PSC and departure levy have mild effect on AirAsia


THE collection of the passenger service charge (PSC) in full by AirAsia Group Bhd and the implementation of the departure levy are not expected to significantly impact the earnings of its low-cost carriers (LCCs), AirAsia and AirAsia X Bhd, in the short run, analysts observed.

In a statement last Thursday, the LCC group said it will collect the increased Kuala Lumpur International Airport 2 (KLIA2) PSC levied by Malaysia Airports Holdings Bhd (MAHB) for flight bookings following a recent court ruling.

MIDF Research analyst Adam Mohamed Rahim said there may be a slight dampening of sentiment on the collection of the PSC by AirAsia in the short term, but added that it should not be something to worry about among investors.

AirAsia carried 11.6 million passengers (departing and arriving) from KLIA2 in 2018.

The additional PSC of RM23 is only for non-Asean destinations, hence the passengers who will have to pay are the ones on the India and China routes, he said.

“Assuming the split of India and Japan combined to Asean destinations is 24:76, thus the passengers who have to pay the additional PSC is roughly 1.4 million passengers out of 5.8 million departing passengers (assuming arrivals and departures are 50:50 from the total of 11.6 million passengers carried at KLIA2).

“Henceforth, the number of passengers affected by the additional RM23 PSC moving forward will not be that much if compared to AirAsia X,” Adam noted in an email to The Malaysian Reserve recently.

Adam added that if AirAsia were to pay back the uncollected PSCs from July 2018 to July 2019, estimated to be around RM25 million, the company’s financial health would not be adversely impacted as the charges make up less than 1% of AirAsia’s cash pile as of March 31, 2019.

In 2018, AirAsia X carried 5.6 million passengers from KLIA2 (departing and arriving). Assuming the ratio of departing and arriving passengers is 50:50, the number of departing passengers flying with AirAsia X from KLIA2 would be around 2.8 million passengers (all non-Asean), he said.

“In the event that AirAsia X would have to reimburse the RM60 million worth of uncollected PSC to MAHB from July 2018 to July 2019, the impact would not be material to AirAsia X’s day-to-day operations, as the company has generated a net operating cashflow of RM74.5 million, if it were to divide the total amount on a quarterly basis,” he said.

On the imposing of the departure levy, Adam said the percentage of the departure levy charged from the total flight ticket is rather insignificant based on MIDF analysis.

“For LCCs such as AirAisa and AirAsia X, the percentage of departure levy from the total ticket price is still immaterial at 1.5% on average for normal fares. 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,” he said.

AirAisa and AirAsia X are expecting to release their second-quarter (2Q19) results by the end of this month.

Adam said both carriers could see slightly better earnings amid cheaper jet fuel prices in 2Q19 which are lower by 8.1% year-on-year in addition to its prudent hedging policies.

MIDF has a ‘Buy’ call on AirAsia with a target price (TP) of RM2.39 and a ‘Neutral’ call on AirAsia X with TP of 22 sen. AirAsia’s shares closed the week at RM1.88, while AirAisa X settled at 21 sen.

Adam foresees AirAsia and AirAsia X benefitting from the Visit Malaysia 2020 campaign, especially by being LCCs and focusing on the Greater China market.