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KUALA LUMPUR, Jan 20 -- New airline MYAirline Sdn Bhd (MYAirline) could trigger aggressive price competition following a likely surge in seat capacity in the post-pandemic period, CGS-CIMB said today.
The research house said this may stimulate passenger traffic volumes with Malaysia Airports Holdings Bhd (MAHB) being the unequivocal winner.
It was reported recently that MYAirline, a newly established ultra-low-cost carrier (ULCC), is expected to be launched soon.
"Starting an airline during the pandemic will likely ensure very low operating costs as aircraft lessors are eager for business, and leasing rates are at very attractive levels,” said CGS-CIMB. "Also, it may not be difficult to recruit pilots and crew at reasonable wages, as many have been furloughed as a result of the pandemic.”
With low operating costs, it said MYAirline would be in a good position to offer sustainably low fares in order to promote itself and gain market share.
“We expect AirAsia to compete aggressively in the post-pandemic period among incumbents like Malaysia Airlines (MAS), Malindo, and Firefly, as well as with newcomer MYAirline. MAS is in position to compete having restructured its lease liabilities last year, and Malindo may bring back the jet planes it had transferred to Indonesia in 2020 if demand in Malaysia picks up sufficiently,” it added.
The research house believes the long drought of passengers has made incumbents thirsty for business. Hence, they are likely to compete fiercely among themselves for passengers by redeploying capacity quickly and by offering low promotional fares for an extended period.
Such conditions are ideal for airport operators like MAHB, as low ticket prices could effectively stimulate demand, which would help MAHB’s passenger volumes to recover faster.
On the new Operating Agreement (OA) that is to be finalised with the government, CGS-CIMB said the impending revision to the agreement may also improve MAHB’s structural profitability and could be another rerating catalyst if it materialises this year.
It noted that the pace of border reopening in Asia may pick up once the Omicron wave passes, or if governments in the region assess the variant to be less dangerous than the Delta variant.
CGS-CIMB has reiterated its “add” recommendation on MAHB but has reduced the target price from RM7.45 to RM6.95.
Meanwhile, Maybank Investment Bank is forecasting Malaysia’s domestic and international traffic to recover 45 per cent and 20 per cent, respectively, of pre-COVID-19 levels this year.
"With Malaysian carriers likely to operate fewer aircraft relative to 2019 even in the long term, it is unlikely that MAHB domestic passenger traffic will recover to 100 per cent of pre-COVID-19 levels,” it said.
Specifically, Maybank said AirAsia X’s pivot to cargo will deprive MAHB of passenger service charges and spending on duty free items.
"We assume that its domestic and international passenger traffic will recover to 100 per cent and 80 per cent, respectively, of pre-COVID-19 levels in the longer term.
Maybank has rated AirAsia Group a “buy” and ‘MAHB’ a “hold.”
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