Aviation industry shows greater operational efficiency in 2018


Growth in passenger movement for this year is likely to be two per cent, relatively lower than during the 17-year period in the country from 2000-2016. — Bernama photo

KUALA LUMPUR: Malaysia’s aviation industry had a fairly ‘stable’ 2018 with airlines showing greater efficiency in operations but overall growth has been slowing down as the industry heads towards a matured phase.

Maybank Kim Eng analyst Mohsin Aziz said growth in passenger movement for this year was likely to be two per cent, relatively lower than during the 17-year period in the country from 2000-2016, where growth was at almost eight per cent per annum on the back of cheap airfares and higher average flight per population.

In 2017, traffic improved 8.5 per cent to 96.54 million passengers from 88.98 million in 2016, the second highest increase in the last 20 years.

He said the current average age of Malaysians, with the population getting older and travelling less, also partly contributed to the slower growth this year.

“Ever since the MH370 (incident) in 2014, our growth has been slowing down a lot. So basically, our high growth phase is over already and now we are in the slower maturing growth.

“This is normal because we are already at the stage where we’ve travelled enough,” he told Bernama.

Commenting on the industry players, Mohsin said both the airlines and airport operator had become more efficient, with their balance sheets showing pretty stable financial results compared with volatile profits and losses previously.

In fact, utilisation of the entire aviation assets has also improved significantly with the load factor of airports and aircraft being quite full throughout January to December.

“Thanks to the gradual improvements (by industry players) over the years, we are closer to be a mature developed country.

“We are not there yet but we are on the last mile. So that is why you see all these improvements,” he elaborated.

To recap, the entire industry landscape this year was tested with a challenging economy and falling profitability in the corporate sector amid higher fuel spending as the oil price recovered and the foreign exchange turned volatile.

In the third quarter (Q3) ended Sept 30, 2018, Malaysia Airlines Bhd’s (MAB) operating performance was affected by stiff competition, rising fuel prices and adverse foreign exchange movements, and this was further exacerbated by a crew shortage, especially in July and August.

Group chief executive officer (CEO) Izham Ismail described the period as “challenging” with the airline recording a lower passenger yield of 21.5 sen against 22.6 sen in the same quarter last year.

The national airline carried 2.1 per cent more passengers at 3.47 million during the reviewed quarter compared with 3.4 million a year ago.

Meanwhile, AirAsia Group Bhd’s (AAG) operating profit in Q3 2018 was nearly halved to RM253 million against RM494 million in the same period last year, its lowest since the quarter ended June 2015, due to higher fuel costs as crude oil surged 50.1 per cent to US$95 per barrel.

Net profit, however, surged about 81 per cent to RM915.9 million, mainly due to one-off gains from the sale of its stake in AAE Travel Pte Ltd to Expedia and the reversal of deferred tax liabilities arising from aircraft disposals.

As for Malaysia Airports Holdings Bhd (MAHB), net profit doubled to RM168.49 million in Q3 2018 from RM80.93 million a year earlier, prompted by higher passenger growth for Malaysia and growth momentum in Turkey, while revenue improved to RM1.23 billion from RM1.21 billion previously.

Among major issues for this year was the never-ending spat between MAHB and AAG, this time over the RM23 additional passenger service charge (PSC) that the airline refused to collect as it viewed that the extra tax would burden the travelling public by making them pay more for “below par” services.

AAG CEO Tan Sri Tony Fernandes slammed the Malaysian Aviation Commission (Mavcom) and MAHB for not looking at all possible solutions for PSCs and adopting a one-size-fits-all approach.

He believed the calculation mechanism was “not fair” as the passengers would be charged the same airport tax for the Kuala Lumpur International Airport (KLIA) and KLIA2 although the facilities and services are of completely different levels.

This has resulted in a combined RM36.1 million lawsuit by MAHB’s subsidiary Malaysia Airports (Sepang) Sdn Bhd against AAG’s unit AirAsia Bhd (AAB) and its long-haul affiliate AirAsia X Bhd for outstanding airport taxes.

Another major development in the industry was the massive internal reorganisation and the transfer of the listing status of AAB to the new holding company AAG, which was completed in April.

The exercise unified AAB’s various regional affiliates under one holding company, providing the group with further cost reduction through streamlining group cost structure while taking out the complexity and duplication in its operations.

Another issue was when MAB’s full subsidiary FlyFirefly Sdn Bhd, which operates as Firefly, took a hit from the unresolved issue between the Civil Aviation Authority of Malaysia and Singapore Seletar Airport, causing suspension of services to and from Singapore effective Dec 1, 2018.

Meanwhile, 2018 also saw quite a number of appointments and removals in the top management due to either internal reorganisation or changes in the government administration.

In February, Malaysia Aviation Group (MAG) appointed Ahmad Luqman Mohd Azmi as the new chief operations officer (COO) of MAB, replacing Izham Ismail who was promoted as Group CEO.

MAG also named Philip See as Firefly’s new CEO, replacing Ignatius Ong who joined MAB as group chief revenue officer in June 2018, as well as Ibrahim Mohamed Salleh as CEO of MABKargo.

Another appointment was Dr Nungsari Ahmad Radhi, an economist and former lawmaker, as Mavcom’s new executive chairman, took over from General (Rtd) Tan Sri Abdullah Ahmad, who had resigned and was reported to have earned a whopping RM80,000 a month.

Operation-wise, MAB has expanded its network with the resumption of flights to Brisbane, Australia, and London, England.

The national airline also widened its global network into Saudi Arabia with the first direct commercial service to Madinah from Kuala Lumpur on Oct 29.

The new seasonal service is expected to connect umrah pilgrims directly into Madinah, which is currently served by its charter services, for travel up until March 26, 2019.

During the year, AAG signed a memorandum of cooperation to set up a joint-venture low-cost carrier in Vietnam while also becoming the first international airline to operate at Melbourne’s newly opened international airport at Avalon.

AAB, in turn, has introduced 12 new routes, among others from Kuala Lumpur to Kuantan and Phu Quoc, Vietnam, as well as flights connecting Kota Kinabalu and Macao.

AirAsia X, meantime, offered a new direct flight to Tianjin, China, starting this month and two new destinations in India – Jaipur and Amritsar – in February and August respectively. From Feb 28 next year, it will begin direct flights from Kuala Lumpur to Fukuoka, Japan.

MAHB welcomed 13 new airline partners this year, with Indonesia’s leading low-cost carrier (LCC) Citilink Indonesia, UK-based TUI Airways, and Royal Brunei Airlines being the latest three.

The airport operator aims to woo 10 new airlines, both premium carriers and LCCs, to Malaysia next year, including from China, Middle Eastern countries, and the Asian region.

Moving forward, the implementation of the newly-introduced departure levy on all passengers departing Malaysian airports will be among the highlights next year, alongside MAHB-AAG’s love-and-hate relationships.

The departure levy of RM20 for ASEAN destinations and RM40 for beyond the region, taking effect on June 1 next year, was announced during the tabling of the 2019 Budget to help increase government revenue and encourage domestic tourism.

According to Mohsin, the government is expected to comfortably collect RM900 million per annum through the newly-introduced departure levy.

He said the collection should be reinvested into the aviation sector only and not for other purposes, and the government should be transparent over the process.

In addition, MAHB is eyeing RM1 billion worth of future investments from third-party investors in the next three to five years from its investment in infrastructure development between 2018 and 2020.

As for MAB, the airline expects 2019 to be similarly challenging as 2018, but it remains committed to improving its performance and reducing costs while managing external factors. – Bernama

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