Saturday November 28, 2009,By LEONG HUNG YEE

AirAsia Bhd is likely to be the key beneficiary of the new cash incentive offered by Malaysia Airports Holdings Bhd (MAHB).

Last week, MAHB said under its Airline Recovery Programme, new airlines flying into KL International Airport (KLIA), Low-Cost Carrier Terminal (LCCT) and Sultan Abdul Aziz Shah Airport in Subang would receive an incentive payment of RM10 per inbound pax for the first 12 months of operations.

MAHB said a higher incentive payment of RM25 per inbound passenger would be given to all new airlines flying international services to all the other airports in Malaysia.

"AirAsia a big winner," OSK Research said, adding that the total number of passengers carried by the low-cost carrier for the first nine months had grown in the high teens year-on-year.

Assuming the strong numbers imply a similar trend for its international routes, AirAsia may immediately enjoy incentives of RM10 to RM15 for each additional international inbound passenger carried.

"Based on our back-of-envelope calculation, AirAsia may enjoy incentives of about RM3mil to RM10mil for the next three financial years from the new perks, assuming that it records 10% international passenger growth for financial year ending Dec 31, 2010 (FY10) and FY11," OSK Research said.

Analysts said the new incentive was a win-win situation for both MAHB and the airlines. They said the Airline Recovery Programme would not only boost tourist arrival but also attract new airlines to fly into Malaysia.

OSK Research said any incentive was "definitely welcomed" by the airlines, including Malaysia Airlines (MAS).

However, the research house said MAS saw a 20.3% year-on-year (y-o-y) contraction in the number of international passengers carried up to the first six months this year and June’s figures were 6.5% lower y-o-y.

OSK believed that the national carrier was unlikely to enjoy the growth reward in 2009 as MAHB may use 2009 as the base year.

"Based on our assumption of 6.8 million, 7.3 million and 7.7 million international passengers carried by MAS from 2009 to 2011 respectively, the company may be rewarded merely RM2.5mil and RM4.8mil for FY10 and FY11 respectively," it said.

The research house also said the perks for the new airlines could "invite competition" although the risk was nominal.

Commenting on MAHB, OSK said the airport operator would gain from the move.

"Given that MAHB is operating under the new operating agreement from February 2009 that clearly delineates its socio-economic role from commercial accountability, the Government may have to provide restitution to MAHB for the extent of the direct marginal financial loss arising from the new incentives," it said.

Even if the move was initiated by the company, and thus not subject to any marginal cost support by the Government, OSK said, the bottomline impact may be below 4% of MAHB’s annual profit as the incentives were limited to inbound international passengers.

Meanwhile, Kenanga Research believes MAS and AirAsia would be the main beneficiaries of this incentive as AirAsia could save up to 7.4% in cost for FY10 and 1% for FY11. It expects the impact would be minimal to MAS earnings.

It said the new incentives would negatively impact MAHB’s FY10 and FY11 revenue by 3.5%, based on its FY09 traffic assumption as the base year.
"We are yet to quantify the impact to the bottomline as it could be mitigated by its expanding retail income especially if it brings in higher traffic flow," Kenanga said.

This article is a verbatim copy of the original article from The Star.