Categories: EconomyNews

Aviation sector poised for recovery but key players have issues to handle

Some of these issues include Mavcom proposed tariff hike, Capital A’s PN17 status and MAHB’s terminal usage 

by RUPINDER SINGH / pic TMR

KENANGA Research maintained its ‘Neutral’ view on the aviation sector despite expecting the recovery of business and leisure air travel to continue throughout 2023. 

Its analyst Raymond Choo Ping Khoon said travel activity is also poised to return to pre-pandemic levels in 2024, as reflected in Tourism Malaysia’s projection of 16.1 million tourist arrivals in Malaysia this year, up 60% from 10.1 million in 2022. 

A key driver, he said, is Chinese tourists that historically contributed to an estimated 12% of total tourist arrivals in Malaysia. 

“In 2024, we project tourist arrivals to jump further by 24% to 20 million compared to pre-pandemic level of 26 million. This will translate to continued rise in passenger throughput at Malaysia Airports Holdings Bhd’s (MAHB) and passengers carried at Capital A Bhd. 

However, Choo, who did not have any pick for the aviation sector, noted that each player in the aviation sector has its own unique set of issues to overcome. 

For MAHB, he said, a tariff hike pegged to Consumer Price Index (CPI) recently proposed by Malaysia Aviation Commission (Mavcom) may not be sufficient for MAHB to generate enough cash flows for capital expenditure purposes, particularly for airport expansion and maintenance. 

“While Mavcom also proposes a mechanism for MAHB to recoup losses incurred during Regulatory Period 1 (RP1) in RP2, we are concerned over MAHB’s cashflows over RP1,” Choo said.
RP1 covers the period between 
2024-2026, while RP2 is from 2026 to 2028. 

“While the proposals in this Mavcom consultation paper are not cast in stone, they do significantly raise MAHB’s earnings risk over the medium term,” Choo opined. 

Meanwhile, Choo said the clock is ticking on a more viable and holistic regularisation plan to lift Capital A out of its Practice Note 17 (PN17) status. 

Capital A, formerly AirAsia Group Bhd, plans to announce the details of its PN17 regularisation plan by the middle of next month with completion expected by the end of the third quarter this year. 

“While we continue to like Capital A for being a beneficiary of the recovery in air travel as the pandemic comes to an end, we are mindful of it still being under the PN17 status,” it said. 

Meanwhile, Kenanga Research has projected MAHB’s system-wide passenger throughput by 5% and 7% to 122 million and 131 million in the financial year 2023 (FY23) and FY24, respectively.

However, Choo noted that the total number of passengers using the MAHB’s terminals still has some way to go from matching the pre-pandemic level of 141 million recorded in 2019. 

“By the same token, we also raise our FY23-24F net profit forecasts for MAHB by 2%-3%, respectively, while lifting our target price slightly from RM6.80 to RM7 based on unchanged 22 times FY24F earnings per share or at a 40% discount to closest peer Airport of Thailand due to its smaller market capitalisation,” said Choo, adding that Thailand’s tourism revenue is three times larger than Malaysia. 

Choo, however, expects traffic trajectory to grow in subsequent months as airlines continue to reactivate more aircrafts to match increasing demand. 

He said amplifying traffic growth trajectory is aircraft movements that are pointing towards increased medium and long-haul flights to Perth, Sydney and Auckland, South-East Asia and South Asia destinations.
Recently, he noted that Kuala 

Lumpur International Airport saw the return of Kuwait Airways after a seven-year hiatus, while two other foreign carriers such as KLM Royal Dutch Airlines and All Nippon Airways, will resume non-stop flight operations to Amsterdam and Tokyo, respectively. 

In addition, he said, Malaysia Airlines has increased its flight frequency to Tokyo from November 2022. 

AirAsia Group, meanwhile, is focusing on its medium-haul operations and has increased its Malaysia AirAsia X flights to 44 weekly across 10 routes since November 2022. 

Choo added that he is expecting further volume improvement for Capital A in 2023. 

“Looking into the calendar year of 2023, we project Capital A’s system-wide revenue seat km to grow 52% to 35 billion in FY23, after recovering by 20 billion to 24 billion in FY22,” Choo said. 

He said Capital A expects its passenger demand to continue to rise moving into 2023. 

Last year in November 2022, he said, the group already operated 125 aircrafts and is currently targeting to get 140 operational aircrafts to reach full fleet utilisation by the second quarter of this year. 

On another note, Choo expects Capital A’s digital segment to remain loss-making. Capital A’s digital business portfolio, includes its subsidiaries, the airasia Super App, the travel & lifestyle platform and its fintech portfolio BigPay. 

Choo believes that airasia Super App is expected to grow, underpinned by the continued resurgence of travel demand from borders reopening and tactical campaigns, alongside expected growth from airasia Food, Ride and Xpress. 

Additionally, he said, Teleport — the logistics venture under Capital A — is expected to continue expanding throughout 2023 as it adds new international lanes and delivery hubs. 

Meanwhile, Choo said, BigPay has also launched its digital lending platform extending its services to include new loan products. 


  • This article first appeared in The Malaysian Reserve weekly print edition
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