AIR TRAVEL OUTLOOK 2012

OSK maintains ‘overweight’ call on aviation, logistics sectors
 Posted on 29 December 2011 - 05:41am

PETALING JAYA: Global air travel growth for 2012 is likely to moderate amid economic uncertainties over Europe’s sovereign debt crisis and the US’s anaemic economy, says OSK Research.

Its transport analyst Ahmad Maghfur Usman expects passenger growth for 2011 to come in at 10-12%.

“However, we see Malaysia as being insulated from a cyclical downturn in passenger travel given our expectations of a stronger GDP growth of 5.2% on the roll-out of more Economic Transformation Plan projects. The surprise Q3 GDP numbers were driven by strong private consumption growth.

“This, and the fact that Malaysia has a high penetration of low-cost carrier (LCC) travel, reinforces our view that air travel will remain resilient and benefit both AirAsia Bhd and Malaysia Airports Holdings Bhd (MAHB),” said Ahmad in a report on Wednesday.

“With AirAsia reaping more profit from lower jet fuel prices and MAHB seeing an upside from a recent tariff hike, we also see both companies gaining from down-trading when cheaper fares stimulate spending on ancillaries and at airports.

“However, we are sceptical of Malaysia Airlines (MAS) as we feel that AirAsia stands to gain more from the (MAS-AirAsia) tie-up in the immediate term,” he added, reiterating an “overweight” call on the aviation sector.

Ahmad is maintaining his “neutral” stance on the shipping sector, as the global vessel supply glut could worsen with the upcoming economic woes.

“We hold to our view that the worst is not over and a first step towards solving a long-term problem is desperately needed. Our head of regional research for transport opines that there must be a resolution to the industry’s long-term problems arising from overcapacity, over-ordering and over-production of ships despite the short-term recovery in the Baltic Dry Index.

“Ironically, we still think that any rebound now could be negative for the main shipping sub-sectors (bulk, tanker or container) as this can create a false sense of security for owners and operators, who could be tempted to postpone any decisive action needed to improve profitability. On this space we are more positive on MISC Bhd, which will see losses to be confined to the petroleum tanker segment after exiting from the liner business,” said Ahmad.

Meanwhile, Ahmad has an “overweight” call on the logistics sector as he believes that local freight forwarders will continue to perform well going into 2012, bolstered by new MNC contracts and healthy economic developments on the home front.

“Recently secured contracts from well-established consumer companies such as F&N, Coca-Cola Inc, British American Tobacco, Nestle and Pepsi.Co ensure that the freight forwarders’ sales volume would not be significantly affected by poor economic conditions as well as secure their earnings going forward.