This report surveys the current trends and market outlook for the aviation sector in Malaysia. In the last decade, the Malaysian aviation industry went through a period of strong growth, with passenger traffic at both domestic and international terminals recording high growth rates and key routes established to China, Japan, Korea, India, Indonesia, the Philippines, and Thailand. The report also reviews the business performance for leading players including: Malaysia Airport Holding Berhad (MAHB), Malaysia Airline System Berhad (MAS), and AirAsia Berhad (AirAsia).

FY13 turned out to be a good year for the Malaysian aviation sector after the subdued growth experienced in FY12. A boost in passenger traffic, cargo movements, and commercial aircraft movements was witnessed in FY13. Growth in domestic as well as foreign tourist arrivals was the main reason for this increase. Malaysia was the 10th most-visited country in the world in 2012, according to the World Tourism Organization. Overall passenger traffic grew by 16.6% in the first nine months of FY13.

The outlook for Malaysian aviation is positive and the growth trend in passenger traffic is expected to continue in the coming years. The growth will be driven by an increase in domestic as well as international tourism, the growing popularity of Malaysia as an Asian travel hub, the rising importance of Kuala Lumpur as an international financial center, and the surge in the per capita income.

Key Points:

• In 9MFY13, Malaysia Airlines (MAS) showed improvement on most of the operational parameters compared to 9MFY12. MAS continued to suffer from high debt and operating losses. AirAsia maintained its position as a leader in terms of passengers carried, but the entry of Malindo Air, a low-cost airline backed by Lion Air, caused a dent in the revenue growth of AirAsia.

• The commercial aircraft movements in 9MFY13 were higher than the figure recorded in 9MFY12. The number of flights operated at international terminals (especially in China, Japan, Korea, India, Indonesia, the Philippines, and Thailand) increased by 12.4%, while those at domestic terminals increased by 12.5%. Air cargo movements at international terminals in 9MFY13 were 3.3% higher than the figure recorded in 9MFY12.

• Jet fuel price declined gradually in the last three months of 2013 after reaching a high of USD126/bbl in August 2013. Overall, the average jet fuel price in FY13 was 4.4% lower than the FY12 average.