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MIA faced with stormy waters following spike in COVID-19

RonewMIA

During August, Malta experienced another surge in COVID-19 cases, with active cases reaching a record of 699 even exceeding the levels recorded during the first half of this year. This spike came mostly from group activities that were allowed to resume after Malta eased its lockdown and in part due to summer travel. However, it is important to note that COVID-19 deaths have remained low, as most of the infected were young adults.

Following this spike, Malta’s cases per 100,000 people over a 14-day period exceeded 100 cases (as at end of August), which ranked Malta at the top when compared to other European countries. This prompted several European countries to restrict travel to the island. As of the time of this writing, a total of 16 European countries have either banned non-essential flights from Malta or announced quarantine requirements.

This undoubtedly, has impacted the operations of Malta International Airport plc (MIA) and also that of the local tourism industry. Most notably being the recently imposed 14-day quarantine on travellers arriving in the UK from Malta. The UK is the largest tourism market for Malta and represents 25% of the market. Italy, which represents the second largest market (21%), is also requesting a negative test certificate for passengers arriving from Malta. Other countries which imposed travel restrictions on Malta include: Belgium, Netherlands and Switzerland, with these contributing around 7% to the local tourism. Yesterday, it was reported that Poland has banned all flights to and from Malta for a period of two weeks.

Recently, the local Government has also re-imposed several restrictions to control the virus spread. Amongst others, these include a new ‘amber list’ of countries, arrivals from which will need to produce a COVID-19 negative test result of up to 72 hours before arrival. As of to date, the list includes Bulgaria, Romania, Czech Republic, Tunisia and Spain (applies only to passengers arriving from: Barcelona, Girona and Madrid).

This uncertainty is once again increasing concerns in the aviation industry, with airlines cutting flights and opting to keep operations suspended, despite the opening of borders following the containment of the first wave during H1 2020. Locally, it was reported that Emirates has continued to suspend operations and the airline may restart flights only when it is commercially and operationally feasible. Ryanair will cut its September and October timetable by ‘20 percent’ on weaker-than-expected demand following renewed virus-linked travel restrictions in some European countries. Other airlines are expected to follow suit in the coming months given the persistency of the pandemic.

Despite the difficulties currently being faced by the Airport, MIA has a proven track record of maintaining a strong liquidity profile with cash reserves amounting to €34.5 million as at H120, an improvement of €6.3 million over FY19, even when faced with such an unprecedented second quarter. The business model of MIA is further strengthened by its monopolistic position.

H120 financial results: Profits plummet as pandemic takes toll

MIA experienced a decline of 68.7% in passenger traffic during H120 on a comparative basis. In view of the high correlation between MIA’s revenue and its traffic, revenue tumbled by 66.5% over H119. As expected, the Airport managed to decrease its operating costs by 34.2%, which mitigated the impact of the pandemic. MIA reported a loss of €2.9m (H119: profit of €13.9m). In view of the current situation, MIA did not propose an interim dividend.

FY20 Outlook and beyond

In the short to medium term we expect MIA’s share price to continue be determined by the current developments, which as the situation stands cannot be predicted. The general consensus is that demand for aviation has been severely impacted and it will take up to 2023 for passenger numbers to get back to 2019 levels. Nevertheless, the robust business model of the airport, coupled with a zero-leverage balance sheet, should enable MIA to weather these difficult times and provide investors with an interesting medium to long-term investment.

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