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Malaysian Airline industry on the road to recovery in 2014

Jan 02, 2014

Malaysian Airline industry on the road to recovery in 2014

The Malaysian airline industry will achieve earnings recovery in 2014 on the back of higher supply growth and positive forward yield indicator, said Maybank Investment Bank Bhd (Maybank IB).

In a note Thursday, Maybank IB said supply growth was forecast at nine-ten per cent, which was within the normal Malaysian historical passenger traffic growth rate of eight per cent annually.

It said the balanced supply-demand dynamics would provide some degree of pricing power to the airlines.

"AirAsia and MAS have emphasised that they will deploy growth on existing routes via frequency addition and will introduce only a few number of new routes.

"This is positive as new route tends to underperform in its initial phase of growth with depressed yields," it said.

Maybank IB said the combination of recovering yields and lower unit cost would boost the industry earnings to an estimated RM652.7 million, with the majority stemmed from MAS' 76 per cent reduction in losses, it said.

Maybank IB said yields had readjusted down to a new level of equilibrium due to the entry of Malindo Air into the market.

It said the domestic yields would be lower than the levels achieved pre-2012 going forward, but it should be above the levels achieved in 2013.

"The yield decline in 2013 was extreme due to overcapacity in the market and exaggerated by MAS' aggressive reaction," it said.

It said subsidy rationalisation would not pose severe a impact to destruct demand for the airlines, said Maybank IB.

"We think consumers will be more budget-conscious and hold out for good offers," it said.

The Visit Malaysia Year 2014 would also be another boon to boost tourist arrivals in 2014 with its various promotional activities held all year round on international scales, said Maybank IB.

"The Visit Malaysia Year 2007 has boosted tourist arrivals by 19.5 per cent year-on-year and tourist receipt spiked by 27 per cent year-on-year," it said.



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