Post Malaysia reopening borders in April-22 (along with regional countries), we have seen strong recovery of air travel demand especially for ASEAN segment. As more areas reopen their borders (recently Japan, Taiwan & Hong Kong) and further relax restrictions, we expect continue strong recovery of air travel demand (especially when China reopens, anticipated by year end). Maintain OVERWEIGHT rating on the Aviation sector with BUY recommendations on CapA (TP: RM0.88) and MAHB (TP: RM7.85).

Post reopening borders in April-22, we have seen strong recovery for air travel demand especially in the domestic segment, up to 92.1% of pre-pandemic 2019 level in May-22 before sliding in subsequent months. On the other hand, ASEAN segment climbed gradually to 48.3% in Aug-22, as compared to the slower paced international segment (non-ASEAN) at 28.5%. We believe current trends are explained by:  

(i) initial jump in domestic travel demand due to standardised national travel policy, hometown bound travel and ease of airlines reinstating domestic capacity;  

(ii) stronger recovery of ASEAN travel demand as most ASEAN countries eased border policies with similar requirements at almost the same time, while regional travel offers relatively cheaper alternatives (vs non-ASEAN), and airlines gradually shift capacity from domestic to ASEAN routes (given MRO constraint in re-instating airworthiness of decommissioned aircrafts and staff constraint);  

(iii) slower recovery of non-ASEAN international travel demand as major travel destination China, Hong Kong, Taiwan and Japan remained closed or limited by various requirements and relatively more expensive travel costing.

Nevertheless, we view the trends are still relatively healthy. MAHB has guided weekly planned international seat capacity to experience stronger uptrend, achieving ~60% of pre-pandemic level by year-end (from 41.4% in Aug) and domestic’s slower uptrend to ~75% by year-end (from 66.4% in Aug). We expect continued growth in demand for international travel as more countries re-open their borders (recently Japan, Taiwan and Hong Kong) and ease entry requirements.

Source: Hong Leong Investment Bank Research - 18 Oct 2022