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Malaysian Carriers Expected to Price Fares Competitively in 2019 to Mitigate Softening Demand Growth

15 May, 2019

Malaysian Carriers Expected to Price Fares Competitively in 2019 to Mitigate Softening Demand Growth

 

KUALA LUMPUR, 15 MAY 2019 – The Malaysian Aviation Commission (MAVCOM) released the fourth edition of its bi-annual Industry Report, named Waypoint which provides an overview of the aviation sector. Waypoint includes an analysis on industry structure and performance in addition to the outlook for the sector.

According to the report, MAVCOM is forecasting Malaysia’s passenger traffic for 2019 to grow to between 105.5 million and 106.7 million passengers, or a range of between 2.9 and 4.1 per cent growth compared to 2018.  MAVCOM expects greater uncertainty ahead as global and local economic growth are expected to slow marginally.

Dr. Nungsari Ahmad Radhi, Executive Chairman of MAVCOM, said, “For 2019, we expect to see downward pressure on yields and therefore, similar downward pressure on revenues for Malaysian carriers as seat capacity growth is expected to surpass passenger traffic growth. Jet fuel prices in 2019 could, on average, be lower than last year which could provide some respite to any financial pressures faced by the carriers.”

Other Key Highlights

Malaysia recorded 102.5 million international and domestic passengers in 2018. Passenger traffic growth was primarily driven by international traffic that grew by 5.5 per cent. Weaker passenger traffic growth was attributed to the nation’s slower Gross Domestic Product (GDP) growth at 4.7 per cent (from 5.9 per cent in 2017), and lower seats capacity growth by both Malaysian and foreign carriers of 6.4 per cent and 4.5 per cent as compared to 8.6 per cent and 15.6 per cent in 2017, respectively.

Average revenue per available seat kilometre (RASK) for 2018 was marginally higher at 16.3 sen as average international fares fell 2.4 per cent to RM486 while average domestic fares remain unchanged at RM221. Average cost per available seat kilometre (CASK) inched upwards by 5.1 per cent to 17.8 sen. This was achieved against a backdrop of a 28.8 per cent increase in global jet fuel prices during the same period. Average load factor in 2018 dropped slightly to 81.8 per cent despite tempered capacity expansion of 3.2 per cent and flat RASK growth, signalling weak demand.

While Malaysia’s tourist arrivals saw a decline of 0.5 per cent to 25.8 million last year, data from the Ministry of Tourism, Arts and Culture showed that apart from fewer tourists from Singapore, tourist arrivals into Malaysia actually increased by 11.4 per cent to 15.2 million in 2018. Tourists entering Malaysia from Singapore have alternative transportation modes such as by road via the Johor-Singapore Causeway or by train. The data also showed higher tourist arrivals comprising of an additional 1.6 million tourists from Indonesia, China, South Korea, India, Taiwan, the Philippines, Vietnam, the United States, and Germany in 2018.

Nungsari concluded, “The Commission is monitoring domestic demand growth capacity closely in light of the expected increase in seat capacity as that will have a significant bearing on the financial health of Malaysian carriers. International traffic growth depends on many other factors but we would like to see better numbers for ASEAN traffic.”

The fourth Waypoint report can be found here.

Waypoint reports are released on a bi-annual basis and copies can be found on the Research and Reports page.