Malaysia Airports Holdings Berhad’s network of airports in Malaysia recorded 6.3m passenger movements in Jan-23, surpassing the 6 million pax mark for the second consecutive month. This translates into a recovery of 75% relative to its 2019 levels. MIDF says this is the strong domestic sector recovery in Jan-23, which is just -11.4% behind Jan-19, was mostly driven by homebound travels during the Chinese New Year holidays.
Meanwhile, the international sector recovery was partially uplifted by China’s reopening on January 8, 2023 and the resumption of Qatar Airways operations after a temporary suspension during the FIFA World Cup which ended on December 18, 2022. China’s reopening. We have yet to see a meaningful return of freespending Chinese tourists due to the short notice of its reopening. Jan-23 saw 5,907 additional seat capacity being added for the China market. MAHB reported that the seat capacity filing was up by +5.0%mom in Feb-23. Despite seeing continuous reinstatement of capacities by local airlines, MIDF says it reckons that the relaunch of more China destinations might be staggered due to: (i) the uncertainty pertaining to China-bound Covid-19 requirements and (ii) the time taken to get passports renewed and visas approved. Nonetheless, the dismantling of their strict zero-Covid policy is an undoubted boon for the sector this year.
The continuous improvement in higher-yielding international passenger mix should help the aviation players rebuild their profitability in the coming quarters. Key headwinds for the local airlines remain: (i) the narrowing jet fuel crack spread (ii) the expectation of a stronger MYR against USD and (iii) airfares being rationally priced.
Domestic traffic will be partially supported by MYAirline’s network growth as it received another A320 aircraft last month, expanding its existing fleet to 5 aircraft. We should expect to see more routes being reinstated and introduced as local airlines reactivate their fleet.
MIDF maintains a NEUTRAL call on the sector as it believes the positives have been priced in. It makes no revisions to the earnings and target prices pending the quarterly results release in the next couple of days. Relative to 2019 levels, it expects MY passenger traffic to recover to 85% in CY23 (domestic: 90%, international: 80%). Potential upsides for the sector are: (i) local airlines rebuilding their fleet to match 2019 levels, and (ii) faster-than-expected return of the Chinese tourists.
Downside risks include: (i) delay in achieving full fleet activation by AirAsia Malaysia and (ii) the resurgence of another Covid-19 variant
