carriers in expanding its fleet and routes.
On one hand, analysts say it is expected to benefit from AirAsia Bhd's network and high brand recognition, as well as a "low-cost upstart DNA" that rivals Singapore Airlines' Scoot and Qantas Airways' Jetstar may not have.
But investors also point to its history of red ink as a reason for a small 1.6 percent rise on its first trading day after raising a less-than-expected $310 million in its IPO.
"AirAsia X has just gotten out from losses, and their track record is quite short," said Ang Kok Heng, who helps manage the equivalent of $428 million as chief investment officer at Phillip Capital Management Sdn Bhd.
"Some fundies also don't like airline stocks as there are many risks involved, such as exposure to jet fuel prices volatility and terrorism," he said.
High costs have undone other long-haul carriers. Britain's Laker Airways, for example, flew between points in the UK and the USA but went bankrupt in 1982. Hong Kong's Oasis flew to London and Vancouver, but it was grounded in 2008 after two years of massive losses.
AirAsia X, which is planning an additional base in Thailand and may look at additional bases in Asia, was in the red as recently as 2011 due to fuel prices and loss-making services to Europe, India and New Zealand.
After terminating some of these services, it logged an operating profit of 38 million ringgit ($12 million) in 2012. In the first quarter of this year, its operating profit jumped 73 percent to 57.6 million ringgit on the back of lower expenses, notably fuel costs.
It operates a fleet of 10 Airbus A330 medium-to-long haul aircraft, has another 15 of those and 10 of Airbus' new-generation A350 aircraft on order.
A RAFT OF IPOS
AirAsia X is 34.4 percent owned by Aero Ventures, which is in turn headed by Tony Fernandes, AirAsia Bhd's flamboyant chief executive who also hosts "The Apprentice Asia" TV show. AirAsia Bhd has a 13.7 percent stake in AirAsia X.
AirAsia X's expansion plans are just some of many for AirAsia Bhd and Fernandes.
This year Southeast Asia's biggest budget carrier by passenger traffic bought 49 percent of Zest Airways, seeking growth in the Philippines and announced aggressive plans to increase its presence in India's domestic market. Its Indonesian unit Indonesia AirAsia also plans to list this year.
Expansion in Japan, however, has faltered after it and ANA Holdings terminated their joint venture last month, with AirAsia citing disagreements over how to manage the business.
The IPOs from AirAsia's units may also reflect a desire by Fernandes to please some of his shareholders.
"It's more to do with certain shareholders who want their investments more liquid," said a financial source declining to be identified as he was not authorised to talk to the media.
"In addition, he can now borrow against his shares that have a market value now," the source said.
Other Asian airline IPOs in the offing include one from short-haul carrier Bangkok Airways which is seeking to raise between $200 million and $300 million this year, according to Thomson Reuters publication IFR.
AirAsia's main rival, Indonesia's Lion Air, is looking to go public in 2015 while China budget carrier Spring Airlines also has its eye on a listing.
Thailand's Nok Airlines Pcl made its market debut last month after raising around $155 million. After jumping in its first few days of trade, it has since given up gains to trade close to its IPO price. Also this year, Malaysian Airline System Bhd conducted a $1 billion rights issue.
Passenger traffic in Southeast Asia is expected to rise 7.6 percent a year in the 20 years to 2031 compared with a global average of 5 percent, according to figures from research firm Strategic Airport Planning Ltd which were cited in AirAsia X's IPO prospectus.
Shares in AirAsia X were at 1.27 ringgit, up from their IPO price of 1.25 ringgit. The airline initially tried to market the stock at 1.45 ringgit but revised it down, saying it wanted to make the stock available to a wide range of retail investors.
($1 = 3.1880 Malaysian ringgits)
(Additional reporting by Niluksi Koswanage; Editing by Edwina Gibbs)