KUALA LUMPUR: Aviation sector in 2024 is expected to benefit from the increasing air travel demand (especially international segment driven by China and India sectors), in tandem with the reinstatement of aircrafts to cater for the higher demand.
Hong Leong Investment Bank Research (HLIB) said judging from the current developments, Malaysia's 2024 air travel demand should recover closer to 2019 levels.
HLIB said the growth will be mainly driven by the International segment, especially for China and India sectors.
"We also have seen countries continuing to be aggressive in promoting their respective tourism activities.
"We have conservatively imputed a growth of 18.0 per cent for 2024, recovering up to 98.5 per cent of pre-pandemic 2019 level," it said in a note.
Meanwhile, HLIB said the expected depreciation of US dollar and declined jet fuel prices will also improve the sector's profitability.
Year to date (YTD) in 2023, ringgit has further depreciated against US dollar to RM4.65 level due to the continued interest rate hikes by the Fed, weak external demand and lacklustre recovery of the Chinese economy.
The firm's economist expects the ringgit to strengthen in 2024 to average RM4.44 due to the end of interest rate hike cycle by the Fed, continued easing of global inflation, and improved external demand on the goods sector leading to improved appetite for Malaysian assets.
"A stronger RM/USD is overall positive for airlines, given that 40-60 per cent of normalised operating costs is denominated in US dollars.
"We maintain Overweight on the aviation sector with Buy recommendations on Capital A Bhd (target price: RM1.40) and Malaysia Airports Holdings Bhd (target price: RM8.90)," it added.
