Maybank Invest Ment Bank (Maybank IB) maintains BUYs on MAHB & AAX, and a HOLD on CAPITAL A on the potential impact of the suspension of MYAirlines’ operations.
By their estimation, (i) MAHB could be mildly negatively impacted on fewer passengers and a potential provision for doubtful debts, (ii) AAX would not be impacted at all; while (iii) CAPITAL A stands to benefit the most via higher fares.
On earnings estimates, BUYs on MAHB and AAX, and HOLD on CAPITALA are maintained. Yet, investors ought to look out for CAPITAL A’s 4Q23 results which may be boosted by high fares. ‘
MYAirline suspending operations
After less than a year of operations, MYAirline (Not Listed) announced on 12 Oct 2023 that it will suspend operations. According to its press statement, this is due to significant financial pressures and the suspension is pending shareholder restructuring and a recapitalisation.
MYAirline was operating 9 Airbus A320s configured with 180 seats each and flying to domestic destinations (save for Bangkok). Its business model was very similar to CAPITAL A’s in that it was operating as a low cost carrier flying to domestic and ASEAN destinations.
Maybank IB’s stance now is mildly negative to MAHB but no impact to AAX,
MYAirline accounted for <10% of MAHB’s Malaysia domestic passenger traffic and ><2% of revenue, we estimate, considering that domestic PSCs are 5-7x lower than that of international PSCs. There are also amounts outstanding to it from MYAirline but MAHB assures us that any provision will not have a material impact (i.e. ><5%) on earnings. On AAX, we do not expect it to be affected at all. MYAirline was operating narrow body Airbus A320s that fly to domestic and ASEAN destinations. AAX operates wide body Airbus A330s that fly to destinations beyond ASEAN (except Bali). Most +ve for CAPITALA, in our view As alluded to, MYAirline competes directly with CAPITALA’s 100% owned Malaysia AirAsia (MAA) which historically contributes >80% to group earnings
Coupled with the delayed delivery of narrow body Boeing B737 MAX 8s to Malaysia Airlines (Not Listed), the industry’s domestic capacity will take time to return to 100% of 2019 (pre-pandemic) levels (MIBG estimate: 80-90% currently).
This will exert upward pressure on fares
Moreover, the timing of MYAirlines’ suspension is at the start of the yearend travelling period. Fares tend to peak in the 4Q, which may mean a bumper 4Q23 for CAPITALA.
All else being equal, every MYR1 higher than average MAA fare will accrete MYR25m-MYR30m to group earnings, Maybank IB said it its note of Malaysian Aviation today (Oct 13) which carries and positive stand in the sector.
