Aviation sector right policies to grow

​Local authorities will need to impose the right policies to encourage air transport growth, which in turn drives Malaysia’s overall economic growth

Local authorities will need to impose the right policies to encourage air transport growth, which in turn drives Malaysia’s overall economic growth.

Singapore-based independent analyst and consultant Brendan Sobie of Sobie Aviation said the local aviation sector could see a further deterioration without the right policies and support from the government and stakeholders.

“I maintain my view that Malaysia is a critical juncture in terms of aviation and the government needs to make the right high level decisions, put in place the right policies and relook at its national aviation strategy in order for the opportunities to be unlocked,” he told the New Straits Times recently.

He expects Malaysia’s overall passenger growth this year would be similar to 2019, averaging 5.0 per cent.

There would likely be faster domestic than international growth once again, particularly in the first half of 2020, he added.

“Malaysia should encourage faster international growth by reviewing taxes and policies. This will improve the overall environment for its airlines, which I am afraid will likely continue to be unprofitable in 2020,” he added.

The Malaysian Aviation Commission (Mavcom), meanwhile, expects air passenger traffic across all airports in Malaysia to grow between five per cent and six per cent year-on-year (YoY) or 114.9 million and 116.0 million passengers next year.

Mavcom said this would be driven by Visit Malaysia 2020 and a 3.2 per cent YoY increase in domestic seat capacity growth.

The growth projection in 2020 was made following the commission’s revision on 2019 passenger traffic forecast between 6.4 per cent and 7.0 per cent YoY, or 109.1 million and 109.7 million.

Mavcom said Malaysian carriers’ seat capacity were expected to grow 2.0 per cent YoY in 2020 compared with 4.3 per cent last year.

Subsequently, average fares by the carriers are predicted to remain flat or rise slightly due to slower growth in capacity, thus enabling local carriers to improve their load factors.

Mavcom executive chairman Dr. Nungsari Ahmad Radhi said there was a growing development of alternative airport hubs such as Johor Bahru, Kuching, and Kota Kinabalu in 2019, as carriers allocated more seats to these airports for a wider choice of domestic destinations.

“Greater allocation of seats for these airports supported the domestic-led growth in 2019 and is expected to persist in 2020, where routes within Sabah and Sarawak will experience the highest growth,” he said.

Sobie said Malaysia needed to step up efforts to attract more tourists, adding that the Visit Malaysia 2020 Campaign was a positive step.

“However, I am not sure how much of an impact it will have on the overall numbers (passenger growth),” he said.

Sobie cautioned that the new departure tax would be a deterrent, which will impact demand for travel to or from Malaysia.

The government said the tax will be charged on all passengers leaving the country for use of airport facilities, and is collected by the airlines on behalf of the airport operator.

Aviation experts believed the levy allows the government to widen its revenue base in line with its intention to diversify its revenue sources.

They said the initiative would provide a “surplus” to the government’s income with the potential to upgrade or expand and improve airports throughout the country.

Although the recent United States’ Federal Aviation Administration (FAA) downgrade was a concern, Sobie said the Category 2 status should not have much of an impact on Malaysia’s passenger traffic as it only sent a negative message and points to broader issues.

On the merger of Mavcom and the Civil Aviation Authority of Malaysia (CAAM), he said it was too early to say whether the integration will be positive or negative.

“It is certainly yet another thing to watch carefully in 2020, which could be seen as a year of transition for Malaysia’s aviation sector.

“What transpires in 2020 could position Malaysia and its struggling airline sector for a brighter future,” he said, adding that a lack of profitability was a major concern with all six of Malaysian’s airlines loss making in 2019.

Asian aviation consultancy firm Aer Mobi chief executive officer Michael Walsh said domestic traffic consolidation was expected to continue at least until the second-quarter of 2020, while the international traffic sector will see further improvement.

“The main reason for anticipated increased international traffic in 2020, is due in part to the fact Malaysia has taken over the chairmanship of the Asia-Pacific Economic Cooperation 2020 from Chile.

“There are multiple events planned throughout the year and in different locations within Malaysia. The months of March, April, October and November will likely see certain peaks in passenger traffic for key events,” he told the NST.

He reckoned there will likely be a handful of new air operator's certificate issued in the first-quarter of 2020, which will further increase capacity domestically.

“So, it will be of interest to track how these incumbents perform and attract new customers in the short term,” he added.

Walsh said further challenges and uncertainties continue to remain with respect to airlines performance, the recent announcement by the MoT to consolidate Mavcom and CAAM, local competition in the domestic environment as well as the local, regional and global macro-economic outlook.

“I tend to agree that unforeseen circumstances and events may still play a factor in the sectors growth predictions. But overall 2020 provides an opportunity for further consolidation and reflection to ensure the steps for building the foundations of further growth are taken,” he added.

He said key priorities for the aviation sector included identifying, employing and retaining talented leaders for the future of aviation in Malaysia, assessment of the long-term economic viability of some domestic airlines, airport infrastructure improvements and strategic planning at a national level.

“Continued engagement amongst stakeholders and making use of the National Aviation Council forum is a key.

“Being humble, making resources available in recognising the need to call upon global aviation expertise to assist the sector, especially from a structural and regulatory point of view.

“At the end of the day the sector needs to be self-sustainable and economically viable. State coordination rather than intervention would be flight path I hope Malaysia can take,” he said.

Most aviation experts anticipated the thrust of 2020 may propel airlines to greater heights, despite the uncertainty over the oil prices, foreign exchange and regulatory issues.

The International Air Transport Association (IATA) said the global airline industry should record a net profit of US$29.3 billion in 2020, up from a net profit of US$25.9 billion expected in 2019.

This was to be driven by return on invested capital, higher passenger numbers to reach 4.72 billion, recovery in freight tonnes, and stronger economic growth for 2020.

Meanwhile, Asia-Pacific carriers are projected to post a US$6.0 billion net profit in 2020, boosted by the modest recovery in world trade and air cargo.

IATA said Asia remains the manufacturing centre of the world and revenues from transporting many of those goods are a significant proportion of sales for many of the region’s airlines.

“But the trade war is assumed just to be on hold; trade tariffs are not reversed. Consequently, the rise in trade and cargo volumes is moderate. The net profit per passenger is anticipated to be $3.34,” it noted.

IATA also expects jet kerosene prices to dip, averaging US$75.60 per barrel compared to US$77 per barrel in 2019.

The forecast industry fuel bill of US$182 billion will represent 22.1 per cent of expenses, down from US$188 billion or 23.7 per cent of expenses in 2019.

Source: NST

Posted on : 02 January 2020
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Last Updated : Thursday 21st May 2020