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Malaysian aviation body cuts passenger traffic growth aim

Coronavirus outbreak blurs traffic outlook, US FAA downgrade weighs on airlines

A woman wearing mask reacts at Kuala Lumpur International Airport, following the outbreak of a new coronavirus in China.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's aviation authority Tuesday trimmed passenger traffic growth forecast for this year following the coronavirus outbreak, adding to the woes of the country's airlines and airport operators following an air safety rating downgrade by the U.S. Federal Aviation Administration.

Passenger traffic will likely increase 4.6%-to-5.7% this year, lower than a previous projection of 5%-to-6% growth due to the coronavirus outbreak, said Azmir Zain, chief operating officer of Malaysian Aviation Commission, or Mavcom. Revenue for airlines and airport operators will also be impacted, he said.

"We expect lower passenger traffic growth because of the outbreak of the virus," he said at a news conference. "This is not just traffic in KLIA but also at airport in Kota Kinabalu."

Authorities around the world have restricted travel to and from China as well as imposed stringent checks in a bid to contain the rapidly-spreading 2019-nCoV virus that has killed at least 1,000 people and infected tens of thousands.

In Malaysia, the Sabah state government suspended all direct flights from China on Jan. 30, while the Sarawak state government has imposed an immediate ban on all visitors from China.

Malaysia's federal government on Jan. 27 imposed a temporary ban on travellers from Wuhan, the epicenter of the coronavirus outbreak, which has now expanded to include Zhejiang and Jiangsu provinces.

Analysts said fallout from the outbreak could persist for several months amid China's efforts to contain outbreak that has now spread to more than two dozen countries.

"We are assuming that the outbreak will continue until April or May 2020," said MIDF Amanah Investment Bank Analyst Adam Mohamed Rahim. "We are estimating a 15%-20% reduction in passengers coming from countries such as China and Singapore from February to May 2020."

The passenger traffic growth revision comes as Malaysia grapples with FAA's November downgrade that could cost local carriers 360.8 million ringgit ($87.13 million) in revenue. Airport operators meanwhile stand to lose 10.8 million ringgit in potential revenue, according to Mavcom's projections.

Should other aviation authorities including China, Japan and South Korea follow suit and ban operations of Malaysian carriers in their countries, the airliners could lose up to 4 billion ringgit, while the airport operators could lose up to 400 million ringgit, warned Azmir.

The regulator's estimate is based on what happened to Thailand back in 2015 following FAA's downgrade, he said.

"We expect that the downgrade will have a minimal direct impact on passenger growth and Malaysian carriers' profitability in the foreseeable future, due to the low volume of passengers between the US and Malaysia," Mavcom said in its latest report.

However, Malaysia is vulnerable to follow-on action from parties such as International Civil Aviation Organization, European Aviation Safety Agency, and other national civil aviation authorities, it warned. "But so far there is no indication that other authorities will follow," said Azmir.

Restrictions imposed by these parties, especially from countries with substantial passenger traffic to and from Malaysia, may amplify the impact of the downgrade on Malaysian carriers and the broader aviation industry value chain, Mavcom said.

--Yimie Yong

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