Malaysia's aviation sector continues its steady recovery, with passenger traffic reaching 89% in August 2024, a positive development driven largely by the robust international sector. Airports across the country recorded over 8 million passengers for the second month in a row, with the international sector outperforming domestic figures. The recovery rates for international and domestic traffic stood at 92% and 85% respectively, with key contributions from Indonesia, China, and India. Notably, the international sector has consistently led the way in recovery for the past 10 months, highlighting strong demand for overseas travel as new airlines and increased flight frequencies boost the numbers.

Analysts remain optimistic about the sector's future. The recommendation is to accept the offer for Malaysia Airports Holdings Berhad (MAHB) at an offer price of RM11.00 and maintain a BUY call on Capital A, with a target price of RM1.06. Capital A has been less impacted by the disruptions seen in the industry and is well-positioned to address capacity gaps with its fleet expansion plans. Despite challenges, including delays in aircraft deliveries and labour shortages, the outlook for Capital A remains strong. Furthermore, the completion of the Group's PN17 regularisation plan by the fourth quarter of 2024 is expected to support continued growth.

Passenger traffic from key international markets such as China and India has shown significant strength, supported by the reciprocal 30-day visa-free travel policy that China has extended for Malaysians until December 2025. Recovery rates for China and India stood at 98% and 93% respectively as of the second quarter of 2024. The domestic sector has also seen modest improvement, with Subang Airport benefiting from the introduction of new services by local airlines. However, domestic recovery has been slower, largely due to airlines prioritising international routes that are seeing stronger demand.

Looking ahead, passenger traffic for 2024 is expected to recover to 94%, revised down slightly due to ongoing industry challenges. Factors such as delays in aircraft deliveries, shortages of parts, and labour issues have tempered growth expectations. However, the recent appreciation of the Ringgit against the US Dollar and the easing of fuel prices provide relief for airlines, as most operational costs, particularly jet fuel, are USD-denominated. In addition, average fares are likely to rise, especially with Malaysia Airlines temporarily reducing capacity by 20% for the remainder of the year. Despite these hurdles, the aviation sector remains resilient, with continued growth expected in the months ahead.

Source: MIDF
Title: Consistent Outperformance of the International Sector