PETALING JAYA: The recent appreciation of the ringgit against the US dollar and easing fuel prices will benefit airlines, as the majority of their expenses, particularly jet fuel, are dollar-denominated.
The high-yield environment will persist, with average fares likely rising as Malaysia Airlines temporarily reduces capacity by 20% for the rest of the year, said MIDF Research.
MIDF Research also revised down its passenger traffic assumptions for Malaysia due to recent challenges in the industry including delays in aircraft deliveries and shortages of parts and labour.
It now expects this year’s recovery to reach 94% from a growth of 4%.
It has a “neutral’’ stand on the sector and its top sector pick is Capital A Bhd
for which it has a “buy’’ call with a target price of RM1.06 a share.
It said Capital A’s aviation business has been less severely impacted by recent disruptions in the industry.
It believes its fleet activation and expansion plans positions it well to address capacity gaps.
Capital A is nearing the completion of its PN17 regularisation plan and is set to finish by the fourth quarter of 2024.
It said airports in Malaysia maintained a passenger count of over eight million for the second consecutive month.
The monthly passenger traffic reached a recovery rate of 89% (domestic: 85%, international: 92%) in August 2024.
The recovery was largely fuelled by increased flight frequencies and the launch of new airlines, especially in the international sector, which has consistently outperformed the recovery of the domestic sector over the last 10 months.
This brings the recovery rate to 90% (domestic: 85%, international: 95%) for the first eight months of 2024.
The key international markets that were the main contributors to the increase in passenger traffic were Indonesia, China and India. It anticipates that the trend for China and India will continue, supported by the reciprocal 30-day visa-free travel policy, with China extending this policy for Malaysians until December 2025.
Notably, the recovery rates for China and India stood at 98% and 93%, respectively, as of end-second quarter 2024.
The domestic sector recovery registered a slight 2.3% year-on-year increase in August 2024, driven by Subang Airport’s jet operations following the introduction of new services by local airlines.
MIDF Research expects this sector’s recovery to stay within the 80% to 90% range for the remainder of the year, primarily due to capacity constraints, as airlines focus on international markets that are seeing greater demand.
