Maybank IB remains positive on Malaysian aviation as new carrier MYAirline prepares to take off

07/11/2022 12:27 PM

KUALA LUMPUR, Nov 7 (Bernama) -- Maybank Investment Bank Bhd (Maybank IB) remains positive on the Malaysian aviation sector as the new low cost carrier, MYAirline, prepares to lift off this month. 

The investment bank said MYAirline is expected to have a mild positive impact on Malaysia Airports Holdings Bhd (MAHB) and just mildly negative on Capital A Bhd.

"While we believe that history is repeating itself with the ‘birth’ of MYAirline, we caution that there are a few very important differences in 2013 when another Malaysian airline, Malindo, was born. 

"Industry capacity growth going forward will be more moderate this time even with the entry of MYAirline.

“Thus, the positive/negative impact on MAHB and Capital A ought to be more moderate this time around as well," it said in a research note.

Previously, when Malindo commenced its operations, MAHB’s Malaysia passenger traffic surged 18 per cent year-on-year (y-o-y) while for Capital A, its AirAsia Malaysia's (MAA) average fares fell 10 per cent y-o-y in 2013. 

It noted that MAHB’s traffic surged not just due to the entry of Malindo itself, but was also buoyed by other Malaysian airlines taking delivery of aircraft, the 13th General Election (GE13) - which have a positive impact on passenger traffic - and Malaysia Airlines joining the oneworld alliance that year, which encouraged member airlines to fly more frequently to Malaysia. 

"At present day, no Malaysian airline other than Batik Air Malaysia has plans to increase their fleet size. The much talked about 20 Airbus A330s that Malaysia Airlines will take delivery of are to replace, not expand, its existing fleet of Airbus A330s. 

"Furthermore, MAA has plans to transfer 10 to 11 aircraft to Indonesia AirAsia to capitalise on the high fare environment there.

“Thus, the incremental passenger traffic to MAHB from the entry of MYAirline will likely be more moderate this time around," said Maybank IB. 

Given that Malaysian airlines will not be adding much capacity in the near term, coupled with MYAirline’s plan not to undercut its peers by a lot, it reckons that the Malaysian aviation sector will not return to pre-COVID-19 days when overcapacity drove Malaysian airlines to undercut each other to the point that no Malaysian airline generated a profit in 2019. 

Thus, the research house expects the easing in MAA fares from the entry of MYAirline to be more moderate this time around.

At press time, MYAirline’s fleet comprises four Airbus A320s leased from multiple lessors. 

"MYAirline aims to lease more than 50 aircraft over the next five years. For now, it has no plans to lease Boeing B737 MAXs or Airbus A330s. The new airline intends to employ only one type of aircraft (Airbus A320) and one configuration (180 seats). 

"On costs, our conversations with sources from the aircraft leasing industry reveal that MYAirline could challenge Capital A for the title of the world’s lowest cost airline. They also revealed that MYAirline secured low aircraft lease rates," it said. 

Maybank IB has reiterated its “buy” call on MAHB and Capital A with a target price of RM7.16 and 84 sen, respectively. 

At 11 am, MAHB gained one sen to RM5.96 with 22,400 shares traded, while Capital A fell half-a-sen to 59.5 sen, with 787,300 shares traded.


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