KUALA LUMPUR: Demand for business and leisure air travel should continue to recover throughout 2024, according to Kenanga Research.
This is consistent with Tourism Malaysia's projection of tourist arrivals to return to pre-pandemic levels of 27 million in Malaysia, up 35 per cent from 20 million in 2023.
"A key driver is Chinese tourists that had historically contributed to an estimated 12 per cent of total tourist arrivals in Malaysia.
"Furthermore, tourist arrivals is expected to be boosted by the 30-day visa-free regime for Chinese and Indian visitors to Malaysia starting from Dec 2023 and China allowing Malaysian inbound visitors 15 visa-free days between Dec 1 of calendar year 2023 (CY23) and Nov 30 of CY24."
This should underpin growth in Malaysia Airports Holdings Bhd's (MAHB) passenger throughput and Capital A Bhd's passenger demand in CY24, Kenanga Reserach said today.
The firm expects MAHB's system-wide passenger throughput to rise by seven per cent to 131 million in CY24.
Amplifying traffic growth trajectory is aircraft movements that are pointing towards increased medium and long-haul flights to Perth, Sydney and Auckland, Southeast Asia and South Asia destinations.
"Kuala Lumpur International Airport saw the return of Kuwait Airways after a seven-year hiatus, while two other foreign carriers i.e. KLM Royal Dutch Airlines and All Nippon Airways, will resume non-stop flight operations to Amsterdam and Tokyo, respectively, after temporarily ceasing operations due to the Covid-19 pandemic.
"In addition, Malaysia Airlines has increased its flight frequency to Tokyo. AirAsia Group meanwhile is focusing on its medium-haul operations by increasing its Malaysia AirAsia X flights to 44 weekly across 10 routes from November 2022," it noted.
Similarly, Kenanga Research said it saw a similar trend for Capital A's passenger demand in CY24, paving the way for its system-wide revenue seat kilometres (RPK) to grow 20 per cent to an estimated 70 billion in CY24, after recovering by an estimated 24 billion to 58 billion in FY23 based on its forecasts.
Capital A, it said, had reiterated that the passenger throughput recovery is gaining traction.
Capital A is targeting to reactivate 187 aircraft by the fourth quarter of financial year 2023 (4QFY23) with 161 aircraft available for operation, and its operating capacity to reach 74 per cent of pre-Covid level, leveraging the high travel season and the newly established visa-free travel between China and Malaysia starting Dec 1 this year.
Kenanga Research kept a "Market Perform" rating on both MAHB and Capital A, with a target price of RM7 and 84 sen respectively.
The firm did not have a pick for the sector.
Kenanga Research also highlighted that each player in the aviation sector has its own unique set of issues.
A tariff hike pegged to consumer price index recently proposed by Malaysia Aviation Commission may not be sufficient for MAHB to generate enough cash flows for capex purposes, particularly for airport expansion and maintenance.
Meanwhile, the clock is ticking for a more comprehensive plan to remove Capital A from its Practice Note 17 status.