Déjà vu as full-service carriers again seek PSC equalisation at KLIA and klia2

Déjà vu as full-service carriers again seek PSC equalisation at KLIA and klia2
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KUALA LUMPUR (Sept 6): In a repeat of events three years ago, major scheduled airlines operating out of the Kuala Lumpur International Airport (KLIA) are once again calling for the passenger service charge (PSC) at klia2 to be the same as that at KLIA to promote a level playing field.

In a Sept 5 letter addressed to Transport Minister Anthony Loke Siew Fook, the Board of Airline Representatives Malaysia (BAR-Malaysia) urged the Government to roll back plans to cut PSC from RM73 to RM50 for passengers flying to destinations beyond Asean at klia2 and all airports in Malaysia except KLIA. The change is expected to come into force next month.

“PSC parity at all airports in Malaysia is necessary for all airlines to equally compete and increase passenger traffic to Malaysia, particularly at KLIA and klia2 — two terminals operating in one airport complex,” wrote BAR-Malaysia in the letter seen by theedgemarkets.com.

“Given its proximity with airlines serving similar destinations at both terminals, the difference in PSC rates between the two will adversely affect the ability of airlines in KLIA to compete with airlines in klia2, impacting their ability to promote passenger growth into Malaysia,” it added. The letter was copied to Finance Minister Lim Guan Eng and Tourism, Arts and Culture Minister Datuk Mohamaddin Ketapi as well.

"What we want is for KLIA and klia2 to enjoy the same PSC. We are not so concern with what the rates are. If the PSC is RM50, then it should apply to both KLIA and klia2. If it's RM73, then the same should apply to both terminals too," a spokesman for BAR-Malaysia told theedgemarkets.com.

"We don't want different PSC rates at KLIA and klia2. This is to ensure a level playing field," he added.

In the letter, the organisation pointed out that airlines currently operating at KLIA are mainly full service carriers (FSCs). “By virtue of their branding and product offering that attract premium visitors with higher spend into Malaysia, (the FSCs) contribute significantly to the economic development of the country.”

Amid the prevailing economic climate, BAR-Malaysia pointed out that air travellers have also become more price sensitive.

“To remain competitive, airlines at KLIA will be compelled to absorb the PSC difference by lowering their base fares to compete, which can affect the route profitability of these airlines (and thus,) impacting their viability to continue operations or expand flight frequencies into Malaysia. This in turn affects tourism development and the economic development of the country,” it said.

It deems the government’s Aug 30 decision to reduce the PSC “discriminatory” as it unfairly advantages airlines operating at klia2.

In a note to investors on Monday (Sept 2), CGS-CIMB Research aviation analyst Raymond Yap said the main beneficiaries of the proposed move are AirAsia X Bhd (AAX) and AirAsia Group Bhd as the two airlines operate the majority of the capacity out of klia2 to non-Asean international destinations.

Meanwhile, BAR-Malaysia estimates that AirAsia Group benefits as much as RM200 million per year from the impending PSC reduction.

“This estimate is vastly higher if you consider that they have been enjoying lower PSC rates since the mid 2000s. It is no wonder that the passenger growth rates at klia2 have outstripped that of KLIA since 2014,” it added.

The organisation also pointed out that KLIA is currently operating 119% over capacity.

“This situation is exacerbated by basic infrastructure such as baggage handling systems and train transit system failures due to insufficient maintenance or inability to handle the throughputs.

“(As such,) we believe that the reduction in PSC will stymie (airport operator) Malaysia Airports Holdings Bhd’s ability to invest additional funds to improve infrastucture and facilities at KLIA,” it said.

BAR-Malaysia also noted that klia2 is often touted by certain quarters as having inferior services and facilities than KLIA to justify lower PSC rates.

“We are perplexed by this reasoning when klia2 is still relatively newly launched in 2014 when compared with the much older KLIA that opened in 1999.

“Furthermore, KLIA has not had any major infrastructure refurbishment since it opened. klia2 enjoys modern facilities and infrastructure. Airlines operating there make use of the same facilities as airlines in KLIA such as air traffic control and runways. This is probably a reason why klia2 was not affected as much as KLIA during the recent system outages and disruptions,” it said, referring to the four-day systems outage in KLIA two weeks ago.

BAR-Malaysia’s letter followed a statement issued by International Air Transport Association regional vice-president for Asia-Pacific Conrad Clifford  on Monday (Sept 2) where he said by introducing the proposed change, the Government is creating an uneven playing field for airlines, as well as cross subsidisation of the other airports/terminals by the users of KLIA.

“If the intention is to offset the increased charges due to the departure levy which was introduced on Sept 1, the more straightforward way is to remove the departure levy altogether,” he said.

The PSC was equalised across KLIA, klia2 and all other airports in Malaysia on Jan 1 last year, with the PSC for international destinations beyond Asean out of klia2 raised to RM73 from RM50. The move was meant to put an end to nearly a decade of discord between FSCs and AirAsia Group over the different rates.

However, AirAsia and AAX had refused to collect the full amount of the RM73 until Aug 9 after a High Court ruling ordered the low-cost airline group to pay RM40.6 million to MAHB for failing to collect the tax. The group is appealing the decision.