Potentially slower-than-expected recovery
? Our bottom-up analysis of forward airline schedules and forecast seat load
factors suggests that traffic may fall short of our current top-down estimates.
? We downgraded MAHB from Add to Hold on 31 May and we reiterate our
recommendation in view of our analysis of the data.
? Our SOP-based TP remains at RM6.93, with downside sensitivity to RM6.77
if the lower bottom-up traffic estimates turn out to be more accurate.
International travel picks up pace from Apr 2022…
International airline seat capacity data to/from Malaysia picked up pace from 1 Apr 2022
onwards, due to the reopening of Malaysia’s international borders to quarantine-free
travel for fully-vaccinated travellers. During May 2022, international seat capacity
amounted to 27% of the May 2019 base, up from 14.7% in March 2022 (vs. the March
2019 base). On a regional basis, up to the month of May 2022, the Middle East region
recovered the fastest, due to the umrah pilgrims visiting Saudi Arabia, followed by the
South Asia region, due to foreign worker traffic. In third place is Western Europe, followed
by Southeast Asia in fourth place. Traffic to Southwest Pacific underperformed the overall
average rate of recovery, with Northeast Asia underperforming significantly due to the
continued travel restrictions to China, Hong Kong, Taiwan, South Korea and Japan.
…but may fall short of our current estimates for 2022F
In this report, we analyse forward airline schedules to assess seat capacity for the rest of
2022F, make assumptions for expected passenger traffic loads from May 2022 onwards
(MAHB already disclosed Apr 2022 data), in order to derive bottom-up estimates of
passenger traffic for 2022F. Our top-down estimate of Malaysia’s international passenger
traffic recovery in 2022F currently stands at 40% of the 2019 base, but our bottom-up
analysis suggests that potentially only 31% can be achieved. Meanwhile, our top-down
estimate for Malaysia’s domestic sector is for a recovery in 2022F to 85% of the 2019
passenger traffic base, but a bottom-up analysis suggests that 75% could be more
realistic. Airline seat capacity has been recovering slower than hoped for, because the
process of restoring cabin crew strength is slowing own airlines’ plans to reinstate flights.
The unfavourable effect on passenger traffic is compounded by lower-than-expected seat
load factors; 4M22 seat load factors trended lower against 4Q19.
SOP downside sensitivity of 2.3% using lower bottom-up estimates
The upside risk is if North Asia opens its borders convincingly, which may trigger a faster
restoration of airline capacity, or a surge in passenger travel demand that will lift load
factors to above equivalent 2019 levels. However, with downside risks to travel arising
from China’s firm zero-Covid policy, cost-of-living inflation affecting spending power, and
high airfares, the probability of such upside surprises is fading. A sensitivity analysis of
the unfavourable gap between our current top-down and new bottom-up estimates of
Malaysia’s passenger traffic in 2022F suggests a 2.3% downside to our SOP-based
target price to RM6.77 (from RM6.93 now).