KUALA LUMPUR: Malaysia Aviation Commission (Mavcom) is proposing to keep the airport tariffs or passenger service charges (PSC) the same as in 2021 and is seeking feedback from its stakeholders to support the idea. 

Kenanga Research said the proposal was made by Mavcom in its newly-released First Consultation Paper on the Long-term Framework for the Regulation of Aviation Services Charges paper published on Aug 10. 

"Mavcom proposes to keep tariffs status quo, held constant in real terms by inflating charges each year using CPI to be applied during Regulatory Period 1 (RP1) that is to run from Jan 1 2023 to Dec 31 2025 which is less favourable as compared with the one proposed back in 2019," it said in its analyst report.  

Kenanga Research said Mavcom viewed that the cost-based approaches to setting tariffs would be impractical for RP1 when demand was low and uncertain as the sector continued its slow recovery. 

Demand over the course of RP1 will continue to be below pre-pandemic trends, meaning that average costs will likely be higher than those seen before the pandemic. 

"As such, there's a significant risk of understating or overstating Malaysia Airports Holdings Bhd (MAHB) average costs. This could result in a significant increase in tariffs.

"We believe the framework is to ensure that the airport operator does not take advantage of its dominant market position to either offer sub-standard service quality or charge exorbitant tariffs."

"Nevertheless, in our view, Mavcom has to set a reasonable tariff rate given the urgency for airport expansion and maintenance capital expenditure (capex) in Malaysia to enable MAHB to accumulate the required cash for capex purposes." Kenanga Research added. 

In the event that MAHB incurred losses due to the slow recovery for air travel post pandemic, Mavcom proposed two mechanisms – RP1 and RP2. 

Under RP1, a "loss accumulation mechanism'" proposes to keep track of the financial losses made by MAHB over the regulatory period and allows for claw back under RP2, which starts from Jan 1 2026 to Dec 31 2028. 

Under RP2 and beyond, MAHB will start recovering the losses incurred in RP1 over a 10-year period starting in Year 1 of RP2. 

Kenanga Research viewed that MAHB's earnings and cash flows were back-loaded which were needed for its airport capex plans. 

"As suggested in the consultation paper, Mavcom will bear 90 per cent of the cumulative losses and MAHB the remaining 10 per cent. MAHB will be able to recover the 90 per cent of the loss over time starting from Year 1 of RP2."

"Similarly, MAHB will forego 90 per cent of the profits achieved in RP1 which would be returned to customers in the form of lower airport charges in the future and only retain the remaining 10 per cent," Kenanga Research said. 

Currently, the airport tariff or PSC for passengers departing to Asean destinations is RM35 per passenger and RM73 per passenger who are flying to non-Asean destinations. 

Meanwhile, Kenanga Research has cut MAHB's future net profit in its financial year 2023 by 10 per cent based on a lowered passenger numbers from 108 million to 100 million. 

It also downgraded its target price from RM7.65 to RM6.05. 

MAHB's share price closed at RM6.22 on the main market of Bursa Malaysia yesterday.

https://www.nst.com.my/business/2022/08/822575/mavcom-opts-status-quo-over-airport-tariffs