KUALA LUMPUR (April 6): The Department of Civil Aviation Malaysia (DCA) is moving from the cheapest fees charges to the third most expensive in the region, following the 10 times increase in fees charged that are effective April 15, according to Maybank Investment Bank (Maybank IB).

In a report to clients today, the research house said this may signal the country abandoning its aviation policy to be competitive to Singapore, and implement this quantum of hike to other charges, such as landing, parking, terminal fees.

It also said that the move will dampen traffic growth as much as 2%, while consumers may also need a realistic period of 1.5 to 2 years to fully absorb the substantial increase as airlines are expected to pass the heavy costs to consumers.

According to Maybank IB, Malaysia's aviation related charges are among the most competitive in the region, the second in the ASEAN region after Brunei when combining the airport charges, air navigation flight charges (AFNC), fuel distribution cost, and other ancillary services.

"This has always been our policy, we want to be competitive and give Singapore a run for its money. But this 10 times escalation to ANFC instantly makes Malaysia the third most expensive in ASEAN after Cambodia and Vietnam. The proposed AFNC is akin to the rates in Australia and many European countries," Maybank IB associate director Mohshin Aziz explained to theedgemarkets.com.

Dragged by the negative news, Malaysia Airport Holdings Bhd (MAHB) was the second top loser at noon, falling 4.21% or 28 sen to RM6.37.

AirAsia Bhd and AirAsia X Bhd were among the top three actively traded stocks in the morning session. AirAsia, which saw 38.59 million shares traded, fell 4 sen or 2.03% to RM1.93. AirAsia X was unchanged at 30.5 sen.

DCA said it derives its revenues from licensing fee, and also ANFC. It claimed the fees have been kept unchanged since 1970, and the hike in fees is to upgrade their systems in order to make the system more efficient.

For a narrow body Airbus A320 aircraft with 180 seats and weighing 72.5 tons, the flight route charges from Kuala Lumpur to Penang is RM4.20 per pax, the new ANFC rates will be RM760 compared with RM76 (40 sen/pax) currently.

For flights from Kuala Lumpur to Singapore, and Kuala Lumpur to Kota Kinabalu with flight route charges of RM4.80 and RM10 per pax respectively, the new ANFC rates will be RM860 and RM1,760 compared with RM86 (50 sen/pax) and RM176 (RM1/pax) currently.

For international flights, this new rates only applies the moment they cross the border of Malaysian airspace. For instance, for a flight from Jakarta to Bangkok, the ANFC across the Peninsular Malaysia (from Johor to Perlis) will be applied on the new rates, whereas the rest of the journey will be applicable to the country's tariffs.

"As you can see, the further you fly, the higher the charges ... you may say that the new rates are not that exorbitant on a per pax basis, but this is assuming the flight is 100% full, airlines will have to pay full rates regardless," Mohshin said.

Thus, he noted that the 1,000% hike in DCA fees is a "big negative" to airlines and airport operator.

According to him, the RM4 extra makes that train and coach ride from Kuala Lumpur to Penang much more attractive. Thus, on domestic Peninsular Malaysia routes, he opines that the alternative road transport will gain an advantage at the behest of airlines.

However, he is of the view that the inter-peninsular and Sabah and Sarawak flights will be less prone to alternative competition, and therefore he thinks airlines will be able to pass on the additional cost to consumers over time.

"We can't think of anything good to say about this. Airlines will pass on the higher charges to the consumers, higher price will naturally crimp some demand, and traffic growth rate won't be all that great. We have to be realistic and cut our long-term growth expectations for Malaysia air travel by 1% to 2%. MAHB will be the ones to be on the losing end as the industry's growth rates structurally reduce," he highlighted.

For him, airlines would probably have a re-look at their networks and think really hard about excess capacity and remove aircraft that are not well used.

He expects Malaysia Airlines Bhd, AirAsia and Malindo Air to cut some of their domestic frequencies especially for intra-peninsular flights, and perhaps some inter-peninsular Borneo flights.

"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 (KLIA, Penang, Langkawi, Johor Bahru, Labuan, Kota Kinabalu, Miri, Kuching) are relatively short, and therefore incur minimal additional charges," he said.

"At the end of the day, airlines will only deploy capacity if it knows it will be filled. They will likely use smaller aircraft rather than big ones, in order to be on the safe side," he added.

He expects aircraft to be fuller in the future and, chances are, ticket prices will cost a fortune during peak periods and for those unlucky souls that book last minute, and eventually, Malaysia air ticket prices will behave like what it is in Europe and the United States within the next few years.

Overall, Mohshin sees MAHB as the most affected by the fees. While the impact on domestic oriented airlines, namely AirAsia and Malaysia Airlines, is moderately negative, he sees Malindo as the least affected as the bulk of its flights are to international destinations.

For AirAsia, Mohshin expects the fees expenses to increase to RM110 million based on the new tariff, a whopping RM99 million increase or 13% of his FY16's core net income forecast.

According to his analysis, the ANFC charges are lumped in "user charges", which also includes landing, parking, usage of terminal facility fees, and security fees as well for AirAsia.

In 2015, "user station charges" amounted to RM685 million, or 10.9% of AirAsia's revenues. Assuming the average ANFC per domestic flight is RM110, and roughly 60% of AirAsia's flights are domestic, the ANFC paid to DCA is roughly RM11 million in 2015.

For AirAsia X, the impact is less severe as all of AirAsia X's flights are international outbound from Kuala Lumpur International Airport.

"Our rough estimation is that it paid RM4.3 million to Malaysia DCA in 2015. This figure is bound to jump up to RM43 million based on the new tariff, a substantial RM38 million increase or 70% of our FY16's core net income forecast," he said.