Aviation sector to soar on improved consumer sentiment

KUALA LUMPUR: The aviation sector in Malaysia is expected to chart healthy growth in 2018, underpinned by improved consumer sentiment, a rebound in tourist arrivals after weak growth last year and continued strong demand for international travel by locals.

Hong Leong Investment Bank (HLIB) Research expects rising air travel demand and tourist arrivals into the country as a result of the Tourism Ministry's promotional activities ahead of Visit Malaysia Year 2020, coupled with the government's initiative to ease the procedure for tourists travelling into the country with the eVisa regional hub expansion.

“On the local front, there has been strong travel demand growth from Dec 16 last year, in spite of the many concerns on high living costs, eroding purchasing power and lower consumer sentiment.

“We believe the strong growth was driven by the availability of low cost travel, a growing network of low cost carriers (LCCs), changing demographics and consumer spending pattern,” it said in a research note.

HLIB Research expects the Malaysian demand for overseas travel to continue building up further in 2018 in view of the aggressive capacity expansion.

Overall capacity growth in the system is anticipated to be at six to seven per cent in 2018 and despite overcapacity woes in the market, the research house said additional capacity would be well-absorbed by the growth in travel demand, especially by locals.

Given the expected balance supply-demand environment in 2018, overall yield is expected to be sustainable, as airlines have no pressure to price their products aggressively to improve load factors.

“We do not expect much pressure on AirAsia's yield. Major competitors, Malaysia Airlines and Malindo, are slowing down their capacity growth and redeploying assets to more promising routes, while not competing heads on with AirAsia,” it said.

Meanwhile, HLIB Research has raised its forecast for Malaysia Airports Holdings Bhd's earnings by 6.9 per cent and 3.2 per cent for the 2018 and 2019 financial years respectively, as the airports operator would be the main benefactor of rising air travel in Malaysia and a rebound at Istanbul's Sabiha Gökçen International Airport.

The research house also lifted the earnings forecast for AirAsia by 1.3 per cent and 0.8 per cent for the 2018 and 2019 financial years respectively, as the budget carrier would benefit from sustaining yields and ringgit appreciation.

HLIB Research maintained its 'buy' calls on Malaysia Airports and AirAsia, with a higher target price of RM10 and RM4.18 respectively.- Bernama
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