KUALA LUMPUR: The new passenger service charge (PSC) and departure levy are not expected to significantly affect AirAsia Group Bhd’s pricing power moving forward, notwithstanding stiff competition from full-service carriers.

When contacted, Modalis Infrastructure Partners associate director Khair Mirza told The Edge Financial Daily that he does not foresee any single airline to be significantly impacted by the new PSC and levy in terms of pricing.

“Because the PSC and departure levy apply across all airlines, they will correct market irregularities, in line with global practices, so that they will be on a level playing field,” he said.

“In the last two years, we saw that AirAsia also has had corporate customers, they [also] have the Big Loyalty Programme and preferred seating, so they (AirAsia) know they are not just targeting price-sensitive customers,” he added.

Although the new PSC and departure levy result in higher travelling costs, Hong Leong Investment Bank research analyst Daniel Wong does not expect them to discourage passengers — at least not a substantial number — from flying AirAsia.

“AirAsia may take some time to pass on the full PSC and levy to passengers, so initially their pricing power may be slightly affected. But we do not see a material impact from them, and we think only a small percentage of people would decide whether to travel or not, based on the government charges,” he said over the phone.

Another analyst, who declined to be named, however, is of the opinion that the new tax structure for air travel would affect AirAsia’s price marketing.

“People may be used to seeing their advertisements, that markets, for example, a RM200 to RM300 (one-way) to some Asean destination. These price tags would be higher under the new tax structure. But the market will get used to it over the long term, and it will not affect AirAsia’s price competitiveness because all the other airlines have to pay the same tax rate and publish a higher price tag for the same destinations,” he explained.

The Departure Levy Bill 2019 was passed by Parliament in April. It is understood that the government intends to start imposing the tax from September, tiered based on seat classes and destinations, with rates ranging from RM8 to RM150.

Meanwhile, the Malaysian Aviation Commission is gathering public feedback on a new PSC to be imposed on transit passengers, as well as a new PSC structure — where rates are segmented by four geographical clusters — before making a decision on the issues by October this year.

In a note to investors last week (June 26), Nomura Research’s Ahmad Maghfur Usman and Divya Thomas said Malaysia Airports Holdings Bhd’s (MAHB) regulated asset-base model framework poses upside risks to airport landing and parking and PSC.

“The latter (PSC) will consequently put pressure on airline yields, as they partly subsidise the cost increase on their side to make air tickets more affordable in order to stimulate growth. However, with airport clusters being introduced, PSC charges may vary, and this could pave the way for yield-enhancement opportunities for AirAsia, of which we believe the carrier would have a greater market share,” the two wrote.

“Despite the increase [in travelling cost], however — as this charge (departure levy) will hit all departing passengers on a blanket basis — we think demand for air travel may only see a mild hit to growth, as the levy represents only a small amount compared to air fares and overall travel expenses,” they added.

AirAsia has often been at loggerheads with MAHB over PSC collection, so much so that both parties have taken the issue to court for a resolution on the appropriate rate to charge passengers for passing through klia2.

https://www.theedgemarkets.com/article/airasias-pricing-power-seen-unaffected-new-psc-levy