KUCHING: Analysts have viewed that while they do not expect ‘head-turning’ results in the aviation industry for the first quarter of 2014 (1Q14), there are some credible signs of stabilisation in yields in 1Q14 which could bode well for the sector.
Maybank Investment Bank Bhd’s research arm (Maybank IB Research) in a recent note, opined, “We believe that the fare war of 2013 had reached its tail end back in 4Q13 and will show some credible signs of stabilisation in 1Q14 with a lower yield drop. The yields should be higher year-on-year (y-o-y) from 2Q14 onwards.”
This, it said, was based on its observation that published ticket prices were higher y-o-y for all domestic sectors, European and some regional sectors.
“However, we note that published fares to Australia, Thailand and selected Chinese destinations (Beijing, Xian, and Shanghai) remain very cheap,” it added.
Meanwhile, so far, Maybank IB Research viewed that major airlines have reported impressive operating statistics for 1Q14.
“Passenger traffic grew by 18.4 per cent y-o-y in 1Q14, which makes Malaysia the fastest growing country in Asia Pacific,” it commented.
The research firm explained that Malaysian Airline System Bhd (MAS) had carried 20.7 per cent more passengers y-o-y in 1Q14, which constituted 31.6 per cent of the total industry growth while AirAsia X Bhd’s (AirAsia X) growth of 66.9 per cent y-o-y constituted 13.5 per cent of the total industry growth.
Traffic of the other airlines, not including AirAsia Bhd (AirAsia), grew 23.1 per cent y-o-y, constituting 48.5 per cent of the total industry growth.
This passenger traffic growth is in line with Maybank IB Research’s view that the MH370 incident on March 8 will only have a negative impact for a short period for air travel.
“Other similar historical incidents saw two to three months of weakness in air travel demand before a full recovery. We don’t think this incident will pose a long term structural impact on the Malaysian aviation industry,” it said.
Meanwhile, the industry’s load factor remained strong at 79.5 per cent in 1Q14, a growth of 1.3 percentage points from a year ago, the research firm said.
As for the average jet fuel price for 1Q14, it reported that prices were at US$130.8 per barrel, which was 2.5 per cent lower than in 1Q13.
“However, cost savings from the lower fuel price is partially negated by the ringgit/US dollar depreciating by 6.8 per cent y-o-y to 3.2883 in 1Q14.
“In addition, Malaysia Airports Holdings Bhd (MAHB) has imposed a nine and 18 per cent increase in landing and parking charges respectively starting January 1, 2014,” it explained.
Taking into account all these factors, Maybank IB Research expect the airlines to show a modest unit cost reduction of less than or equal to one per cent y-o-y in 1Q14.
As for passenger service charges (PSC), it noted that the PSC at the airports was supposed to have increased by 10 per cent on February 12, 2014 as part of the operating agreement between MAHB and the government.
However, the government remained silent on this matter and therefore the old tariff remains and this is positive for the airlines as a PSC increase would negatively impact yields, it viewed.
As for other developments in the aviation industry, the research firm noted that the opening of klia2 would bode well for AirAsia X and Malindo, but it might a mixed impact on AirAsia and increasing competition for MAS.
It explained, klia2 would bring instant benefits to airlines such as AirAsia X and Malindo as the airport has an international concourse and this will enable passengers to make seamless transits within the enclave of the terminal. It added that Malindo would also benefit from the lower PSC at klia2 compared to the main terminal (circa 50 per cent cheaper), and this will boost its competitiveness against the AirAsia Group.
On the impact to AirAsia, it viewed that the bigger and better terminal will provide the platform for long term growth and enhance its customer experience but the airline would have to abandon many of its low cost carrier (LCC) practices such as not using aerobridges and a swift 25 minute aircraft turnaround is not possible with this terminal layout.
“In many ways, we think AirAsia has to tweak its operations and become a network carrier in order to fully take advantage of its home base at klia2,” it opined.
As for MAS, the current cheaper PSC at klia2 may result in some of MAS’ core passengers switching to other airlines based at klia2 due to the cheaper all-in cost (ticket fare and PSC) and the fact that the comfort margin has narrowed.