KUALA LUMPUR (April 18): The Malaysian aviation industry may be badly impacted on passenger traffic and spikes in jet fuel prices if a full-blown war results from escalating geopolitical tensions in the Middle East, according to Maybank Investment Bank Research (Maybank IB).

Malaysia Airports Holdings Bhd (MAHB) could see up to 26% of its earnings and target price at risk if Middle Eastern passenger traffic ceases, Maybank IB said in a note on Wednesday. Meanwhile, airlines like Capital A and AirAsia X, may also see their earnings and share prices slashed as they are more vulnerable to jet fuel price hikes.

“As an airport operator, MAHB has little to fear from higher jet fuel prices,” said Maybank IB. However, the concern lies with passenger traffic to and from the Middle East, which could significantly impact its operations in Malaysia and Turkey. 

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This is given that MAHB's Middle Eastern traffic accounted for 7% of international passenger traffic at Kuala Lumpur International Airport (KLIA) and 28% at Istanbul Sabiha Gokcen in 2019.

Shares of these counters have declined so far since the beginning of the week. At the time of writing, shares in MAHB were down 18 sen or 1.79% to RM9.88, making it one of the top losers by value on Bursa Malaysia during active trading on Wednesday. Its market capitalisation stood at RM16.49 billion.

Meanwhile, shares in Capital A Bhd were traded unchanged at 67 sen, valuing the group at RM2.85 billion. AirAsia X Bhd shares, on the other hand, were traded a sen or 0.8% higher at RM1.26, giving it a market capitalisation of RM563.31 million.

Maybank IB noted that Capital A - which operates four airlines, none of which fly to Middle Eastern destinations - could see a significant impact on earnings with every US$1 per barrel increase in jet fuel prices.

“We estimate that every US$1/barrel increase in jet fuel price will affect our core net loss/profit estimate by RM50 million and trim our sum-of-parts (SOP) target price (TP) by three sen,” Maybank IB said.

Still, Capital A can pass on higher fuel cost to passengers given that MYAirline has suspended operations in October 2023, Maybank IB noted. "Thus far, Malaysia AirAsia (MAA, which contributes over 80% to the group earnings) has been able to charge higher fares without being overly impacting load factor". 

Similarly, AAX, which operates flights to Jeddah, Saudi Arabia, is highly sensitive to fuel price fluctuations, with potential reductions in net profit estimates and target price for every US$1/barrel increase.

Maybank said, “while Malaysia AirAsia has been able to pass on higher fuel costs to passengers without affecting load factors, AAX may not be as successful due to lower demand for its medium to long haul flights compared to Malaysia AirAsia’s short haul flights,”

“We estimate that every US$1/barrel increase in jet fuel price will reduce our core net profit estimates by RM14 million and lower our SOP-TP by 24 sen,” it added.

Brent, the global benchmark for crude oil, has risen above US$90 (RM430.87) per barrel as Iran launched retaliatory strikes on Israel over the weekend. The Iranian strikes were in response to an airstrike on the Iranian consulate in Damascus, Syria on April 1, attributed to Israel, which killed several military officers and some civilians.  

https://www.theedgemarkets.com/node/708387