Tuesday September 13, 2011

The lobbying power of Malaysia Airlines (MAS) and AirAsia has proved to be too strong for airport operator Malaysia Airports Holdings Bhd (MAHB), based on the Government’s decision to reverse an increase in aeronautical charges at local airports to be implemented by MAHB.

Analysts said they were not surprised by MAHB’s announcement on Friday that the Transport Ministry had asked it to put on hold the recently announced increases in passenger service charge (PSC), aircraft landing and parking charges.

MAHB had previously announced that travellers going overseas via the KL International Airport (KLIA) would have to pay RM65 (up from RM51), while the charge for those departing from the Low-Cost Carrier Terminal (LCCT) would be RM32 (up from RM25). The aircraft landing and parking charges were to be gradually increased by 30% and 64% respectively over three years starting January next year.

“The Government’s move to put on hold the recently approved increases in airport charges for an indefinite period did not come as a surprise, given the intense lobbying from AirAsia and MAS following the sealing of their collaboration agreement early last month,” OSK Research said in a report yesterday.

“While the freeze on raising tariff is negative for MAHB, the turn of events demonstrates the Government’s (i.e. Khazanah Nasional Bhd) commitment to the recently signed collaboration between AirAsia and MAS.” it said.

CIMB Research said that the U-turn showed the strength of the airline lobby at the moment, with both MAS and AirAsia under the stewardship of Tan Sri Tony Fernandes.

“The hikes came at a time when MAS is racking up huge losses, which may have made the lobbying easier. MAS needs every bit of help it can get and aeronautical charge hikes fly in the face of the Government’s priority of turning MAS’s fortunes around.

“On the other hand, MAHB is currently earning decent profits with the existing tariffs. Furthermore, MAHB cannot discriminate between the airlines by charging different fees,” the research house said in a report.

CIMB Research also said the MAHB management revealed that the Government would continue to pay RM14 per passenger as compensation for international passengers departing from the non-LCCT airports.

“However, we are unclear if the Government will compensate MAHB for the proposed RM7 per passenger hike for each international departure from LCCT airports.

“While the management mentioned that it is still in discussions with the Government, we note that the 2009 restructuring agreement had allowed for a PSC hike only in 2014, rather than in 2011, and we are uncertain if MAHB will receive any compensation for this hike deferment,” it added.

The research house has reflected the tariff hike deferrals by removing them from its earnings model.

“We now reduce our earnings per share forecasts by 6.6% for financial year 2012 (FY12) and 7.9% for FY13. By itself, this would have reduced our end-2011 target price from RM8 to RM7.50.

“However, we are also taking the opportunity to roll forward the time horizon of our target price from end-2011 to end-2012. Our new discounted cashflow-derived target price is RM7.80,” CIMB Research said.

Meanwhile, OSK Research said it continued to view MAHB as a defensive aviation play, which would do well in both good and bad times, owing to resilient air travel demand and its large base of low-cost carrier passengers.

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