Breaking down MAHB’s dominant role

Some may view this as a monopoly, but it is not as simple as that, says acting group CEO

With the new government pushing forward to break up monopolies for the benefit of the people at large, the management of the airports in Malaysia has come into focus.

Here, Malaysia Airports Holdings Bhd (MAHB) plays a rather dominant role deemed as monopolistic by some quarters.

The public-listed company badges itself as one of the world’s largest airport operator groups in terms of number of passengers handled. It manages and operates 39 airports in Malaysia and one international airport in Istanbul, Turkey.

It has an operating agreement in place with the government, to manage the 39 airports in Malaysia comprising five international airports, 16 domestic airports, and 18 short takeoff and landing ports (STOLports) in the rural areas.

With such a seemingly commanding position, it is hard for MAHB — a government-linked company, with Khazanah Nasional Bhd holding a 33.2% stake as at end-March 2018 — to dodge the monopoly issue.

In an equity research report released by Maybank Investment Bank Bhd dated July 16, for example, the idea of having the monopoly gets mention.

Listing out some of the company’s value propositions, the report said MAHB has exposure to Malaysia’s air travel industry, as well as a “virtual monopoly over the country’s airport chain with no risk of a new competitor”.

Cross Subsidisation

When met recently, MAHB acting group CEO Raja Azmi Raja Nazuddin (picture) said the issue is not so straight forward as the airport operator actually oversees a network of airports — both profitable and non-profitable.

“Some may view this as a monopoly, but it is not a simple as that. Not only are we operating a network of airports, but we are also operating in a highly regulated environment where the charges are controlled.

“There is a degree of cross subsidisation that needs to happen in order to sustain the network of connectivity for the whole country. Domestic airports also serve as feeder to the international airports in the hub and spoke model,” he told The Malaysian Reserve.

To begin with, he said a large number of the domestic airports are non-profitable entities. Under the current regime, the airport operator believes it has a “balanced mix”, with about eight airports being profitable.

He said STOLports, for example, are operated on a purely corporate responsibility basis where MAHB does not collect any passenger service charge at all, from about 165,000 of passengers that use it annually.

“The cost of running these airports far outstrips the charges that we are allowed to collect from the total number of passengers that use the airport annually

“This network model means that we cannot cherry pick the airports, and it is our duty to ensure that we serve the interior, particularly in Sabah and Sarawak, in terms of connectivity, in order for the rural communities to have access to basic amenities such as education and medical supplies,” he said.

However, he said STOLports are becoming more important destination points for inbound eco-tourism into the country.

Passenger Service Charge

One of the key income drivers is the passenger service charge (PSC). At the current juncture, there are three categories of PSC: RM11 for domestic, RM35 for Asean and RM73 for international, all determined by regulator Malaysian Aviation Commission.

In 2017, Raja Azmi said MAHB registered about 15 million passenger traffic movements at its domestic airports, “barely sufficient” to cover the operating costs of these airports.

“The Asean PSC is among the lowest in this region and in the world,” he said.

Formerly known as airport tax, the PSC is paid by departing passengers. The PSC is collected by the airlines upon purchase of tickets, and is only paid to MAHB upon completion of the flight. Passengers, who do not travel on the flight for which they have purchased the tickets, are eligible for a full refund for the PSC from the respective airlines concerned, according to information at MAHB’s website.

Capturing Future Growth

Airport managers in this part of the world also have to contend with the fact that they need to continuously increase their aviation infrastructure capacity to take advantage of the growth that is centred in the AsiaPacific region.

MAHB is now mid-way of its fiveyear business plan, Runway to Success 2020 (RtS2020), which charts its business direction till 2020. It was a follow-through from its earlier fiveyear business plan, Runway to Success 2010-2014, which was said to have established MAHB as “a worldclass airport business”. It also maps out its ambition to be the global leader in creating airport cities.

RtS2020 places priority on establishing the Kuala Lumpur International Airport in Sepang, Selangor, as a preferred Asean hub, improving airport experience for all stakeholders, developing the aeropolis and expanding its presence overseas. It is aimed at shaping the Malaysian aviation industry landscape and at the same time, contributing to the nation’s wealth-building efforts.

With the objective of positioning Malaysia as a global hub, Raja Azmi said MAHB is not against healthy competition.

“When you want to be a global hub and provide high quality service, airport capacity has to be available when demand comes,” he said.

This can be achieved in a number of ways. In the case of neighbouring Singapore’s Changi Airport, it charges S$30 (RM89) for airport tax and S$6 for aviation levy. But there is more — Changi Airport’s passengers pay S$10 for an airport development fee to fund the future development of its Terminal 5.

“It’s important to have an operating model that is sustainable for the country that will allow the airport operator to provide the right level of capacity, infrastructure and services.

“There may be differing views on how to achieve this, but the fact remains that we have contributed to the significant growth in Malaysian aviation over the past 25 years,” he said.