High-flyers see healthy growth from recovering demand
KUCHING: Malaysia’s aviation industry is expected to see healthy growth for 2017, underpinned by continued growth in tourist arrivals, depreciating ringgit as well as tourism campaigns.
The research arm of Hong Leong Investment Bank Bhd ( HLIB Research) expect a continuation of recovery for air travel demand in 2017 to benefit Malaysia Airports Holdings Bhd ( MAHB) and AirAsia Bhd (AirAsia), leveraging on strong growth of tourist arrivals, especially on Northeast Asia sector (despite slower growth in domestic market).
It also pointed out that the Ministry of Tourism and Culture is targeting 31.8 million tourist arrivals in 2017 compared to the actual 25.7 million arrivals in 2015 and target of 30.5 million arrivals in 2016, through its various initiatives and campaigns in plan for 2017.
“Based on MAHB statistics, international traffic has been growing strongly since the second half of 2016 ( 2H16), driven mainly by China and Thailand sectors,” it added.
The research team also highlighted that the depreciation of ringgit in recent months would further strengthen Malaysia as an attractive destination for international travellers.
“Government has been actively promoting Malaysia in international arena over the years. In 2017, promotional activities will be done under Visiting Asean@ 50 Year Campaign as well as host for the 2017 Southeast Asia and Para Asean Games.
“Furthermore, Malaysia had launched E-Visa initiative for various countries (started with China) and visa waivers since early 2016, which will ease foreigners travelling process into Malaysia,” it said.
Based on MAHB statistics, international traffic has been growing strongly since the second half of 2016 (2H16), driven mainly by China and Thailand sectors.
Nevertheless, it pointed out that Malaysia consumer confidence index has retraced lower to 73.6 points in 3Q16 (after two consecutive quarterly growth in 1Q16 and 2Q16), indicating a weakening trend in consumer sentiment amid the ongoing uncertainties and higher costs of living (erosion in purchasing power).
“We expect the subdued consumer sentiment to soften the growth of air travel demand within the locals in 1H17, before improvements towards 2H17, as consumer adapts to the market apprehension,” it opined.
Meanwhile, on airlines’ capacity growth, HLIB Research expect overall capacity growth in the system to be circa six to seven per cent year- on-year (y- o-y) in 2017, which shall be well absorbed by the improving air travel demand (driven by tourist arrivals especially from China).
“Given a balance supply- demand environment in 2017, we expect yield to sustain into 2017, as market players are more rational nowadays (aiming for profitability) and unlikely to engage on stiff competitions and pressure yields,” it added.
Besides that, the research team said, despite recent upturn in jet fuel price (in tandem with crude oil price), the price is considerably low at US$ 65 per barrel ( bbl), providing ample opportunity for airlines’ profitability.
It added, AirAsia has hedged 74 per cent of its requirement in 2017 at US$ 60 per bbl, while Malaysia Airlines Bhd hedged 60 to 70 per cent at US$ 65 per bbl.
Overall, HLIB Research maintained an ‘overweight’ recommendation on the aviation sector on the expectation of recovering air travel demand, sustainable yields and moderate rise in jet fuel prices.
HLIB Research