Maybank IB sees weak 2Q performance for aviation sector

by **Cals** Tue 10 Jun 2014, 03:13

Business & Markets 2014

Written by Bernama

Monday, 09 June 2014 11:59

KUALA LUMPUR (June 9): Malaysia's aviation sector is expected to post a weaker financial performance for the second quarter (2Q14) of the year compared with the first quarter (1Q14), especially for long-haul flights, said Maybank IB Research.

"We observe that published ticket prices are generally higher than for the same period last year, with the exception of a few destinations — the North China, Australian and Thai routes.

"We expect a modest year-on-year yield growth of between two and three per cent this year, but this is coming off a very low base," the research firm said in a note today.

Maybank IB said the MH370 incident had also caused a dip in demand for flights to China, and expected it would take three to four months before a full recovery.

"We think airlines with significant exposure to China such as Malaysia Airlines and AirAsia X will suffer in 2Q14, but we do not expect the negative impact to be prolonged beyond 2Q14," it said.

It said the 1Q14 results season was a disappointment with sector core loss of RM281 million much greater than 1Q13's RM36 million loss.

Yields were still weak, but the quantum was reducing, indicating imminent recovery, although for now, long-haul airlines were suffering whereas short-haul airlines were managing it better, it said.

"We believe that the fare war is over, and the industry is at the tail end of the hangover," it said.

Maybank IB said the industry would now deploy six aircraft in 2014, which is the second downward revision from an original 10 aircraft to eight.

"This would reduce the capacity deployment growth rate and ensure that the supply-demand balance is in favour of the airlines.

"The industry is on a slow recovery path and 2014 will be a year of two halves -- a weak first half of the year followed by a convincing second half," it added.

It said AirAsia should perform better than the group as it was focused on the short-haul segment, which was more stable than its long-haul counterpart.

Malaysia Airports Holdings Bhd should continue to record impressive topline growth, but cost increases could dampen its bottom line, it added.

Maybank IB has kept its "neutral" recommendation on the aviation sector, pointing out there are no short-term catalysts to excite the market and valuations are at fair levels."