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MAVCOM releases 3rd Edition of Waypoint Report and Commentary on 2019 Budget

22 Nov, 2018

Malaysia’s Passenger Traffic to Hit 100 Million Mark for the First Time Despite Slower Growth Rate
MAVCOM Comments on Government’s Proposed Airport REIT and Departure Levy

KUALA LUMPUR, 22 NOVEMBER 2018 – Malaysia’s passenger traffic is expected to grow to between 100.3 million to 101.1 million passengers in 2018 despite a growth rate of between 1.1 per cent to 2.2 per cent in 2018.  The third edition of the Malaysian Aviation Commission’s (MAVCOM) Industry Report, Waypoint reports that this low single-digit growth is due to a reduction in domestic capacity by Malaysian carriers. At the same time, growth in international traffic is expected to surpass domestic traffic growth for the third consecutive year.

The recently released Industry Report features the Commission’s outlook on the industry, a macro overview of the sector, an analysis on industry structure and performance, as well as a review of the ground handling services segment in Malaysia.

Dr. Nungsari Ahmad Radhi, Executive Chairman of MAVCOM, said, “The Waypoint Industry Report is part of the Commission’s overall commitment as the economic and commercial regulator for the sector, with an aim to create a more robust aviation industry in Malaysia by fostering a deeper understanding of the sector as a whole.”

Key Highlights

Malaysia recorded 50.3 million international and domestic passengers in the first half of 2018 with growth weaker than MAVCOM’s initial forecast of 6.5 per cent to 7.0 per cent. Passenger traffic growth was primarily driven by international traffic for the first half of 2018 as Malaysian carriers increased international seat capacity by 8.8 per cent. At the same time, domestic seat capacity decreased by 4.0 per cent as a result of route network rationalisation exercises by two Malaysian carriers who slashed their total domestic capacity by 28.1 per cent.

Passenger traffic growth in 2019 is forecasted to hover between 2.2 per cent and 3.3 per cent, to be supported by private consumption and potentially lower airfares as airlines shift their route network focus to short- and medium-haul destinations instead of long-haul destinations.

Malaysian carriers recorded a 5.3 per cent increase in terms of average fares in the first half of 2018 for the domestic market together with an increased average load factor of 80.2 per cent, resulting from strong demand and lower domestic capacity. International air travel demand was weaker with an average load factor of 80.5 per cent as compared to the previous year’s average load factor of 84.5 per cent. In line with the average fares observed, Malaysian carriers are expected to remain cautious, increasing seat capacity by only 2.6 per cent for 2019, mainly supported by the domestic market.

Revenue per available seat kilometre (RASK) growth for the first half of 2018 was flat while cost per available seat kilometre (CASK) inched upwards by 0.5 per cent. This was achieved against a backdrop of a 26.0 per cent increase in global jet fuel prices during the same period. Excluding a gain in disposal of a carrier’s subsidiary, Malaysian carriers reported operating losses of RM1.2 million for the first six months of 2018. This scenario is expected to persist given the likely instability in global jet fuel prices and weaker than expected growth outlook at selected regions excluding Asia Pacific.

While Malaysia’s tourist arrivals saw a decline of 1.7 per cent in the first two quarters of this year, this was a marked improvement from the 7.3 per cent decline recorded in the fourth quarter of 2017. A decrease in the number of Singaporean tourists was the primary factor in the decline in tourist arrivals for the first half of the year, as Singaporeans constitute 40.8 per cent of total tourist arrivals. The Report also notes an increase in the number of tourists from China, Indonesia, South Korea, India and Taiwan by 35.9 per cent, 15.3 per cent, 33.7 per cent, 14.7 per cent and 20.9 per cent, respectively with tourists from these countries constituting 30.4 per cent of total tourist arrivals in the first quarter. This bodes well for the aviation sector given the fact that tourists from these countries are more likely to travel into Malaysia by air compared to their Singaporean counterparts.

Nungsari concluded, “The Commission hopes the data and information provided on the aviation industry as a whole will provide industry players with a better insight on the challenges and opportunities within the sector. While the domestic market is expected to fuel growth, Malaysian carriers should remain cautious of the challenging operating environment particularly the volatility in global jet fuel prices threatening the profitability of Malaysian carriers.”

This edition of Waypoint also includes a technical paper on air services agreements (ASA) which are treaties signed between two or more countries that provide the legal basis for the provision of international airline services. The technical paper highlights the need for Malaysia’s aviation policies to be more aligned with the nation’s connectivity and economic objectives and elaborates on the crucial need to be more strategic when entering into ASAs with other countries to ensure greater utilisation by limiting the mismatch between their market access and demand by carriers and consumers.

In a separate 2019 Budget Commentary which accompanied this edition of Waypoint, the Commission provided views on the two aviation related proposals by the Government. The Government has proposed two initiatives, namely the intention to set up an Airport Real Estate Investment Trust (Airport REIT) and to introduce a Departure Levy for all outbound international air travellers during the recently tabled 2019 National Budget.

MAVCOM is cognisant for the proposed Airport REIT to be designed in a manner that would be beneficial for the aviation industry in Malaysia, and highlights matters to be taken into consideration to include the economics of Malaysia’s airport operators, cost to consumers, industry structure, the potential need for continuing cross-subsidisation within the airport network and the efficiency of the future airport capital planning process, among others. Further details are required on the Airport REIT for the Commission to perform a more comprehensive evaluation. The Commission will provide a more thorough analysis once more information is available.

MAVCOM is also conscious of the proposed Departure Levy and its potential inconsistency with International Civil Aviation Organisation’s (ICAO) guidelines and international good practices, the increase in travelling costs to passengers and further implication to levels of airport charges under the Aeronautical Charges Framework currently being developed by the Commission.

The Waypoint Report is available as a PDF here.

The accompanying Technical Paper on air services agreements can be downloaded here and the 2019 Budget Commentary can be found here.

For more information, visit our Industry Data page.