MIDF Research Downgrades Aviation Sector Due To COVID-19

KUALA LUMPUR, March 10 (Bernama) -- MIDF Research has downgraded the aviation sector to “neutral” from previous “positive” in view of the impact of COVID-19 on the industry's travel demand, seat capacity and traffic growth. It opined there would be a bigger impact of China's outbound travel on ASEAN tourism sector due to the coronavirus outbreak compared to the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003. The 2003 SARS outbreak saw the number of tourist arrivals from China to ASEAN dropped by 15.6 per cent year-on-year (YoY) before staging a 32.9 per cent recovery in the following year. The KL International Airport (KLIA) main terminal was also impacted by SARS when the international passenger traffic growth from China recorded a 10.7 per cent YoY drop in 2003 before staging a recovery with a 75.8 per cent YoY growth in 2004. “Japan, South Korea, Germany and France are some of the countries with the highest number of COVID-19 cases outside of China, the downward pressure towards the tourism and aviation sector of ASEAN nations such as Malaysia will be amplified. “The reason being is that the proportion of tourists arrivals from China, Japan, South Korea and Europe breached the 30 per cent mark in 2017 and 2018 after remaining in the range of 20-29 per cent from 2003 to 2016,” it said in a note. On load factor, MIDF Research said airlines have been scrambling to cut capacity amidst the waning travel demands and travel bans imposed by more than 50 countries following the COVID-19 outbreak. It expects passenger load factors for AirAsia Group Bhd (AAGB) and its long-haul affiliate, AirAsia X Bhd (AAX) would drop below 80 per cent in the coming quarters. “Assuming a worst-case scenario whereby the COVID-19 would prolong beyond the financial year 2020 (FY20), load factors will remain depressed, possibly reaching below 70 per cent for both airlines and drag AAGB to the second year of loss while stretching AAX’s losing streak for the third year running,” it explained. The effect of lower fuel prices is insufficient to offset the lower travelling demand, said MIDF Research. “The effect of lower jet fuel expense is marginal for AAGB as its FY20 earnings will increase only by around one per cent while AAX’s net losses in FY20 will be lowered by approximately the same quantum. “As such, no changes are made to our earnings forecasts for both airlines,” it added. As at 12.13 pm, AAGB eased half-a-sen 98.5 sen with 18.47 million shares transacted. -- BERNAMA