AIRASIA (5099) - Aviation Commission's review could yield unexpected results, says CIMB Research

KUALA LUMPUR (July 8): The review of passenger services charges (PSC) by the Malaysian Aviation Commission (Mavcom), a newly-formed aviation regulator, could led to an unexpected results, according to CIMB Research.

In a report July 7, the research house’s analyst Raymond Yap said that should Mavcom raise the long-haul international PSC at klia2, but reduce the short-haul international PSC, it will actually be beneficial to AirAsia Bhd as 68% of its seat capacity is deployed within the Asean region.

“However, we view this as improbable,” he said, but did not elaborate further.

Yap was referring to an article by The Edge Weekly in its July 4–10 issue, which reported that Mavcom is likely to complete the PSC review by later this year, and that klia2’s PSC will be segmented into international, intra-Asean travel, and domestic travel.

The news came amidst an urge to rename klia2 to LCCT (low-cost carrier terminal) by AirAsia and Malaysia Airlines Bhd’s intention to move “leisure flight” to the second international aviation terminal in Sepang.

Yap noted that both of these news were “not good” for Malaysia Airports Holdings Bhd (MAHB), because of the possible reduction of klia2’s intra-Asean travel PSC, which accounts for 47% of Kuala Lumpur International Airport (KLIA)’s traffic.

Nevertheless, he pointed out that MAHB may be able to get Marginal Cost Support (MARCS) compensation from the government due to the reduction in PSC.

While Yap agreed that if Malaysia Airlines move certain operations to klia2, it would use more services from two terminals. He reminded investors that if Mavcom narrows the tariffs differential between KLIA and klia2, the economic effect of moving will not be so attractive.

“Third, operating from two terminals reduces the ability of Malaysia Airlines to facilitate connecting traffic, as airside transfers between the two terminals are currently not available. Hence, we doubt that Malaysia Airlines will transfer significant traffic to klia2,” he explained.

Overall, Yap said AirAsia remains as his top pick in the Malaysian aviation space, with a target price of RM4.15.

“Recent developments in Turkey have dulled MAHB’s near-term earnings prospects.Our Add call on MAHB is dependent on it securing klia2 tariff hikes,” he said.

Yap’s target price for MAHB is RM7.80.

AIRASIA (5099) - Aviation Commission's review could yield unexpected results, says CIMB Research