2 January 2014
The Malaysian aviation sector has had a turbulent 2013 due to price war and overcapacity that decimated yields and profitability.
While the industry is gradually improving, market players are more optimistic on the balanced capacity planning and deployment in 2014.
Maybank Investment Bank Bhd’s research division (Maybank Research) highlighted that in the first ten months of 2013 (10M13), passenger traffic grew 17.3 per cent year on year (y-o-y), which was the highest over the past two decades.
Domestic carrier Malaysia Airlines Systems Bhd (MAS) achieved a record passenger load factor of 80.8 per cent in this period whereas other airlines managed to retain high load factors as well.
The market was stimulated by low yields, which fell on average by eight per cent in 2013, making it the third worse yield destruction since 2001. Malindo’s entry on March 22, had triggered this fare war, of which MAS and AirAsia reacted fiercely.
Everyone was practitioners of the load active and yield passive strategy with devastating results.
“We forecast passenger traffic growth in 2014 to be lower than 2013’s 18 per cent y-o-y growth. This is based on the net fleet addition plans by the respective airlines as shown in the table below. There will be a net addition of 10 aircraft in 2014, 33 per cent lower than the 15 aircrafts received in 2013.
“Based on this, we forecast passenger traffic growth of nine per cent to 10 per cent in 2014, which the market should absorb comfortably because it is close to Malaysia’s long-term growth rate of eight per cent. The yield outlook should gradually improve as the supply-demand is in balance and airlines no longer need to engage in an all-out fare war,” it stated.
Maybank Research also added that 2014 is the fourth installment of the Visit Malaysia Year (VMY) campaign, the last being in 2007.
VMY has generally been effective in boosting tourist arrivals with its various promotional activities held all year round on an international scale. VMY 2007 campaign saw a 19.5 per cent y-o-y spike in tourist arrivals and tourist receipt spiked by 27 per cent y-o-y.
Adding to that, the klia2 promises a quantum leap improvement over the existing LCCT, drawing strong traffic and boosting loads. It will help airlines to reduce costs thanks to its high levels of automation.
“klia2 provides the platform to be the premier LCC hub of the region, and we expect large number of airlines to launch their maiden services into Kuala Lumpur.”
The main downside risk for the airline sector in 2014 is fuel prices, the largest cost item, comprising 40 per cent to 45 per cent of total costs. Furthermore, there are fears about potential delays in the launch of klia2, currently scheduled for May 2, 2014.
If a delay is to materialise, traffic growth might be a setback, as KLIA is already operating at 20 per cent above its design capacity and landing slots are scarce.
“We believe that yields have adjusted to a new level of equilibrium after Malindo Air‘s entry into the market. The domestic yields will be lower than the levels achieved pre-2012 going forward, but it should be above of the levels achieved in 2013.
“The situation should get progressively better because every airline’s management has acknowledged that this price war is not sustainable and they need to reverse the yield decline trend.
“AirAsia X will deliver the strongest earnings growth among the lot, due to the maturity of existing routes and economies of scale benefits.
“We forecast AirAsia’s profit to rise by 14.9 per cent y-o-y in 2014 driven from the stronger performance of its associates and joint ventures. We expect MAS to incur losses in 2014, but it is expected to perform better with a 76 per cent reduction in losses.”
Source: www.theborneopost.com
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