MAVCOM is optimistic for continued positive industry performance in 2018

The Malaysian Aviation Commission (MAVCOM) released its first biannual Industry Report, Waypoint, for 2018 as part of its overall commitment to foster a deeper understanding of the aviation industry in Malaysia.

Core areas featured within Waypoint include the Commission's outlook on the industry, a macro overview of the sector, an analysis on industry structure and performance, as well as a review of the ground handling services segment in Malaysia.

YBhg. Gen. Tan Sri Dato' Sri Abdullah Ahmad, RMAF, (Retd), Executive Chairman of MAVCOM, said, "We are pleased to release this edition of the Waypoint Industry Report, in line with our focus of further developing Malaysia's aviation industry. As the economic regulator for the sector, we believe it is part of our mandate to equip industry players, investors, related agencies, members of the public and other stakeholders with regular insights into the state of the sector in Malaysia. It is also our hope that this report will provide an avenue for relevant stakeholders to obtain a clearer picture of where opportunities may lie within the sector."

Key Highlights from the Waypoint Report

• 2017 was a year of strong industry performance in comparison to 2016, as Malaysia's passenger traffic recorded 8.1 per cent year-on-year growth which translated to 99.1 million international and domestic passengers. For 2018, MAVCOM forecasts a growth of 6.5 per cent to 7.0 per cent, which will see Malaysia surpassing the 100 million passenger mark for the first time (see Figure 1). Malaysian carriers also increased their Revenue per Available Seat Kilometre (RASK) at a greater rate than their Cost per Available Seat Kilometre (CASK), which enabled the negative spread between CASK and RASK to decrease by 42.5 per cent in 2017 from the previous year. Between 2014 and 2017, from an operating loss of RM0.5 billion in 2014, the aviation industry marked a significant turnaround when its operating profit increased to RM1.6 billion in 2017. As at end December 2017, the market capitalisation of aviation companies also increased by 38.4 per cent to RM25.6 billion from RM18.5 billion at the beginning of 2014, outperforming the FTSE Bursa Malaysia KLCI by 50.5 per cent between 2014 and 2017. This solid growth has been supported by strong demand, improved seat inventory control and a low fuel price environment.
• Crude oil price is expected to increase between 10.7 per cent to 30.5 per cent in 2018 year-on-year, based on forecasts by international agencies, including IATA. This may exert downward pressure on airlines' profitability, rendered already sensitive by a competitive low-fare environment.
• Malaysia's air connectivity in 2017 improved with an addition of eight international destinations and approximately 360,000 seats. Asia has been and will continue to be the principal region of focus for Malaysia's connectivity, as 59.8 per cent of air traffic rights awarded by MAVCOM to Malaysian carriers in 2017 were for routes to ASEAN, China and India. In addition, 56.4 per cent of airports that Malaysia is connected to are airports within the Asia Pacific region which focus on serving short-to-medium haul regional destinations.
• Commercial non-scheduled service operators overall reported an improvement in operating profit margins from 10.4 per cent in 2016 to 16.7 per cent in 2017, but the financial performance of individual sub-segments was mixed, with only the aerial work (cloud seeding and mapping), oil and gas, and on-demand chartered flight services sub-segments being profitable.

Abdullah added, "On the whole, the Malaysian aviation industry appears well-positioned for growth, despite the challenges to be had given narrowing margins and rising oil prices. The last two years have been strong from an industry standpoint, as shown by passenger traffic growth, industry operating profitability and the market capitalisation of public-listed aviation companies during this timescale, especially in comparison to the immediate period before. Challenges remain, but MAVCOM is optimistic that the positive industry performance of recent years will continue in 2018."

In addition to the Waypoint report, the Commission had also released an accompanying technical paper on air connectivity which serves to outline MAVCOM's research and analysis of Malaysia's air connectivity vis-à-vis the ASEAN region. This is particularly important, given that air connectivity plays a crucial role in linking the civil aviation industry with tourism and trade. Globally, 54.0 per cent of international tourists travel by air and 35.0 per cent of world trade (in terms of value) is carried by air.

One of the key highlights of the technical paper is Malaysia's connectivity. Well-connected cities rank highly in the hierarchy of global cities, and as such, to improve Malaysia's connectivity, the Commission through this report first identifies Malaysia's competitive position in terms of air connectivity which is then benchmarked against Malaysia's ASEAN neighbours. On average the connectivity ranking of ASEAN member states remained the same between 2016 and 2017.

The technical paper also concluded that in terms of point-to-point passengers, Malaysia was the fourth most connected country in ASEAN after Thailand, Singapore and Indonesia. This is because Indonesia, Singapore, and Thailand have higher connections to airports with a higher share of international traffic, both within and beyond Asia Pacific. Also, Singapore and Thailand are connected to more destinations and have more seats to those destinations versus Malaysia.

In terms of connecting passengers, Kuala Lumpur International Airport (KUL) is the second largest international hub airport in ASEAN after Singapore Changi Airport (SIN). As of 2017, KUL is an international hub for intra-Asia traffic connecting passengers between China, India, Thailand, and Indonesia. This was a shift from KUL's position in 2010 that used to handle connecting passengers between Australia, Europe, and Southeast Asia.

Refer to full documentation in the attachments box below.