This article first appeared in The Edge Financial Daily, on April 7, 2016.

KUALA LUMPUR: The steep increase in charges by the Department of Civil Aviation Malaysia (DCA) will have a significant impact on the profitability of domestic routes, airlines said, discouraging foreign carriers or aircraft from using Malaysian airspace.

Malaysia Airlines Bhd chief executive officer (CEO) Christoph Mueller said a proposed move by DCA to increase fees under its purview by as much as 10 times had caught the national carrier off guard by “this monumental and prohibitive increase in fees after 42 years of stagnation”.

It has been reported that DCA wants to start charging the new fees from April 15, which could see the airlines’ air navigation flight charges (ANFC) go up by up to 10 times.

“Malaysia Airlines has always been a strong supporter of DCA and its strategic development plans and we appreciate the rising costs of controlling our airspace and the development of resources and infrastructure associated with it,” Mueller told The Edge Financial Daily via email.

“[However,] current airspace users cannot be charged with fees which are related to previous airspace utilisation,” he said.

Mueller said the proposed hike will certainly have an impact not just on Malaysia Airlines, but all airlines and eventually the end consumers, as airlines will pass on the higher charges to them.

“The significant increase and immediate implementation are unprecedented from a charging regime in international air travel and will make foreign carriers avoid Malaysian airspace which will, in turn, have a knock-on and adverse impact on the industry and for international and Malaysian travellers,” he said.

“This is something the newly established aviation commission needs to look into,” he added, referring to the Malaysian Aviation Commission, which started its work on March 1.

Mueller also said he would have welcomed a dialogue or an engagement with DCA of its plan and explanation of the basis of the prices set.

When contacted, FlyFirefly Sdn Bhd CEO Ignatius Ong concurred, saying the new rates are “extremely high” and will not bode well for the travel market and amid a weak economy.

“It will be a material burden to the passengers,” Ong said, adding that the additional cost will be obvious on the airfares unless the flight is 100% full, which will allow the cost to be shared among more passengers.

An airline operator, who declined to be named, said all these aeronautical charges are part and parcel of the overall cost of operating a station.

“Naturally, any increase will have an impact on the route profitability as this simply translates into increased cost. For big volume players, I can imagine the cost will be hefty due to their sheer number of flights,” the airline operator said.

In a report yesterday, Maybank Investment Bank aviation analyst Mohshin Aziz expects Malaysia Airlines to be deeply affected by DCA’s proposed fee hike as the airline has an extensive domestic Malaysia services.

He also sees Malaysia Airports Holdings Bhd on the losing end as the industry’s growth rate structurally reduces.

“Airlines would probably have to relook their networks and think real hard about excess capacity and remove aircraft that are not well used.

“We expect Malaysia Airlines, AirAsia Bhd and Malindo Airways Sdn Bhd to cut some of their domestic frequencies especially for intra-peninsula flights, and perhaps some inter peninsula-Borneo flights as well.

“I don’t think international flights will be bothered so much because the distance to get outside of Malaysian airspace from all the international airports are relatively short, and therefore incur minimal additional charges,” said Mohshin.

Meanwhile, MIDF Research analyst Tay Yow Ken is of the view that the increase in ANFC, which include the Air Operator’s Certificate fees, will lead to high barriers to entry, which will benefit existing airlines already operating here.

AirAsia shares snapped two days of gains yesterday, closing down seven sen or 3.55% at RM1.90, with a market capitalisation of RM5.29 billion. AirAsia X Bhd ended the day unchanged at 30.5 sen, giving it a market capitalisation of RM1.27 billion.