Maintain NEUTRAL view; prefer AAGB

After nearly 2 years of disruptions, Malaysian (MY) passenger traffic is on the mend. >50% of aircraft operated by MY carriers are in service again. Fleet strategies also indicate that the excess capacity of 2019 is behind us. This is negative for MAHB as passenger traffic is unlikely to recover to pre-COVID-19 levels but positive for AAGB as airfares are likely to rise. Maintain our forecast that MY domestic/international passenger traffic will recover to 45%/20% of pre-COVID-19 levels in 2022.

4Q21 best in 2 years, 1Q22 off to encouraging start

Thanks to easing new COVID-19 cases, MAHB which operates 39 of 42 airports in MY reported that Dec 2021 MY total passenger traffic recovered 191% YoY to 3.1m (Fig. 1) led by the domestic segment (Fig.
3). Dec 2021 MY domestic passenger traffic recovered to 58% of preCOVID-19 levels. 4Q21 MY total passenger traffic of 6.7m was the highest since the COVID-19 pandemic began (Fig. 4). Currently, 57% of aircraft operated by MY carriers are in service again led by the domestic centric carriers (i.e. Firefly, MASwings, Malindo) (Fig. 5). In our view, this is impressive given that it was as recent as 3Q21 when most aircraft were grounded due to the rampaging Delta variant of COVID-19.

Overcapacity of 2019 a thing of the past, in our view

2021 ended with MY carriers operating 242 aircraft, down 10% from the 2019 high (Fig. 6). In the near term, AirAsia X (AAX MK, CP: MYR0.06, Not Rated) will cut its fleet size to 13 and pivot to cargo, while Malaysia Airlines (MAS, Not Listed) hopes to sell its 6 A380s by this quarter. Even in the unlikely event that Malindo takes delivery of all its 10 B737 MAXs this year, MY carriers will only operate 229 passenger aircraft by year end, down an even wider 15% from the 2019 high (Fig. 7). In the long term, even if AAX pivots back to passenger, MAS operates 93 aircraft as planned and Malindo takes delivery of all its 10 B737 MAXs, MY carriers will operate 258 passenger aircraft, still down 4% from the 2019 high (Fig. 7).

-ve for MAHB but +ve for AAGB

With MY carriers likely operating fewer aircraft relative to 2019 even in the long term, it is unlikely that MAHB MY passenger traffic will recover to 100% of pre-COVID-19 levels. Specifically, AAX’s pivot to cargo will deprive MAHB of passenger service charges and duty free spend. We assume that it’s MY domestic/international passenger traffic will recover to 100%/80% of pre-COVID-19 levels in the long term. Conversely, MY carriers likely operating fewer aircraft relative to 2019 will likely mean higher fares for AAGB in the long term as demand recovers and supply is rationed (Fig. 8 and 9). We rate AAGB at BUY and MAHB at HOLD.