The aviation sector has delivered a solid performance in 2QCY24 and strong rebound can be expected in the following periods. Key players take corporate measures to improve seat capacity and passenger statistics.

Despite the overall positive outlook, individual circumstances vary across the industry. The sector's performance met expectations, with mixed results from key players. Malaysia Airports Holdings Bhd (AIRPORT), which is under a privatisation offer at RM11.00 per share, has performed better than anticipated, while Capital A Berhad (CAPITALA)'s results fell short of projections due to ongoing challenges in air travel.

Looking ahead, the sector anticipates continued recovery in passenger traffic, driven by an increase in tourist arrivals. The forecast for tourist arrivals in Malaysia is set at 27 million for CY24, a 35% increase from 20 million in CY23, and surpassing pre-pandemic figures. The resurgence in international travel, particularly from China, is expected to support passenger throughput growth. This is bolstered by extended visa exemptions for Malaysian and Chinese citizens, which should drive traffic recovery.

AIRPORT's performance was buoyed by high-yielding international passenger, with total network passenger traffic reaching 65 million in the first half of 2024, a 16% increase year-on-year. This result aligns with 49% of the full-year forecast of 131 million passengers.

For CAPITALA, the operator of budget airline Airasia, the results were less favourable as the company struggled with air travel recovery and missed expectations. Despite filling seats, CAPITALA faces challenges in increasing yields and ensuring profitability, given the costs associated with aircraft leasing and finance. Analysts have recommended a BUY on CAPITALA, with a target price of RM1.06, noting that the company is benefiting from strong travel demand.

AIRPORT is expected to see a 7% increase in system-wide passenger total of 131 million in CY24. The group's optimism is supported by new airlines and services at major airports, including Kuala Lumpur International Airport and operators in Penang, Kota Kinabalu, and Langkawi. The anticipated 13% increase in airlines' seat capacity for 2024 further supports this positive trajectory.

Similarly, CAPITALA is projected to experience improved passenger demand, with its revenue seat kilometres (RPK) expected to grow 20% to approximately 70 billion in CY24. The company plans to reactivate 202 aircraft by the end of CY24, aiming to reach 83% of pre-COVID capacity levels.

The sector faces ongoing challenges, including delays in aircraft deliveries and shortages of parts and labour, which could affect the pace of full recovery. AIRPORT's privatisation status is progressing, with a final offer expected once all conditions are met. Meanwhile, CAPITALA's regularisation plans are in the final stages, with efforts to exit PN17 on track for completion by 4QCY24.

Analysts have maintained a NEUTRAL stance on the sector, acknowledging the mixed results from 2QCY24 amid positive outlook.