- Khazanah Nasional announced the recovery plan for Malaysian Airline System (MAS) last Friday. The plan involves 12 measures to bring the airline back to sustainable profits by end 2017. One of the measures includes rationalising MAS’ current networks to be principally regionally-focused.

- This largely implies that MAS may be shifting some of its capacity from long-haul to short-haul flights. We are unable to quantify the capacity reduction as little information was provided.

- Our previous sensitivity analysis shows that a 20% reduction in MAS passengers would cause MAHB’s FY15F-FY16F revenue to decline by 4%.

- However, we believe the impact to overall passenger traffic may not be as dire as previously anticipated. MAS’ plan to expand regional network may very well offset the impact of the long-haul network cut, as the airline would be able to fly on a higher frequency on its regional route compared to the latter.

- This is further underpinned by MAS’ continued attempt at increasing aircraft utilisation, maximising seats/aircraft and a move into smaller aircraft type, which means more capacity growth on its regional network, (although total ASK growth will likely moderate from cuts on long-haul capacity), as pointed out in our aviation analyst, Hafriz Hezry’s report today.

- According to MAHB’s 2013 annual report, MAS passengers made up ~55% of international passengers and 90% of domestic passengers in KLIA Main Terminal Building (MTB) in 2013 - overall 63% of KLIA MTB total passengers. Including LCCT, MAS passengers made up 34% of total passengers.

- We leave our estimates unchanged for now. Maintain HOLD.

Source: AmeSecurities