BUSINESS

AVIATION INDUSTRY BEGINS RECOVERY IN 2023 BUT TURBULENCE REMAINS

27/11/2023 12:27 PM

By Kisho Kumari Sucedaram

KUALA LUMPUR, Nov 27 (Bernama) -- The global airline industry saw evidence of a smooth take-off early in the year as it was recovering from the pandemic and the subsequent border closures.

However, the ensuing geopolitical tension, spiralling inflation and elevated fuel costs threatened to disrupt the flight back to financial safety. 

Despite that, the industry is headed for profitability in 2023, only three years after the historic loss of US$140 billion (US$1=RM4.68) in 2020.

Total airline revenue was expected to recover to around 93 per cent of the 2019 figure, with operating profits reaching US$22.4 billion, according to the International Air Travel Association (IATA).

The net profit forecast stood at US$9.8 billion, and the net margin amounted to a slim 1.2 per cent.

This would equate to US$2.25 per passenger, said IATA, a trade association representing some 300 airlines comprising 83 per cent of the global air traffic.

This was supported by the fact that jet fuel prices, although still high, had moderated over the first half of the year and that economic uncertainties had not dampened the desire to travel, said IATA.

However, with airlines just making US$2.25 per passenger on average, repairing damaged balance sheets and providing investors with sustainable returns on their capital investments would continue to be a challenge for many airlines.

In Malaysia, the aviation sector has been a mixed bag, with the shortlived MYAirline Sdn Bhd, the catering fiasco of Malaysia Airlines Bhd (MAB), and signs of financial trouble in SKS Airways Sdn Bhd. On the positive side, AirAsia X Bhd got out of Practice Note 17 (PN17) status.

 

MYAirline shortlived, SKS Airways showing signs of stress

Launched in December 2022, MYAirline’s wings were clipped on Oct 12, 2023, within just a span of its 10 months of operations. The Malaysian Aviation Commission (Mavcom) has since suspended its air service licence.

Financial constraints had made it necessary for the carrier to suspend operations pending shareholder restructuring and recapitalisation of the airline until further notice. 

A combination of high overhead costs, declining capital, and an aggressive expansion plan were among the reasons for the carrier’s present predicament.  It is currently seeking new investors to revive operations.

A total of 533 of the airline’s employees have submitted applications to obtain the benefits of the employment insurance system under the Social Security Organisation (Socso) as of Nov 18. The fate of the airline remains to be seen. 

As for SKS Airways, the news of the airline seeking new investors prompted much speculation, with reports saying that the airline was mired with financial issues as its chief executive officer Dzuleira Abu Bakar resigned. 

However, the airline responded by saying it had no financial problems and had diligently managed its financial obligations, ensuring all payments were made on time.

On May 25, the regional carrier committed to leasing 10 Embraer E195-E2 single-aisle jets in a deal worth more than US$840 million from lessor Azorra during the Langkawi International Maritime and Aerospace 2023 exhibition (LIMA ’23).

 

Malaysia Airlines and in-flight meals fiasco

While the new airlines encountered some funding issues and top management scuffles, the national carrier was struggling with its in-flight fiasco with Brahim’s Food Services Sdn Bhd (BFS).

The longstanding catering contract between MAB and BFS ended after extensive negotiations between the two parties since the fourth quarter of 2022 did not result in an amicable agreement.

On Sept 1, MAB introduced revised inflight meal offerings on routes previously served by its former catering provider, which include the signature peanuts and beverages, refreshments in ready-to-go boxes and disposable containers presented on a simplified tray setup.

After almost three months of struggle to reinstate in-flight meal offerings, the national airline successfully closed the issue on Nov 15, with full resumption of its in-flight service offerings across all sectors, including complete beverage offerings, full hot meals, and reinstatement of special meals.

On top of that, Malaysia Aviation Group Bhd (MAG), MAB’s parent company, took delivery of its first Boeing 737-8 aircraft on Nov 16. It has an order book of 25 units of the 737-8 via its operating lease with Air Lease Corporation, which will be delivered progressively through 2026.

MAB also commenced its inaugural flights between Kuala Lumpur (KUL) to Amritsar (ATQ) and Trivandrum (TRV) from Nov 10 onward. 

 

Positive signs for AAX as it exits PN17 status

AirAsia X entered the financially troubled PN17 status in November 2021 as a result of the disruptions caused by the pandemic. It was subsequently lifted on Oct 19 this year.

In its latest financial announcement, AirAsia X said net profit for the third quarter ended Sept 30, 2023, fell to RM5.56 million from RM25.09 million posted in the corresponding period last year. However, revenue for the period under review soared to RM648.36 million from RM100.10 million a year ago.

The long-haul low-cost airline said it had achieved an over 53 per cent recovery against the same period pre-Covid-19, despite the fact that the period under review had traditionally recorded relatively lower sales due to the seasonality of international sectors.

In a note, Maybank Investment Bank Bhd said despite the disappointing third-quarter 2023 (3Q FY2023) financial results due to higher-than-expected jet fuel prices, AirAsia X would be expected to perform strongly in 4Q FY2023. 

“Going forward, we expect 4Q FY2023 to be strong as fares traditionally peak in the fourth quarter. We expect Thai AirAsia X (TAAX) to contribute meaningfully from next year onward,” it said. 

On route expansion, AirAsia X is set to spread its wings to Central Asia as the first Malaysian airline to fly directly to Almaty in Kazakhstan, commencing on March 14, 2024. Besides that, AirAsia Malaysia also became the first airline connecting Kuala Lumpur to Kertajati, Indonesia starting May 17, 2023.

Meanwhile, Capital A Bhd has entered into a letter of intent with Aetherium Acquisition Corp, a special purpose acquisition company listed on the Nasdaq stock exchange, for the proposed business merger with Capital A International.

 

Batik Air Malaysia collaborates with Emirates 

As for Batik Air, Emirates announced a codeshare agreement with Batik Air Malaysia last month, aiming to expand its network reach to more than 1,490 cities worldwide. 

Emirates would place its code on Batik Air-operated flights from Kuala Lumpur International Airport to Penang, Kuching, Kota Kinabalu, Langkawi, Johor Bahru, Denpasar, Jakarta, and Singapore. 

The airline has 30 codeshare, 11 intermodal, and 118 interline partners, including Jakarta-based Lion Air Group and its subsidiaries Batik Air Indonesia and Batik Air Malaysia. 

 

Integration of CAAM and Mavcom to be continued 

Amid all the turbulence, the government had taken steps to work on consolidating the Malaysian Aviation Commission (Mavcom) and the Civil Aviation Authority of Malaysia (CAAM) to empower the latter as well as to strengthen CAAM’s financial position. As such, Mavcom’s main functions would be transferred to CAAM.

The mandate, of course, would be seen as vital in order to put all legal and technical issues in the aviation industry under one umbrella to better navigate the industry to greater heights. 

The talks have been going on since 2019 under the administration of former prime minister Tun Dr Mahathir Mohamad, and now, with the unity government, it is hopeful the merger will come to fruition next year to foster a safer aviation environment.

Additionally, the Subang Airport Regeneration Plan, prepared by Malaysia Airport Holdings Bhd earlier this year, would focus on the Sultan Abdul Aziz Shah Airport’s development in the context of aerospace ecosystem, general aviation or business aviation, and city airports.

 

A better year seen for aviation in 2024

Moving forward, the Centre for Asia Pacific Aviation chief analyst Adrian Schofield said international capacity in the Asia-Pacific region, especially Malaysia, is catching up quickly and will probably get close to at least 100 per cent by late 2024.

“The full return of Chinese traffic will be a major factor for a full recovery in Asia-Pacific international traffic,” he told Bernama. 

He added that capacity and fleets have been growing to meet the growing demand as more aircraft are returning to service, and new orders are beginning to come in, with more on the way next year.

-- BERNAMA


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