During  the  recently  concluded  results  season,  there  were  some earnings  disappointments  from  our  aviation  universe,  notably  among the  full-service  carriers  despite  higher  passenger  churn.  Malaysian carriers saw yields compress due to intense competition. As we expect improvements in Q3 and Q4, we maintain OVERWEIGHT on the  sector. NOK is our Top Pick for its zero debt and attractive dividend yield.  
 
- Mixed passenger traffic growth. The airlines we cover generally saw a seasonally weaker 2Q as loads weakened owing to lower-than-expected demand  amid  aggressive  capacity  expansion.  Among  the  carriers  that saw  improved  loads  q-o-q  -  Malaysia  Airlines  System  (MAS),  Garuda (GIAA)  and  AirAsia  (AIRA)  -  yields  were  sacrificed  to  boost  passenger volume. All carriers except Thai Airways (THAI) and AirAsia X (AAX) saw double-digit  growth  YTD in  1HFY13  in  terms  of  available  seat kilometer (ASK) and revenue passenger kilometer (RPK). THAI increased its RPK by just 6.2% YTD due to the weak recovery in its long-haul destinations while AAX’s RPK dipped slightly, but this was somewhat distorted as the airline was still serving the routes before these were fully discontinued.  

- Yields  fall.  In  2QFY13,  the  yields  of  the  airlines  dipped.  MAS  suffered the  biggest  drop  as  its  yield  fell  by  10.6%  YTD  due  to    intensifying domestic  competition,  with  the  emergence  of  Malindo  Air  and  new foreign  carriers,  coupled  with  uncertainty  over  the  date  for  Malaysia’s general election. AIRA’s yield also declined  by  2.7%  YTD.  Meanwhile, AAX  was  the  only  outperformer,  raking  in  a  higher  YTD  yield  of  9.9% since: i) it rationalised its routes last year to focus on core markets, and ii)  its  yield  from  mature  routes  increased.  With  the  exception  of  Nok Airlines  (NOK),  Thai  carriers, THAI  and  Thai  AirAsia  (TAA)  managed  to maintain their yields (which were flat) due to resilient domestic demand. NOK’s yield dipped 8% YTD, no thanks to stiff competition on its primary routes despite the stronger yields generated from its feeder routes.  

Source: RHB