Posted on 16 Jun 2023
Source of News: The Borneo Post


KUCHING: The aviation sector has posted an optimistic set of first quarter (1Q) results with sequential earnings improvement and analysts are expecting demand for business and leisure air travel to continue recovering for the remainder of 2023.

In a sector update, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) highlighted that two of the aviation sector’s major players under their coverage, Capital A Bhd (Capital A) formerly known as AirAsia Group Bhd and Malaysia Airport Holdings Bhd (MAHB) had posted upbeat 1Q results.

Capital A’s 1Q results had exceeded their expectations due to stronger-than expected demand for its flights and higher realised yields. Meanwhile, MAHB had met expectations with its 1Q passenger throughput recovery gaining traction in both Malaysia and Turkey.

This was a large improvement after missing consensus expectations in the previous quarter (4Q22).

The research arm shared that MAHB’s Malaysia operations has recorded 26.8 million passengers in 1Q which is 80 per cent of 2019 pre-pandemic levels. This was driven by airlines average load factor that increased to 77 per cent as the number of airline carriers resuming operations at airports in Malaysia recovered to 85 per cent of pre-pandemic levels.

Similarly, MAHB’s Turkey operation saw traffic steadily growing to over 2.4 million passengers each month in 1Q with international passengers exceeding 2019 1Q levels by 42 per cent.

And looking ahead, Kenanga Research expects both business and leisure air travel to continue to recovery through the year with total industry activity poised to return to pre-pandemic levels in 2024.

Currently, Tourism Malaysia has forecasted tourist arrivals in Malaysia to jump 60 per cent to 16 million in 2023 and Kenanga Research predicts that this will jump further by 24 per cent to 20 million in 2024. In comparison, 2019 pre-pandemic tourist arrivals sat at 26 million.

“This should underpin growth in MAHB’s passenger throughput demand in 2023. And amplifying traffic growth trajectory is aircraft movements that are pointing towards increased medium and long-haul flights to Perth, Sydney and Auckland, Southeast Asia and South Asia destinations,” the research arm opined.

However it won’t be all roses for MAHB as 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 proposed a mechanism for MAHB to recoup losses incurred during Regulatory Period 1 (RP1) in Regulatory Period 2 (RP2), we are concerned over MAHB's cash flows over RP1," said the research arm.

For Capital A, Kenanga Research predicts that its systemwide revenue seat km (RPK) will further grow 79 per cent to 43 billion for financial year 2023 (FY23) while its passenger demand will continue to grow further for the remainder of the year.

“The group has reactivated 157 aircraft in 1Q23 with plans in place to reallocate aircraft to operating countries that has stronger demand.

“By end of 2023, the group is targeting to have all its 215 aircrafts deployed to cater for the rising demand,” the analyst shared.

While Capital A with its upbeat 1Q results will continue to be a key beneficiary of the recovery in air travel, Kenanga Research is still mindful of the group’s current PN17 status and guides that they are remaining neutral on the group and the Aviation sector on the whole at this juncture.

The airline group is also expected to announce details of its PN17 regularisation plan by early July with completion slated by the end of 3Q23.

The Borneo Post