KUALA LUMPUR: The opening of the Langkawi travel bubble would be positive for airlines, but the degree of the positive impact could be murkier at the start, according to CGS-CIMB Research.
Analyst Raymand Yap said airfares are likely to be very low (and perhaps loss-making) as airlines compete for passengers due to the anticipation of uneven loads.
He said many passengers on AirAsia flights might be flying for free for the first few months, using their credits from flights cancelled in the past one and a half years.
"AirAsia will not receive any new cash revenues. If the load factors are low, some flights could be loss-making.
"This is especially the case for return flights, for instance, on the first day of the Langkawi travel bubble on September 16, as AirAsia's outbound flights from klia2 to Langkawi are seeing high passenger load factors and decent fares.
"However, return flights from Langkawi to klia2 are still rather empty, and the lowest RM17.30 fare bucket is still available for booking at the time of writing," he said.
Yap expected there could be hesitancy among many Malaysians to travel until the Covid-19 situation stabilises.
"If demand does not pan out as expected, AirAsia could consolidate flights. However, the jury is out on whether AirAsia can maintain high load factors once it restores capacity more aggressively from October onwards," he said.
Nevertheless, he said air travel is expected to be the key means of getting to Langkawi, following the government's initiative to spur the domestic travel bubble beginning September 16.
However, road journeys in Langkawi must be booked with travel agents as self-driving is not allowed.
He said airlines are restoring domestic capacity to serve Langkawi as it would open only to vaccinated adults above 18 years old, while vaccinated travellers must accompany unvaccinated travellers below 18.
"AirAsia is starting with three times daily flights from klia2, and already has more than 80 per cent load factor on next week's outgoing flights, due to initially-limited capacity, pent up travel demand, plus lack of alternative domestic holiday options for Malaysians," he said in a research note today.
He said AirAsia would deploy seven times daily flights KL-Langkawi from September 23, nine times daily from October 1, and 10 to 11 times daily from October 31 until the end of 2021.
"Other airlines like Malaysia Airlines, Firefly and Malindo are also reinstating capacities," he added.
CGS-CIMB Research said the restoration of airline capacity and air travel to Langkawi is positive for Malaysia Airports Holdings Bhd (MAHB) due to the increased passenger traffic.
"Airlines are likely to keep their airfares quite low. We think seat capacity is being restored faster than the recovery in demand.
"Low airfares coupled with the ongoing hotel promotions in Langkawi will help boost demand and perhaps convince 'on-the-fence travellers to pack and go," said Yap.
He said currently the cheapest one-way, all-in ticket price from AirAsia priced at RM17.30.
On these flights, he said MAHB could earn more than AirAsia.
CGS-CIMB Research said the risk of new Langkawi infection clusters could pause experiment with daily Covid-19 cases in Malaysia still quite high although trending lower lately.
"With travellers to Langkawi not required to be tested for Covid-19, inevitably, some infected people will make their way to Langkawi and cause outbreaks on the island, and newly-infected holidaymakers could then inadvertently carry back the virus to their home states," he said.
The risk is accentuated by the presence of non-vaccinated travellers to Langkawi below the age of 18.
"Even among vaccinated travellers, breakthrough infections are possible given the more infectious Delta strain. If the outbreaks are serious, the government could pause the Langkawi travel bubble experiment temporarily," he added.
https://www.nst.com.my/business/2021/09/727388/langkawi-opening-still-positive-airlines-analyst