Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily, on September 23, 2016.

 

KUALA LUMPUR: A new set of passenger service charges (PSC), commonly known as airport tax, is set to be implemented by Jan 1 next year and will see higher rates imposed on air travellers, according to local news reports, quoting Transport Minister Datuk Seri Liow Tiong Lai.

However, Liow declined to elaborate on the details of the new rates, saying only that they would be announced by the Malaysian Aviation Commission (Mavcom), since the subject matter came under the commission’s purview.

He also maintained that despite the upward revision, the new charges would still be considerably lower compared with those in many other countries.

When contacted, Mavcom told The Edge Financial Daily that the commission had briefed the cabinet on the new PSC structure on Wednesday.

“On Sept 21, 2016, cabinet members were briefed on a proposed new structure of the passenger service charge. Mavcom shall discuss internally [what will be the] next steps, and an official announcement will be made by the commission at the appropriate time,” its spokesman said in an email response yesterday.

Malaysia Airports Holdings Bhd (MAHB), which is poised to be the biggest beneficiary if the PSC goes up, saw its share price climb to a two-year high of RM7.30 yesterday morning as the news spread, a 56 sen or 8.31% gain from its previous closing price.

But the counter pared most of its gains later in the day to settle at RM6.80 by market close, leaving it still up six sen or 0.89%, after 6.97 million shares were exchanged.

In July, national news agency Bernama had reported that Mavcom was reviewing the PSC and would announce its decision by year end.

When contacted, both MAHB managing director Datuk Badlisham Ghazali and Malaysia Airlines Bhd chief executive officer (CEO) Peter Bellew said they have not been informed of any updates to the planned PSC revision so far.

AirAsia Group CEO Tan Sri Tony Fernandes, meanwhile, declined to comment on the matter at this juncture.

A local media outlet reported yesterday, quoting sources, that the cabinet had approved a set of PSC revision, raising the charge to RM11 from RM9 for domestic flights, and RM73 for international flights — up from RM65 currently for those flying out of Kuala Lumpur International Airport (KLIA), and RM32 currently for those flying out from klia2.

There is also going to be a new PSC category, namely for flights to Asean countries, which will be RM35.

With only a single set of PSC reported, it seems Mavcom is proposing a single-tier PSC structure, as opposed to the current two-tier structure, whereby flying out of klia2 is cheaper than out of KLIA.

In his report on Tuesday, RHB Research analyst Shekhar Jaiswal said a revision would enable MAHB to earn an adequate return on its investment in klia2.

“Standardising the domestic PSC and normalising the international PSC to be in line with regional airports are key arguments supporting a PSC hike,” he said. He also upgraded MAHB to a “buy” call and increased the target price to RM7.60.

Should Mavcom standardise the PSC into a single-tier structure, it would mean there is no difference for passengers to fly out of either KLIA or klia2.

Note that airlines that fly out of KLIA are primarily full-service carriers (FSC), while klia2 is dominated by low-cost carriers (LCC).

UOB Kay Hian director for Asia transport research Ajith Kom said such a move will be in line with practices by other Asian airports and will level the playing field for all airlines.

“AOT (Airports of Thailand Pcl) does not offer different PSC for Don Muaeng and Suvarnabhoomi airports. If the fees are levelled, the price differentiation between FSC and LCC would narrow and LCC’s profitability will certainly be impacted, but only marginally so,” he said.

Don Muaeng and Suvarnabhoomi airports, however, are over 30km away from each other by road transport, while KLIA is 2.5km from klia2.

Hong Leong Investment Bank Research analyst Daniel Wong concurred with Kom’s view, saying the PSC revision would have limited impact on AirAsia Group.

“Impact would be relatively limited, given that the majority of Malaysian flights are concentrated on Asean and domestic [routes where there are] no significant changes in the PSC rate. However, the impact on AirAsia X Bhd will be greater, as its flights are non-Asean and will subsequently affect AirAsia’s connecting flights,” he 

said.

Still, Wong maintained that the impact would be relatively limited, “given [that a] RM41 rate of increment is relatively trivial [compared] with total expenses for international travels”.

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