Changes in PSC marks policy uncertainty for aviation industry, analyst warns

by DASHVEENJIT KAUR

THE last minute change in passenger service charge (PSC) reflects policy uncertainty and inconsistency which is not ideal for investors, said Maybank Investment Bank Bhd analyst Mohsin Aziz.

“The action raises concerns as the original objective is to make the industry self-finance, but now in favour of a consumer-based measure (they are) keeping charges low,” he said in a research report recently.

Mohsin added that although passengers and airlines collectively will be able to save RM200 million per annum and as the news appears neutral from a financial standpoint for Malaysia Airports Holdings Bhd, in reality the latter is likely to be disappointed as airports tend to suffer over the longer term when there is policy uncertainty.

Last week, the government announced that the PSC rates will be RM50 in all airports except Kuala Lumpur International Airport (KLIA) beginning Oct 1.

The PSC rate for passengers travelling to Asean countries and domestic destinations from all airports in Malaysia remains at RM35 and RM11 respectively.

Transport Minister Anthony Loke said the government will search for several funding models such as Regulated Asset Base (RAB) and other models for airport development projects.

While the lower PSC is supportive of passenger traffic growth, Mohsin said it also undermines industry reform measures.

“This is because for the past two years, the Malaysian Aviation Commission has engaged with the industry stakeholders to implement the RAB framework beginning 2020, which will help determine airport charges.

“The framework renders a weighted average cost of capital of 8.3%, which we believe is fair. Additionally, they understand that it is (still) two months away from being gazetted at the upcoming October Parliament sitting,” he said.

Mohsin added that with the lower PSC, the overall tax collection from the industry will be insufficient and the government will need to draw from its own funds to sustain the industry.

This, he said, raises questions about the industry’s ability to invest in infrastructure development as a result of insufficient revenue.

“Low prices alone do not ensure success as Malaysia has always been one of the cheapest places in Asia Pacific for an airline to operate, while it has trailed the growth rates of Thailand and Singapore.

“Furthermore, only KLIA and Kota Kinabalu International Airport have managed to break into the international scene meaningfully, whereas other airports have remained a predominantly ‘local’ only airport,” Mohsin noted.