KUALA LUMPUR: The weakening ringgit against the US dollar and renewed air traveller confidence would be a boon to Malaysia Airports Holdings Bhd (MAHB) as more passengers arrive at domestic airports.

MAHB managing director Datuk Badlisham Ghazali told The Edge Financial Daily that it expects to see increased numbers of travellers arriving at its airports in the next few months in the second half of the year (2H) with the start of summer for the northern hemisphere in July.

However, he said MAHB will maintain its conservative 3% target growth for passenger volume as its target last year “went out the window” after Malaysia Airlines’ (MAS) flight MH370 went missing on March 8.

MAHB saw its net passenger volume growth contract sharply to 4.1% last year from 18.9% in 2013. 

Badlisham said he wants to observe the passenger numbers in the summer before any revision of the growth target, although growth leapt 5.6% in May after nine months of subdued growth.

“We are pleased that in May (this year), our growth went up to 9.5% (including Turkey’s Istanbul Sabiha Gokcen International Airport [ISG]) but if you remove ISG, airports in Malaysia grew at 5.6%,” he said.

While there is rising optimism on higher passenger arrivals, Badlisham pointed out that the volatile crude oil price could be one of the factors in determining the target growth for passenger volume this year because MAHB believes the fuel price might increase this year, consequently deterring air travel after a slump in jet fuel costs in October last year that has made it relatively cheaper.

MAHB’s share price took a dive last year following the air tragedies as holidaymakers cancelled trips to Malaysia after a strong rally the year before. The stock tumbled from RM9 in early January last year to RM6.20 recently. It closed at RM6.34 last Friday, valuing the airport operator at RM10.3 billion. 

That said, some analysts have turned positive on the airport operator. Among the research houses that are recommending the counter are JPMorgan, Hong Leong Investment Bank Bhd and RHB Research. 

Badlisham agreed that the weakening ringgit has made Malaysia an attractive tourist destination because stronger foreign currencies pack better options for a more luxurious holiday here.

“The weakening ringgit continues to make Malaysia an attractive destination. The yen, yuan, Taiwan dollar or British pound can go further in countries like Malaysia.

“Our cost is already low and with the strengthening of foreign currencies, purchasing power is higher when they come. So that is what that would drive people to go out of their own country,” he said.

The latest traffic data shows that in May, MAHB handled 7.12 million or 5.6% more passengers passing through its 39 airports in the country compared with 6.74 million passengers in the previous corresponding month last year.

From January to May this year, international traffic fell 1.8% to 16.37 million passengers in domestic airports managed by MAHB, compared with 16.66 million a year ago while domestic traffic dropped 3.2% to 17.41 million passengers from 17.97 million during the same period last year. 

MAHB reported that the first five months’ performance was dragged down by a 1.1% contraction in passenger traffic at the Kuala Lumpur International Airport (KLIA) to 20.05 million compared with 20.27 million a year ago.

The development of the KLIA Aeropolis, that will kick off with Phase One featuring the 130-lot Mitsui Outlet Park, is expected to be a fresh earnings driver for MAHB.

Mitsui Outlet Park is located five minutes away from the KLIA. It is being developed in a joint venture called MFMA Development Sdn Bhd, in which MAHB and Japan’s largest retail and mall operator Mitsui Fudosan Group subsidiary Mitsui Fudosan Co Ltd hold 30% and 70% equity interest respectively. 

Badlisham has made known that MAHB wants to raise its non-aero revenue to 60% from the current 50%, saying airports could enhance the travels of passengers and nearby communities by providing commercial facilities.

In a research note dated June 10, Hong Leong Investment Bank said the commencement of Mitsui Outlet Park would enhance MAHB’s earnings profile and mark its initiative to develop the surrounding Sepang Airport land into a self-sustaining KL Aeropolis in the longer term.

“We are not overly concerned about potential cannibalisation by Mitsui Outlet Park of KLIA and klia2 retail sales, given the differentiation in target market segment.

“Do note that Mitsui Outlet Park offers off-season or dated products at discounts of up to 30% compared with normal retail outlets in KLIA and klia2 offering the latest products,” MAHB said.

This article first appeared in The Edge Financial Daily, on June 15, 2015.