12 April 2018
Maintain positive: March traffic data showed a 6.45% year-on-year (y-o-y) growth for the month. This is broadly in line with historical March passenger traffic where average traffic growth over the past four years was 6.54% y-o-y. International passengers continued to drive up the airport traffic, registering 12.4% y-o-y. Excluding Istanbul Sabiha Gokcen International Airport (ISG), international passenger traffic was up by 13.5% y-o-y.
In comparison with last year, growth was higher by 1.1 percentage points (ppts) y-o-y. We believe this was attributable to improving consumer sentiment coupled with the increased in aircraft movements for the international sector, growing by 9.4% y-o-y. Meanwhile for the domestic sector, passenger traffic climbed 1.6% y-o-y, which was comparatively lower from last month. As a result, it did not come as a surprise that domestic aircraft movements continued to experience contraction of 2.1% y-o-y.
For the first quarter of 2018 (1Q18), passenger traffic numbers posted a yearly growth of 6.9% y-o-y. Overall, international and domestic passenger traffic recorded growth of 11.8% y-o-y and 2.7% y-o-y respectively. Passenger growth in the international sector coincided with an 11.2% y-o-y increase in international aircraft movements. Meanwhile, domestic sector aircraft movements contracted by 2.4% y-o-y, driven by domestic capacity withdrawal at airports in Malaysia. However, excluding ISG, 1Q18 passenger traffic in Malaysia airports grew 3.4% y-o-y. Overall, airports in Malaysia began the year on a positive note, recording 1Q18 passenger traffic of 24.4 million. This constitutes 24% of our full-year passenger estimates for 2018.
Considering travel demand is expected to continue to grow, we opine any capacity withdrawals should leave more opportunities for low-cost carriers (LCCs) to expand. AirAsia stands to benefit from this gap, given its fleet expansion strategy throughout the next nine years.
We expect the withdrawal of major airlines and reduction in frequencies will pave way for AirAsia to capture more market share, especially in the domestic sector. Notably, AirAsia market share is 66% of the domestic traffic at Kuala Lumpur International Airport (KLIA), showing an improvement of +11ppts y-o-y from last year.
Additionally, it is worth noting that monthly growth in domestic traffic in klia2 averaged at 12.2% y-o-y in financial year 2017 (FY17). For the month of March, domestic passenger traffic grew higher than average at 18.1% y-o-y.
We opine that the net addition of +7 more aircraft to AirAsia’s domestic fleet in 2018 is timely, enabling the group to cater for the escalating demand.
We opine that the 10.7% y-o-y growth in 1Q18 of klia2 international traffic will continue to provide support to AirAsia X, with more routes being introduced in high-demand markets, namely Korea, Japan and China.
In addition, the company’s frequency addition is expected to further minimise its cost available per seat kilometre while at the same time strengthening its ancillary sales in the flights, to improve earnings.
We noted that the highest growth in FY17 was in the ancillary segment, at almost 30% y-o-y to RM830.5 million.
We believe traffic growth to persist due to seasonal factors as well as a key event, namely the 14th general election, taking place during the period.
These happenings are expected to stimulate better domestic traffic in airports under Malaysia Airports Holdings Bhd, which we believe will lead to a rebound in overall domestic traffic growth for airports in Malaysia. — MIDF Research, April 11
Original Source: theedgemarkets
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