Airline Profitability To Improve Despite Ongoing Supply Chain Disruption -- Public Investment Bank

KUALA LUMPUR, April 30 (Bernama) -- Airline profitability is projected to improve despite supply chain challenges remaining a significant headwind for the industry, said Public Investment Bank Bhd (PIBB).  

The investment bank said the projection is supported by load factors, better cargo yields, lower jet fuel prices and the weaker United States (US) dollar. 

"We believe airline valuations have yet to price in the favourable macro conditions, as they are currently trading at 3.5 times forward  Price-to-Earnings Ratio (PER), compared to a pre-Covid-19 average of nine times. 

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"Hence, valuations still appear to be attractive, in our view. We maintain an 'outperform' recommendation on the sector," it said in a note today. 

PIBB said the supply chain disruption remains a significant challenge for the airline industry as the Covid-19 pandemic caused manufacturing delays, critical components shortage and logistics challenges, which led to a growing order backlog. 

Consequently, delivery delays have pushed the average age of airline fleets up to 12 years, a significant jump from the pre-pandemic average of seven years. 

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"Since older aircraft demand more frequent maintenance, extended downtime and higher fuel consumption, these factors are expected to strain profitability in the near term," it explained. 

Meanwhile, PIBB said passenger traffic increased by 11.6 per cent year-on-year (y-o-y) in the first two months of 2025 to reach 17.9 million.

This puts the airline sector on track to meet the Malaysian Aviation Commission's (MAVCOM) full-year forecast of 105.8 million and 112.9 million passengers, representing y-o-y growth of between 8.4 per cent and 15.6 per cent.

PIBB said MACVOM suggested jet fuel prices could fall further to US$87 per barrel, assuming a US$12 per barrel crack spread and a crude oil price of US$75 per barrel. 

"We estimate that every US$1 per barrel decline in oil price would reduce cost by 0.3 per cent," it said.

-- BERNAMA