Aviation sector likely to hit turning point in 2022

By LYDIA NATHAN / Pic By MUHD AMIN NAHARUL

THE local aviation sector is expected to hit a turning point in 2022, on the back of pent-up demand for air travels which will likely propel traffic volume.

MIDF Amanah Investment Bank (MIDF Research) in a recent note stated that while it may take a few years, returning to normalcy will sustain the sector’s recovery to reach pre-pandemic levels.

This was supported by the Malaysian Aviation Commission’s report published at the end of last year that stated passenger traffic is estimated to grow between 94.2% and 100.3% year-on-year (YoY).

“Our stance is that safety is the paramount driver for sustainable recovery. Without it, demand for air travel will remain low, at least, not at the level that is sufficient to save the industry from further losses,” the research house said.

In terms of passenger traffic, Malaysia Airports Holdings Bhd (MAHB) saw its domestic traffic contracted by 54.1% YoY for both the Kuala Lumpur International Airport and its network of other Malaysian airports.

“Much worse was seen for international passenger traffic; overall contraction for its international traffic was at -78% YoY. MAHB’s Turkey operations had shown a similar trend where domestic traffic contracted by -45.3% YoY and its inter-national passenger traffic recorded a -62.5% YoY decline,” it said.

According to MIDF Research, the easing of travel restrictions is key for returning passengers as pre-pandemic air travel was split almost equally into domestic and international travels.

It added that the vaccine procurements and rollout will also help play a part in the recovery of air travel demand.

However, the outlook of the industry will be further restrained if borders are only going to be reopened once 70% of the population is vaccinated.

“Given that the Malaysian government targets for 80% inoculation by December 2021, the 70% benchmark might only be feasible on the tail end of 2021.

“This highlights the lower than expected rebound for air passengers, while without upliftment of travel limitation, there is a fair chance that the industry will see similar or even lower passenger volumes than last year, potentially turning the year of recovery to another washout year,” it said.

The research house has kept its ‘Neutral’ call for the sector, as it sees a light at the end of the tunnel for the sector compared to at the height of the pandemic.

“Currently, with positive development on the vaccine fronts, the recovery narrative can be gauged with better clarity. Furthermore, with governments and businesses more adept at managing the pitfalls of the virus, we believe punitive measures that hinder air travel will soon gradually ease and potentially be lifted,” it said.

MIDF Research added that MAHB will be durable financially and will be able to ride out these trying times.

“MAHB has proven its capability for raising funds, signifying that the group has depth and reach in the capital market. The company has successfully secured credit facilities, payment deferral from key partners and still maintaining its credit rating.

“Taking all factors into consideration, we are upgrading our call on MAHB to ‘Buy’ (from ‘Neutral’), with a target price of RM7.40 as the group has amply demonstrated survivability and prudent cash management,” it said.

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