KUALA LUMPUR: A full recovery in passenger traffic in Malaysia may be delayed due to recent challenges in the aviation industry faced by airlines.

"We expect that a full recovery in passenger traffic in Malaysia may be delayed due to recent challenges faced by some airlines, including delays in aircraft deliveries and shortages of parts and labour," it said MIDF Research said in a note.

Malaysia Aviation Group, the operator of Malaysia Airlines and Firefly, last month announced that it would cut capacity to manage supply constraints brought about by delays in aircraft delivery and spare part supply, among others. 

It said that total seat capacity recovery in the first half of 2024 (1H24) hit 85 per cent, with the average load factor rising to 79 per cent.

A quick review of July passenger traffic numbers revealed a strong 92 per cent recovery, fueled by the international sector, which has been outperforming the domestic sector since November last year.

Supporting this recovery is the return and introduction of foreign airlines, bringing the total number of airlines serving Malaysia to 71, with five more expected in 2H24.

It added Capital A Bhd plans to reactivate 15 more aircraft and expects eight new deliveries, boosting its operational fleet from 82 per cent in the second quarter of 2024 (Q2 2024).

Its airlines (excluding Cambodia) recovered 79 per cent of their seat capacity during the recent quarter, with a strong average load factor of 90 per cent.

"The group has guided that passenger traffic is expected to recover to 89 per cent in Q3 2024, supported by an 82 per cent seat capacity recovery.

Moreover, the high yield environment presents additional upside, with the average fare rising to RM239 in 1HFY24 - up 34 per cent above pre-Covid levels - as demand continues to surpass capacity recovery," it said.  Strengthening  of the ringgit against the US dollar would also be an advantage as nearly half of aviation operating costs are in US dollar.

The firm estimated that a five per cent change in its US dollar-ringgit assumption impacts Capital A's financial year 2024 earnings by 10 per cent.

It maintained a "Neutral" call on the aviation sector with Capital A as its top pick (Buy; target price: RM1.06), noting that the company's aviation business has been less affected by recent disruptions in the sector.

"Its fleet was not significantly cut during the pandemic, allowing it to focus on expansion and creating an opportunity to capitalise on the capacity gaps left by its competitors." On a separate note, the group is in the final stages and on track to complete its PN17 regularisation plan by Q4 2024," it added.

https://www.nst.com.my/business/corporate/2024/09/1106243/passenger-traffic-recovery-likely-delayed-due-malaysia-airlines