Wednesday, August 21

Aviation, travel industries to gain from depressed price of jet fuel

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KUCHING: The depressed price of jet kerosene would be positive for the aviation sector given that fuel cost constitutes 35 to 50 per cent of total operation expenditure (opex), thus having a profound impact towards the sector’s bottomline.

Of note, the OPEC meeting concluded recently with the cartel members retaining its production target of 30 million barrels per day (bpd).

MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) noted that the decision further hastened the fall in crude oil prices which, as of November 28, have slumped by 37 per cent year on year (y-o-y) to US$70.2 per barrel (bbl) while jet kerosene tumbled by 31.5 per cent y-o-y to US$86.8 per bbl.

“Depending on the market conditions, currency movement, fuel hedging and the intensity of competition, we expect fuel surcharges to be reduced. This should translate into lower fares and could spur travel interests amidst concerns over a potential softening travel demand due to the rising living cost,” said the research house.

“After the ‘self-inflicted’ yield crash which was caused by aggressive capacity growth since third quarter 2013 (3Q13), we now expect a modest yield recovery in financial year 2015 (FY15) spurred by potential removal of MAS’ capacity by 15 to 20 per cent as early as 1Q15; delay in aircraft fleet deliveries by AirAsia and AirAsia X’s fleet redeployment outside Malaysia.”

Passenger traffic growth is expected to ease to five to six per cent y-o-y in FY14 compared to a 18.4 per cent y-o-y growth in FY13 to 79.5 million pax. The FY15 traffic forecasts could be lower should domestic carriers remove capacity aggressively.

MAHB expects klia2’s utilisation rate in FY15 to increase by four percentage points (ppts) to 57 per cent.

“We believe this would not be sufficient to offset the higher running costs from klia2 and thus the airport operator’s earnings could still be depressed.”