Asia-Pacific to lead global air travel growth, Malaysia well-positioned to gain

 

PASSENGER traffic is set to maintain its growth momentum, with mid-single-digit volume growth expected in 2026 despite an uncertain macroeconomic environment. 

This growth should be primarily driven by strong international demand, new routes, expanded seat capacity, supportive visa policies, and the Visit Malaysia Year 2026 (VM2026) campaign. 

While supply chain challenges remain a significant industry headwind, airline profitability expected to stabilise, supported by steady load factors, stable yield, and margins, as a broader slowdown in inflation has helped stabilise the cost base. 

“A weaker US dollar also provides an additional tailwind. We maintain our Outperform call on the sector,” said Public Investment Bank (PIB).

The Asia-Pacific region was the fastest growing aviation market in 2025, having grown by over 8.0%. It is likely to continue leading volume growth, with forecast revenue passenger kilometer (RPK) growth of 7.2% in 2026, driven by strong economic growth in China and India, and the expansion in international travel. 

Malaysia stands to benefit directly from this trend due to its strategic location, increased intra-ASEAN travel connectivity, and the further boost from VM 2026 initiatives, which aim to attract 40.0 mil international tourists. 

The country is well-positioned to meet this target, having already welcomed 38.3 mil foreign tourist arrivals in the first 11 months of 2025 alone, surpassing the total for all of 2024.

Supply chain disruption remains one of the most significant challenges for the industry. While deliveries of new aircraft picked up in late 2025 and production is set to rise in 2026, demand for new aircraft and engines will continue to exceed available supply. 

The normalisation of the structural mismatch is unlikely before 2031, due to the supply disruptions over the past five years and an unprecedented order backlog. This shortage has pushed the average passenger fleet age to 12.8 years, compared to the pre-pandemic average of 7 years. 

Maintenance costs are expected to remain elevated due to the aging fleet and parts availability issues, however, this pressure is partly offset by the near completion of aircraft reactivation programs and a broader slowdown in inflation.

Global oil prices continued their decline, with Brent crude falling to USD61 per barrel in Dec 2025. For the full year, Jet fuel averaged at USD90 per barrel, representing a 9% year-on-year (YoY) decline.

For 2026, IATA projects jet fuel prices to dip marginally to USD88 per barrel, tracking lower Brent crude prices, though refining constraints are expected to keep the prices firm. This forecast assumes a crack spread of USD USD26 per barrel crack spread and a crude oil price of USD62 per barrel.

Looking ahead to 2026, the operating environment is expected to be shaped by a firmer ringgit, supported by consistent macro delivery, investment-related inflows, and external balance resilience. This appreciation should reduce the local-currency cost of critical USD-denominated expenses, notably jet fuel and aircraft leases, thereby boosting airline profit margins.

“Maintain Outperform recommendation on the sector,” said PIB.

While supply chain challenges remain a significant headwind for the industry, airline profitability is projected to improve, supported by stronger load factors, better cargo yields, steady Jet fuel prices, and the weaker US dollar. — Focus Malaysia