Domestic airfares - the only way is up

NST Wed, Feb 21, 2024 12:35pm - 2 months View Original

KUALA LUMPUR: Domestic airfares are unlikely to go down anytime soon, with local aviation players'' fleet growth plans be limited by woes at Boeing.

Maybank IB research said the Boeing 737 MAX, especially the Boeing 737 MAX 8 variant, was gaining popularity in Malaysia.

Batik Air Malaysia operates 16 Boeing 737 MAX 8s and expects to take delivery of one more next month.

Malaysia Airlines operates three Boeing 737 MAX 8s, out of a planned 25, with an option to lease another 25.

AirAsia and AirAsia X are non-Boeing operators.

Following the Alaskan Air Incident, the US Federal Aviation Administration ordered Boeing to limit monthly production of Boeing 737 MAXs to 38.

Yet, industry observers estimate that Boeing is producing only around 20 Boeing 737 MAXs a month due to increased oversight.

Maybank IB research said with Boeing's orderbook of 4,759 Boeing 737 MAXs as at Jan 31, 2024, the delivery of Boeing 737 MAX 8s to Malaysia Airlines and Batik Air Malaysia will likely be delayed.

"Consequently, we believe it is unlikely that the Malaysian aviation industry will experience overcapacity this year à la 2019," Maybank IB researchsaid.

This will help airlines maintain a floor on fares.

It operated 274 aircraft as at end 2019. Today they operate a more measured 260 aircraft, similar to as at end-2017.

The lack of aircraft however, will curtail Malaysia Airports Holdings Bhd's Malaysia passenger traffic recovery 2019 levels.

Maybank IB research favours non-Boeing operators Capital A Bhd and AirAsia X Bhd, with "Buy" calls on both stocks.

MAHB remains a "Buy" for potential upside from a new Operating Agreement with the government of Malaysia.

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