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PETALING JAYA: The proposal by the Malaysian Aviation Commission (Mavcom) to raise airport tariffs based on the consumer price index (CPI) with effect from regulatory period 1 (RP1) covering the 2024-2026 period is positive.
However, this may not raise enough cash for Malaysia Airports Holdings Bhd
(MAHB) for capital expenditure (capex) purposes, particularly, for airport expansion and maintenance, according to Kenanga Research.
The proposed airport tariffs were revealed in Mavcom’s newly-released Second Consultation paper on the long-term framework for the Regulation of Aviation Services Charges.
This proposal was not in the first consultation paper revealed back in August 2022.
However, the research firm said this is just a second consultation framework and not cast in stone as the commission is also seeking feedback from stakeholders.
For 2024, Mavcom has proposed to raise the tariff for passenger service charge (PSC) to RM11.76 (plus 6.9%), RM37.10 (plus 5.7%) and RM78.03 (plus 6.9%) for domestic, Asean and non-Asean flights.
Under the proposal, they are slated to rise to RM12.03, RM38.27, and RM79.83 for 2025, while for 2026 to RM12.32, RM39.19 and RM81.74 for domestic, Asean and non-Asean flights, respectively.
All things being equal, Kenanga said the proposed PSC rate is expected to raise it financial year 2024 forecast net profit for MAHB by 5%.
“Mavcom’s view is consistent with the First Consultation paper that cost-based approaches to setting tariffs would be impractical for RP1 when demand is low and uncertain as the sector continues its slow recovery, hence demand over the course of RP1 will continue to be below pre-pandemic trends, meaning that average costs will likely be higher than those seen prior to the pandemic,” the research firm said in a report.
As such, it added that there is a significant risk of understating or overstating MAHB’s average costs.
“This could result in a significant increase in tariffs.
“We believe the framework is to ensure that the airport operator does not take advantage of its dominant market position to either offer substandard service quality or charge exorbitant tariffs,” said Kenanga Research.
The research house noted that the commission proposes to reassess the timing of this transition prior to the start of RP2 (from 2027 to 2029).
Nevertheless, the research firm said in its view, Mavcom has to set a reasonable tariff rate given the urgency for airport expansion and maintenance capex in Malaysia to enable the group to accumulate the required cash for capex purposes.
Kenanga Research said that in anticipation that MAHB is expected to incur losses following the slow recovery for air travel post pandemic, Mavcom had proposed two mechanisms.
The first is to apply a loss capitalisation mechanism in RP1, which will allow MAHB to recover 90% of any efficient loss it incurs in RP1.
According to Kenanga Research, the commission will estimate the loss in each year of RP1 individually, before considering the cumulative losses over the whole period. “This loss or gain does not refer to MAHB’s accounting profit, such as its earnings before interest and taxes .
Rather, the loss refers to the difference between: an estimate of the revenue that MAHB would require over RP1 to cover its prudent and efficient costs as well as the revenue MAHB will actually earn over RP1 from the imposition of aviation service charges,” it explained.
It added that essentially, the actual revenue will be based on MAHB’s total airport operations revenue which includes both aeronautical and non-aeronautical revenue. The commission also proposes that the losses are recovered over a period of 10 years starting in year one of RP2.
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