Saturday, August 15

Middle East tumult to have minimal impact on Malaysia’s passenger traffic


Airlines such as Germany’s Lufthansa, Air France, Singapore Airlines and Malaysia Airlines have rerouted flights to avoid airspace over Iran and Iraq. — Bernama photo

KUCHING: The recent geopolitical US-Iran turmoil is not expected to have a significant impact on passenger traffic in Malaysia.

The analytical team with MIDF Amanah Investment Bank Bhd (MIDF Research) noted that airlines such as Germany’s Lufthansa, Air France, Singapore Airlines and Malaysia Airlines have rerouted flights to avoid airspace over Iran and Iraq.

It pointed out that the rerouting of flight would lead to longer flight durations and higher operating costs in terms of jet fuel consumed.

“However, it is important to note that the percentage of Malaysia’s international passengers travelling to and from Europe and the Middle East (only including Amman, Baghdad, Basra and Tehran) is very minimal at around 2.5 per cent of total international passenger traffic based on 2018 statistics.

“Therefore, we do not foresee any major disruption in passenger traffic if travelling demand from the said areas was to decline as demand from North East Asia and South Asia is expected to pick up further this year due to one-year visa exemption for tourists from China and India in tandem with Visit Malaysia Year 2020 (VMY2020).

“Moreover, load factors in Asia Pacific have been on an upward trend in the past few years,” it commented.

As for the impact on low cost carriers (LCCs) such as AirAsia Group Bhd (AAGB) and AirAsia X Bhd (AAX), MIDF Research said it does not see any issue as these airlines do not have
routes requiring their aircraft to fly over the Iraqi and Iranian airspace.

However, a notable concern in the aviation industry remains on the ongoing regulatory uncertainty that continues to plague the sector.

“With the Ministry of Transport’s (MOT) plans of merging the Malaysian Aviation Commission (Mavcom) with the Civil Aviation Authority of Malaysia (CAAM), the implementation of the RAB framework could be possibly derailed.

“Notwithstanding this, we are of the opinion that a transparent framework like the RAB framework would still need to be incorporated.

“This is because it inculcates a discipline capex planning while enabling the recoupment of capital expenditure via aeronautical charges.

“With the fact that the RAB framework shifts the developmental capex obligation from the Government of Malaysia (GoM) to Malaysia Airports Holdings Bhd (MAHB), we opine that this is a factor to be strongly considered to proceed with the implementation,” MIDF Research said.

It also believed that Mavcom’s focus for now would be ensuring the smooth transition of its functions into CAAM in addition to evaluating the next steps for the RAB framework given the situation that CAAM will have to do follow up works if the RAB framework comes into place.

“Nonetheless in terms of financial impact, we are estimating an earnings growth of more than 10 per cent for MAHB in FY20 in the absence of the RAB framework,” it added.

All in, MIDF Research retained a ‘positive’ stance on Malaysia’s aviation sector.

“We opine that VMY2020 would be a major catalyst to this year’s passenger traffic growth, with RM1.1 billion allocated by the GoM for the tourism ministry including RM960 million to drive awareness and promotion programmes.

“Furthermore, the GoM’s initiative for a 15-day visa free travel for tourists from China and India in 2020 will further support the overall passenger traffic growth as these travellers made up more than 20 per cent of passengers in 2019.

“In the past Visit Malaysia Years, the international traffic growth had been commendable, and the international traffic is likely to get a similar boost from the VMY2020 activities,” it added.