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Wednesday, September 3, 2014

MAS’s airfares expected to drop as it fights for passengers, say analysts

MAS recovery plan will have a positive impact on the aviation industry, say analysts. – The Malaysian Insider file pic, September 3, 2014.MAS recovery plan will have a positive impact on the aviation industry, say analysts. – The Malaysian Insider file pic, September 3, 2014.
Malaysia Airlines (MAS) airfares are expected to decline in the near term as some analysts believe the national carrier would need to undercut pricing to get its passenger load factor back to above 70%.
TA Securities Holdings Bhd analyst Tan Kam Meng believes Khazanah Nasional Bhd’s 12-point recovery plan for MAS will have a positive impact on the aviation industry as it will help rationalise airfares.
“Airfares will be priced rationally based on cost structures and services rendered to avoid unfair competition,” he said in a note yesterday.
“The airline will rationalise the network to be regionally focused with strong global connectivity through the oneworld (alliance) and other code-share partners as highlighted in the recovery plan. The new business model will also encompass a renewed focus on revenue yield management,” he added.
HLIB Research aviation analyst Daniel Wong sees the 12-point recovery solution benefitting Malaysia Airports Holdings Bhd (MAHB), but is negative for AirAsia Bhd, AirAsia X Bhd and Malindo Air.
That’s because the new lean cost structures outlined by Khazanah for the new company (NewCo) would enable MAS to be competitive in the current market environment.
“NewCo aims to achieve cost advantage against Asian full-service carriers (FSC), cost parity with Middle East FSCs and short-haul cost within 15% of the low-cost carriers (LCC) competition.
“The move would be negative to AirAsia, AirAsia X and Malindo given the continued stiff competition from MAS, the lower cost structure will allow MAS to price its products lower through yield pressure,” said Wong.
AllianceDBS Research Sdn Bhd said the 12-point recovery plan sees MAS abandoning its “load-active, yield passive” strategy and raise unit revenue by 10%-15% going forward, as the present fare structure is unsustainable.
“This is a more sensible strategy given that MAS is likely to remain an FSC that offers premium frills due to its membership in the oneworld alliance,” said its analyst Tan Kee Hoong.
Tan, on the other hand, is of the view that the move would benefit domestic airlines, but would be negative for MAHB as travel demand could drop in response to more expensive fares.
“Our top pick for the (aviation) sector is AirAsia Bhd, which will be the prime beneficiary of the MAS restructuring. Although AirAsia X Bhd would also benefit, foreign airlines could still encroach on its routes and negate the impact of the absence of competition from MAS.
“Meanwhile, MAHB’s share price has largely priced in the risk of weaker passenger traffic ahead,” he said, adding that minority investors should accept the 27 sen offer price for MAS shares.
Shares in MAS closed up 2% to 25.5 sen yesterday, while AirAsia ended the day 2.49% higher at RM2.47 and MAHB closed up 0.13% to RM7.71. However, AirAsia X’s stock was down 1.28% to 77 sen.
Meanwhile, MASwings Sdn Bhd, a subsidiary of MAS, plans to introduce a new business plan, including improving the quality of rural air services in Sabah and Sarawak next year.
Its chief executive officer, Captain Ritzerwan Rashid, said the plan was in line with the restructuring of MAS and improvement of the level of efficiency of the community airline. – The Edge Financial Daily

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