Glimmer of hope for aviators
Things are looking up for Malaysia’s aviation industry as the economy continue to improve after recent challenges seen in the global markets and the aviation industry over the last few years.
Aided by state governments’ push to improve air connectivity to and from local states within and beyond the country’s borders, Malaysia’s aviation industry could see clearer skies ahead.
Furthermore, as the global economy gradually stabilises, consumer sentiments are improving which would lead to passenger traffic across the world increasing, raising demand for air travel.
On a global scale, the International Air Transport Association (IATA) expected that the overall global airline industry to make a net profit in 2017 of US$29.8 billion, on a forecast total revenues of US$736 billion, that represents a 4.1 per cent net profit margin.
“This will be the third consecutive year (and the third year in the industry’s history) in which airlines will make a return on invested capital (7.9 per cent) which is above the weighted average cost of capital (6.9 per cent),” it said.
It also expected that one per cent of the world GDP to be spent on air transport in 2017, totaling US$776 billion.
For airlines in the Asia-Pacific region, IATA expected a net profit of US$6.3 billion in 2017 (down from US$7.3 billion in 2016) for a net margin of 2.9 per cent while capacity offered by the region’s carriers is forecast to grow by 7.6 per cent, ahead of a forecast growth in demand of seven per cent.
“The expansion of new model airlines and progressive liberalisation in the region is intensifying already strong competition. In addition profitability varies widely across the region,” it added.
The improvement in the aviation industry is also expected to be seen in Malaysia, as passenger traffic in the country has been forecast to exceed last year’s passenger traffic.
According to the Malaysian Aviation Commission (MAVCOM), this comes on the back of stronger demand for air travel as average fares declined in recent years, with fares for international routes seeing a sharper drop compared to domestic routes. In tandem, it noted that Malaysian carriers are expected to increase their capacity by 14.3 per cent during the year.
MAVCOM in its first industry report said Malaysian passenger traffic in 2017 is forecast to grow at 7.8 to 8.8 per cent resulting in total passenger traffic of 98.3 million to 99.2 million.
“This forecast takes into consideration the historical long-term trend of Malaysian passenger traffic, as well as the historical relationship between passenger traffic growth and Malaysian GDP growth.
“Furthermore, expectations for growth in passenger traffic in 2017 is underpinned by increased demand due to the growth of the Malaysian economy, which is in turn is driven by higher demand for exports (sustained by improvements in the global economy) and higher private domestic spending,” it said.
MAVCOM in its report also pointed out that for the first seven months of 2017, total Malaysian passenger traffic grew by 10.4 per cent as compared to the same period in 2016, underpinning the growth seen in the aviation sector overall. Stabilising second half for air carriers
For the second half of 2017 (2H17), while the aviation sector is expected to continue to see tough competition, it would still continue its steady growth.
AmInvestment Bank Bhd’s research arm (AmInvestment) in its second half of 2017 (2H17) strategy report noted that the domestic aviation sector to see a tougher competition due to continuous capacity expansion among the domestic carriers.
AirAsia, Malindo Air and Malaysia Airlines all expanded capacity in 2016, with visitor arrivals in Malaysia expected to be boosted by the upcoming SEA Games and Asean Para Games in August and September 2017 respectively.
“The higher capacity offered should be positive for Malaysia Airports Holdings Bhd (MAHB) due to higher traffic at its airports, but this presents a risk to AirAsia Bhd (AirAsia) which could lead to lower yield. Additionally, Passenger Service Charge (PSC) rate for flights to Asean has been standardised at RM35, which could allow full-service carriers operating from KLIA Main to offer more competitive pricing for their tickets,” it opined.
All in, it expected passenger traffic in 2017 to continue to grow, reflecting the increase in seat capacity. It also expected AirAsia to record another commendable performance in FY17 due to a sustained strong demand in the region.
“As for MAHB, we expect the positive passenger traffic growth for Malaysia to be sustained throughout FY17 with all Malaysian-based carriers offering more seat capacity,” it added.
With that, BizHive Weekly takes a more in-depth look at aviators’ corporate developments to date: