This article first appeared in The Edge Financial Daily on December 11, 2019
KUALA LUMPUR: Malaysia Airports Holdings Bhd (MAHB), which operates 39 airports in the country, is expected to collect less passenger service charges (PSCs) this year in line with anticipated lower passenger traffic growth.
“The growing proportion of domestic and Asean passengers will affect [airport] operators’ earnings as both these classes of passengers pay a lower PSC compared to international ex-Asean passengers,” said the Malaysian Aviation Commission (Mavcom) in its biannual Waypoint industry report and Technical Paper released yesterday.
MAHB commands a 96% share of passenger traffic in the country.
According to Mavcom, PSCs collected fell by a marginal 0.2% to RM871 million for the first half of this year (1H19) from RM873 million a year ago, as the portion from international passengers dropped 1.8% year-on-year (y-o-y) to RM479 million, while PSCs collected from domestic passengers grew 4.1% y-o-y to RM154 million and that of Asean passengers remained flat at RM238 million.
“Similarly, [airport] operators’ earnings could also be influenced in 2020 due to continued seat capacity expansion in the domestic market, given that domestic passengers pay lower PSCs. As a result, revenue growth from PSC collection may lag [behind] passenger traffic growth,” it added.
Total seat capacity by Malaysian carriers is expected to expand by 2% y-o-y in 2020, albeit at a lower growth rate than 2019’s anticipated 4.3% y-o-y, led by a domestic seat capacity growth of 3.2% y-o-y.
Mavcom is forecasting passenger traffic in 2020 to grow by 5% to 6%, which translates into between 114.9 million and 116 million passengers. This will be driven by Visit Malaysia 2020 and a 3.2% y-o-y increase in domestic seat capacity growth.
“This (3.2%) growth will be led by routes within Sabah and Sarawak that will grow by 4.8% y-o-y, followed by East-West Malaysia by 2% y-o-y and within Peninsular Malaysia by 1.5% y-o-y,” it said.
Mavcom also pointed out that the impact arising from the recent downgrading of the Civil Aviation Authority of Malaysia to a Category 2 aviation regulator last month by the US Federal Aviation Administration (FAA) is expected to be minimal.
“Existing services that can be affected are the Kuala Lumpur-Honolulu via Osaka (operated by AirAsia X Bhd) and code-sharing between Malaysia Airlines Bhd and American Airlines. Collectively, these routes contribute 1.2% of the total seat capacity to and from Malaysia forecast for 2020.
“However, should other civil aviation authorities such as the Japanese, South Korean and Chinese follow suit by disallowing Malaysian carriers to undertake operations to their respective countries, the impact can be greater than that of the downgrade by the FAA,” it warned.
The commission also noted that both a weaker ringgit and lower oil prices are also expected to provide a boost to passenger traffic growth in 2020.
However, the forecast growth in 2020 is lower than Mavcom’s revised 2019 passenger traffic forecast of between 6.4% and 7% y-o-y (previously 2.9%-4.1% y-o-y) which translates into between 109.1 million and 109.7 million passengers.
“The robust passenger traffic growth in 2019 will continue to be driven by domestic demand as the Malaysian economy is expected to remain resilient with a growth forecast of 4.3% to 4.8% y-o-y,” it said.
Meanwhile, Mavcom identified Johor, Kuching, Kuala Lumpur International Airport, Penang and Tawau to be in the “sweating” airport category.
This means the airports had positive compound annual growth rates in terms of passenger traffic between 2014 and 2018 and already exceeded their respective terminal design capacity in 2018.
“In order to address congestion, these airports can work together with airlines to improve flight scheduling to shift traffic from peak to off-peak hours, enhance the operational efficiencies of airports and, lastly, expand airport infrastructure. Failure to address congestion may result in flight delays for passengers and increased costs for both airports and airlines,” it said.
“However, if the congestion occurs during peak hours only, airports can consider enhancing operations to address congestion,” it added.
As for Malaysian airlines, Mavcom expects their profitability to remain under pressure in 2020.
“Malaysian carriers reported an average operating profit margin of 0.3% in 1H19 (1H18: 2.9%) due to rising costs. Their cost per available seat kilometre (CASK) increased by 5.9% y-o-y in 1H19 to 17.9 sen, while revenue per available seat kilometre (RASK) decreased by 2.2% y-o-y to 15.9 sen.
“The RASK-CASK spread in 1H19 of -2 sen was significantly wider than the 1H18 spread of -0.7 sen. If this trend persists, the profitability of Malaysian carriers will be at risk,” it noted.