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Talks of revamp at MAHB fizzle out

Saturday August 20, 2011

THERE has never been a dull moment for airport operator Malaysia Airports Holdings Bhd (MAHB). Just as the landmark collaboration between Malaysian Airlines (MAS) and AirAsia Bhd was revealed, it seemed sure that a massive board and management shake up was imminent at MAHB to drive the agenda of making Kuala Lumpur an aviation hub.

However, it seems there has been a change of heart. It is believed that Tan Sri Bashir Ahmad, who has been holding the reins at the airport operator since 2003 as managing director will remain until his term expires in June next year.


Bashir: “We have been having fruitful discussions with both Qantas and British Airways and they are considering putting flights back. The talks will continue.”

Speculation of a board and management revamp at MAHB was premised on the fact that its largest shareholder, Khazanah Nasional Bhd was keen to reshape the country’s aviation industry to prepare it for the next phase of growth.

“There are a lot of movers and shakers…. the AirAsia/MAS tie-up is a significant merger and acquisition activity. What it means is that Malaysia wants to become the next aviation centre in Asia. It is certainly stirring up a lot of uneasiness among its peers,” says Standard & Poor’s aviation analyst Shukor Yusof.

According to sources, there is no plan to rattle the status quo at MAHB at least for now.

MAHB has raised passenger service charges and aircraft landing and parking charges that should augur well for the airport operator but it is not favourabe with travellers who have to contend with rising prices of goods and services.

But there remains one major issue – the perceivedly-slow pace of development of the new low cost air terminal or KLIA2. Though the commercial opening date has been fixed for October 2012, there are doubts in the market place on whether the deadline will be met.

There’s of course also the pressure from AirAsia boss Tan Sri Tony Fernandes for more low-cost carrier terminals to be built and for the completion of KLIA2 to be expedited.

The question is – would a revamp and infusion of new blood in MAHB allow it to respond faster to players like AirAsia which has time and again proven to bring in the traffic and tourist volume? And would it be able to further drive the Government’s agenda to boost the tourism sector.

Much ado about nothing?

The possible board and management revamp at MAHB followed hot on the heels of a massive shake up at MAS board and management two weeks ago. Even so, some say the reasons are not clear. Unlike MAS which is financially challenged, MAHB has steadily been turning in strong profits.

Both these companies share a common shareholder in Khazanah.

The MAHB board is made up of chairman Tan Sri Dr Aris Othman and directors, Bashir, Datuk Long See Wool, Eshah Meor Suleiman, Datuk Siti Maslamah Osman, Datuk Alias Admad, Jeremy Nasrulhaq, Jamilah Hashim, Ahmad Jauhari Yahya, Mohd Izani Ghani and Sabarina Laila Mohd Hashim. The current board is a mix of people from the private and public sector.

The market talk of a potential revamp at MAHB strikes Shukor as “a bit odd” as in his opinion, Bashir has done well in managing the company which operates 39 airports locally. “MAHB is a good stock and its share price is very stable. We do not understand the politics behind the strategy, if indeed there is one,” says Shukor.


Region”s biggest: KLIA2 will be largest LCCT in the region, catering for the bustling growth of the low cost travel segment.

When Bashir took over the helm of MAHB, the counter was trading around RM2. It has since scaled up to RM6, closing the week at RM6.45.

Those within the aviation circle say there have been instances when MAHB seemed unable to stand its ground, for example on the issue of having aerobridges in KLIA2. Fernandes has publicly stated that he is not in favour of aerobridges at the new terminal as it involves higher cost and could effect its quick turnaround operational model. MAHB appears to be giving in to AirAsia’s wish although as far as air travellers are concerned, they wouldn’t mind paying extra (25 sen) to use the facility which is deemed far more convenient.

“Where is there an airport in the world where one single operator can ask for what they want? MAHB is building a new LCCT but it can’t include aerobridges because AirAsia doesn’t want it. Why should consumers suffer because of one airline when the cost is negligible and can be absorbed by the passengers? AirAsia is charging RM10 for counter check-in but is not willing to pay 25 sen per passenger for an aerobridge. Why is MAHB at the mercy of one operator?,” asks an industry expert.

Evidently, there is much dissatisfaction of MAHB’s decision not to have aerobridges in the new terminal. Over this weekend, a big group of disabled persons (wheelchair users, those with walking and learning difficulties and poor vision), children in prams, senior citizens, pregnant women, frequent air travellers and concerned citizens are expected to gather at the Bangsar LRT to show their displeasure over the decision.

“We are deeply disappointed that the decision made by MAHB was not done in consultation with the user groups and had not taken into consideration public opinions…this is an important decision which will affect many consumer groups. This decision not to include aerobridges in the construction of the new airport is a backward step taken in the wrong direction. If countries like Vietnam can have aerobridges at their airports, why is Malaysia, which is a step away from developed nation status, regressing to third world infrastructure and service perception?” laments Mary Chen, a member of the group, in a statement.

It is an open secret in the industry that Fernandes and Bashir have had their fair share of run ins, although both are known to be friends.

Industry observers reckon the board could do with some infusion of fresh faces and “new blood” with those from wide ranging industries. That may be closer to fruition that one thinks. Even if Bashir remains, there is talk that the board may see “some adjustments.”

Pinched by higher fares

The recent move to raise passenger service charges has stirred some unhappiness among the travelling milieu.

Following the revision, international travellers from KLIA have to pay RM65 from RM51 and RM32 from RM25 at the LCCT. For the airlines, the parking and landing charges will gradually go up by 30% and 64% respectively.

But this is something MAHB has long been lobbying for. It had submitted the application for the upward revision of the rates two years ago. Between then and now, the Government has been subsiding air travel for not allowing MAHB to raise its PSC. (Under the operating agreement signed with the Government, MAHB is entitled to a upward revision in PSC every five years. The next revision will be due in 2014).


Worrying: Fernandes is concerned that the deadline for KLIA2 will not be met and this could jeopardise AirAsia”s growth plans.

AirAsia bosses Fernandes and Datuk Kamarudin Meranun wasted little time to lambast the airport operator, particularly the timing. They felt that the recently-signed collaboration between MAS-AirAsia had triggered concerns over air fare hikes and the increase in parking and landing charges has put them in a tight spot.

But for MAHB, it was a move that was long overdue which finally received the nod of the government.

Still, most analysts do not expect the higher charges to dent travel demand or thwart MAHB’s plans to position KLIA as an aviation hub as they remain among the lowest in the region.

“Budget 2012 is next month. This is one of the ways to generate more revenue for the government to cushion the budget deficit, The Government will rake about RM120mil to RM140mil from the taxes,” says an analyst.

The more pressing issue is that RM35 will be imposed as security charges for international passengers travelling from Malaysia to countries with the advance passenger information system (APIS). APIS is a system implemented by the Home Ministry under the Immigration Department to capture passenger details, including full name, gender, birth date, nationality, country of residence, travel document type and reference number and final destination. This is to vet high risk passengers such as suspected terrorist.

“This is double whammy for the traveller. Shouldn’t the Government be bearing the cost of APIS as it’s for national security?” asks a source.

Positive news

Despite the unhappiness among certain quarters, the airport operator appears set for future growth. It is a potential re-rating catalyst because of the hike in charges, stronger passenger growth, airline expansion, industry liberalisation and the land development plans, says CIMB.

The analyst expects the operator to chalk in RM1.9bil in revenue for this year and net profit of RM394mil. Maybank IB Research is more bullish with their net profit forecast of RM476mil. However, the major set back for this airport operator is the expectation of a double dip in the global economy which could rattle plans for travellers. That will have an impact on the airport operator although it may be cushioned somewhat by the low cost travel segment which largely remains buoyant in a weak or strong market. Low cost air travel makes up 43% of all air travel in Malaysia and 16% of total travel in Asia Pacific and International Air Transport Association (IATA) says that half of the 800 million extra passengers who will travel in 2014 will be in Asia and this growth has shifted the industry’s centre of gravity to eastward.

Bashir expects the airport operator to handle 60 million passengers this year and 75 million by 2014 and the growth will come from, KLIA and KLIA2 but if Qantas decides that KLIA will be its hub, then the numbers could rise by 10-15% more.


New target: The deadline for completion of KLIA2 is extended to October 2012.

The Qantas poser

Australia’s Qantas plans to set up a premium hub in Asia. Global airlines are trying to position themselves in Asia which is a booming market and offers tremendous growth potential on the back of rising affluence and sound economic growth.

But fears of a double dip in the global economy looms. IATA says Asia Pacific carriers saw demand grow by 3.3% and load factor rise by 77% – 2.1 percentage points below the global average – in June this year. There may also be a situation of overcapacity in most markets.

Qantas needs to salvage its waning international operations and as far as it’s concerned, Asia and its tremendous promise could hold the key. Qantas is in talks with both MAHB and the Civil Aviation Authority of Singapore to decide where to set up its base. From a cost perspective, KLIA may be a better choice as the charges are lower, the currency is favourable with the A$1 to RM3.10, the cost of doing things is lower than Singapore and more importantly, KLIA is right smack in the heart of Asia, between North Asia and Australia.

Qantas, British Airways and Lufthansa left Malaysia a decade ago for several reasons, the biggest being the glaring lack of transit passenger volume. Today, all that has changed – traffic volume is substantial and connectivity is wider. Lufthansa returned several years ago.

“We have been having fruitful discussions with both Qantas and British Airways and they are considering putting flights back. The talks will continue,” says Bashir.

He adds that “the talks are more intense now and we are giving them the market statistics”. “Their return will depend on the viability of their operations,” he tells StarBizWeek recently.

Some however say the arrival of Qantas may not bode well for MAS, which has recently sharpened its objective to be a premier airline.


Still in progress: The new airport is 40% complete and MAHB is rushing to complete it in 20 months.

Spanking new terminal

The still-being built budget terminal, since the time of its inception has had one biggest critic – Fernandes. His biggest beef with KLIA2 is that it’s delayed, but this could have been also due to AirAsia’s changing requirements. The new LCCT is supposed to replace the existing LCCT at Sepang; it will be the biggest in the region, catering for the bustling growth of the low cost travel segment.

The first deadline of April 2012 has been botched. It’s now been extended to October 2012 but there are still sceptics. Understandably, Fernandes is miffed by the delays which he says has somewhat disrupted his plans and led to the aircraft delivery deferment. At one point, it seemed as if he was threatening to move the airline’s headquarters to Jakarta. Since then, it has been clarified that it would just be an Asean office for now.

MAHB wants to remain focused on delivering the new terminal on schedule. What’s important to MAHB is not to compromise on the quality of the airport by rushing the job as safety and security are paramount.

But the existing LCCT is clearly bursting at the seams and the counters being handled by the airline which drives home the need for a bigger airport – faster.

The new airport is 40% complete and MAHB is rushing to complete it in 20 months. The Hyderabad Airport which is much smaller in size took 30 months to be completed.

Fernandes wants more hubs but MAHB has been accused of delaying the development of these hubs. KLIA2 is a massive project which is still under construction. Fernandes’ worry is that the deadline will not be met which could jeopardise the budget airline’s growth plans.

The superstructure’s initial cost was bandied at RM2bil but it could even swell to RM2.8bil or even RM3bil because the plans were changed and the airport is much bigger than originally planned. It is meant for over 30 million passengers.

“They are building a superstructure of the future. Why not build a nice airport that can cater for low cost and also future growth? There could be possible cost increases but the project is not completed? They are building a much bigger airport than originally planned. For now, the most important thing is to get the job done well. They are building Asia’s biggest low cost hub and they should be focusing on the product, the safety and comfort of passengers than looking at cutting corners,” says an industry source.

MAHB has a RM3.1bil facility for the development and has thus far drawn down RM2.5bil. It also has another RM1bil in hand for which it can use if the need arises. It has a 25 year lease agreement with the government over the land and as a concessionaire, it would have to pay the government fees for land usage which would be offset against the cost of developing of the airport.

In July, AirAsia carried 2.648 million passengers from 2.217 million a year ago. Of this the portion, 1.54 million passengers involved the Malaysian operations.

Fernandes wants an LCCT in Penang, Kota Kinabalu, Langkawi and every big city but he is not likely to get it for the governments feels AirAsia can still manage at the existing airports. “Only in this country, the airlines have a louder voice than the airports…but that is not the same in other countries where AirAsia operates,” says an industry source.

The numbers game

Having said that, MAHB has done fairly well to get airlines into Malaysia. The difference between Changi and MAHB is not wide. In terms of airlines that fly into their base, Changi has 68, KLIA 60, Bangkok’s Suvarnabhumi 94, Jakarta 37, Hong Kong 84 and Manila 32.

In terms of number of passengers, KLIA handled 34 million passengers last year compared to 42 million by Changi, 42.8 million by Suvarnabhumi and 44.4 million by Jakarta’s Soekarno-Hatta airport.

According to the Airport Council International (ACI), KLIA recorded 12.4% year on year growth for the first quarter 2011 versus Manila’s and Jakarta’s 12.8% each and Singapore’s 9.5%. KLIA is also listed as the 12 largest international airport in terms of international traffic volumes of 6.1 million for the same quarter. The top is London with 13 million passengers followed by Hong Kong (12 million), Dubai (12 million), Paris (11 million), Singapore 10 million. Bangkok is at the eight place with 9.5 million passengers.

Transit traffic is key for an airline to consider KLIA as a hub and AirAsia has championed that quite fruitfully. The low cost airline has boosted passenger growth numbers, not only in Malaysia but also greater Asia. Low cost travel, once not heard of in Asia, has become an important mode of transportation and the opening of routes by AirAsia by venturing into other markets bodes well for MAHB.

As often stated by Bashir: “AirAsia has done a good job and MAHB recognise what they have done in the past and we as an airport operator have done our part to support their needs.”

That also explains why even Singapore Airlines has set up a low cost long haul unit and Qantas’ low cost unit, Jetstar would be investing US$500mil to expand its operations.

Challenges ahead

One of the biggest challenges for the airport operator is to stick to its somewhat ambitious growth targets amidst a global economic environment that is weakening.

Other challenges include maintaining top quality service levels, meeting capacity constraints in the current LCCT, meeting the deadline of KLIA2 as well as managing demands made by airlines.

Analysts say cost optimisation would pose another challenge for MAHB as the nature of an airport business is one where ratio of variable costs to fixed costs is low.

The last few years have been very trying for the aviation industry. Last year, the aviation industry faced a number of disruptions, following the volcanic ash fiasco and after snow-related cancellations costing the industry billions of lost revenues. The year before saw the industry reeling from losses and dwindling demand due to the global recession.

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

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