MAHB positive departure levy won’t impact passenger traffic growth

The airport operator says it will be able to keep its passenger flow as the govt relaxes visa policies for Chinese and Indian nationals


THE departure levy, which is set to be implemented next month, will not have much of an impact on the passenger traffic growth at Malaysia Airports Holdings Bhd’s (MAHB) airports as the levy’s portion of the total flight ticket cost is rather insignificant.

MIDF Research in a note on Monday said the departure levy is one of the lowest compared to Hong Kong, Bangkok and Australia.

“Malaysia still has the lowest departure levy for economy class passengers (for both Asean and non-Asean destinations) and premium class passengers (for Asean destinations).

“We noted the levy for premium class passengers flying to non-Asean countries is only lower than what is charged in Australia,” the research firm said.

MIDF believes the departure levy will not have a dampening effect on passenger traffic growth and MAHB will be able to maintain its passenger growth trajectory as the government relaxes visa policies for Chinese and Indian nationals visiting Malaysia in conjunction with “Visit Malaysia Year 2020”.

Last week, the government gazetted the departure levy which will take effect on Sept 1, 2019.

The rates gazetted differ from what was proposed in Budget 2019, whereby there was no classification between economy and premium class passengers.

The initial proposed departure levy announced in Budget 2019 would have seen passengers travelling on all classes paying RM20 for flights to Asean countries and RM40 for non-Asean destinations.

Now, according to the Departure Levy (Rate of Departure Levy) Order 2019, passengers flying in economy class to Asean destinations will be charged RM8 and RM20 for flights beyond Asean.

Passengers flying on classes except economy to Asean destinations will be charged RM50 and RM150 for those flying to destinations beyond Asean.

Exemptions include infants below 24 months, crew on duty on board an aircraft and transit passengers not exceeding a 12-hour time frame.

MIDF Research noted passengers flying in premium class will have to pay a departure levy which is six times more than that paid by a passenger in economy class.

“In other words, premium class passengers will subsidise economy class passengers given their assumed higher purchasing power,” the research house said.

Based on its analysis, MIDF Research said the percentage of the departure levy charged from the total flight ticket is insignificant.

For instance, for full-service carriers such as Malaysia Airlines Bhd, the departure levy makes up around 1.1% and 2.5% on average of the flight ticket price for economy class and business class passengers respectively.

The portion of the departure levy from the total ticket price would be smaller for destinations such as Europe and North America, the research house said.

For low-cost carriers such as AirAsia Group Bhd, the departure levy accounts on average 1.5% of total ticket price.

“Although the percentage is slightly higher at 3.7% for premium flatbed passengers, it is important to note that seats for this class constitute less than 5% of total seats offered for sale,” the research firm said.

The government has yet to give details on how the levy will be collected.

MIDF Research opined two possible scenarios on how the departure levy maybe collected.

“In the first scenario, the international departure levy would be collected at airports for passengers who purchased the flight tickets prior to the implementation date. Tickets bought post-implementation date will already have the levy priced in the airfare,” MIDF Research noted.

Another scenario would be an exemption for passengers leaving on or after the implementation date using an air ticket issued/purchased before that date.

The latter scenario was adopted by Japan for its ¥1,000 (RM39.41) departure tax effective Jan 7, 2019.

The International Air Transport Association believes the departure levy would reduce the number of international air passengers departing Malaysia by up to 850,000 per year.

This would decrease the aviation sector’s GDP growth contribution by up to RM1.7 billion.

“The impact on MAHB’s passenger service change collection would decline by roughly RM46.7 million, which is less than 1% of MAHB’s revenue estimates for the financial years 2019 (FY19) and FY20.

“Our analysis assumes that 47% of international passengers depart for Asean destinations while the remaining departs to destinations beyond Asean,” the research house said.

MIDF Research reiterated its ‘Buy’ call on MAHB with an unchanged target price of RM9.43 per share as it was optimistic MAHB passenger numbers will surpass the 100 million mark in 2019 to 102.5 million passenger movements.

“As such, we opine the recent sell-down of MAHB shares were unjustified and present an opportunity for investors to accumulate,” the research firm said. MAHB rose 27 sen or 3.28% to RM8.51 in volatile and active trade yesterday.