Loke shaking up aviation sector

Minister says government mulling restructuring regulatory agencies in air transport

TRANSPORT Minister Anthony Loke (pic) is certainly making waves.

Just this week, he said that there would be no new low cost air terminals (LCCT) to be built in the country for now.

A day later, he said that he was looking at alternatives to the regulated asset-backed (RAB) framework that was meant to come into place in January next year. The RAB is a model in which airlines and their passengers will be charged based on the airport operators’ cost of developing airports.

The Transport Minister also talked about a possible restructuring of two regulatory bodies in the aviation space.

Talk of halting the development of LCCS is based on the notion that any decision for new investments must strictly be demand driven. Furthermore, more can be done with existing airports before big investments are made into developing new ones.

That talk though must have jolted Airasia Bhd’s chief Tan Sri Tony Fernandes.

Fernandes has always held the view that low cost airlines should operate from low cost air terminals.

It is a well known fact that Fernandes has big ambitions for Airasia and would prefer if dedicated LCCTS were built everywhere the airline flies to.

Fernandes has expressed his intention before of Airasia having its own air terminal, which still holds true to today.

It does seem like his vision would be of having a modern, fully automated, tech friendly airport that can fit all his travelers. And a place where travelers will not have to walk very far to reach the gates for departure.

But Loke has pointed out that having visited airports abroad, including the UK, he has come across airport operations which are “combined”. These are airports that cater to both full service carriers and low cost carriers.

But he did say that “the needs of low cost carriers must be understood and implemented by airport companies.’’

That though, may be easier said than done.

Airasia and Malaysia Airport Holdings Bhd (MAHB) have struggled to agree on many issues. Their arguments and disagreements over the years have now spilt into the courtrooms. An industry executive has this to say about the situation:

“Both parties need to come to terms and avoid these unnecessary arguments. They should instead focus on how to bring more traffic and make the airport competitive alongside Singapore and Bangkok.’’ That does not seem to be the case.

On Thursday, Airasia again complained about the “poor design and flawed configuration at KLIA2’’ that was causing long queues at the immigration counters that resulted in some passengers missing their flight connections.

In response, MAHB issued a response saying it was a ‘isolated incident as typically the immigration clearance at klia2 on average is within 10 minutes.’’

Notably, Airasia is suing MAHB for Rm480mil for losses and damages incurred while operating at klia2 and the suit was filed last week.

This though is a counter-suit after MAHB filed and won a suit against Airasia to recover a shortfall in PSC (passenger service charges) incurred from July-december last year. Airasia had earlier taken it upon themselves to reduce the PSC to RM50 during that period. MAHB had sued for the shortfall, as the originally stipulated fee was RM73 per passenger.

Talking about the PSC, it was Transport Minister Loke who reduced the rates in August this year although he was ticked off by Mavcom for doing so. Loke announced the reduction of PSC from RM73 to RM50 for international travel out of all Malaysian airports except KLIA and those traveling to Asean.

This may be a small cheer for travelers but is seen a step in the right direction by several experts.

“It is simple. The airport needs airlines and airlines need airports. They can continue to be high handed towards each other but the loser is the country in terms of tourism receipts. Being an airline, Airasia can put its planes in any other country and make the connections from there, but the airport cannot do that, it will just lose a big customer. Both parties should end their disputes and focus on making travel seamless for travelers,’’ says the executive.

RAB and regulators

There was a knee jerk reaction to MAHB shares after reports emerged that the government was looking at alternatives besides the RAB framework for future development of domestic airport.

The idea is to adopt the public-private partnership model for airport operations and developments going forward. That would encourage new players including foreign parties, to partner with MAHB to operate domestic airports.

RAB is said to be a funding mechanism for MAHB to spend on local airport development within a regulated period. The capital investment will lead to the level of how much aeronautical charges MAHB can impose on airport users.

It is something Mavcom wants implemented by January 2020. However, the final paper which is supposed to be out on October 1 has yet to be published.

MAHB controls 39 of the 40 airports in the country.

“The RAB is very centric towards the infrastructure cost, hence the beneficiary would pretty much be MAHB. Elements of multiplier effect, etc which is predominantly airlines driven are not factored in. The model adapted is very Europe centric,’’ an industry executive says.

An analyst added that “with the RAB model, fees will be higher and it would be profitable for airports. It would lead to higher (PSC) charges for travelers and that is not palatable.’’

Minutes into trading on Friday saw MAHB’S share price fall to RM7.61 from RM7.98 a piece.

However it closed the day higher by nine sen to RM8.13 a share. Its shares have dipped from a high of RM8.69 from a day ago.

“The once safety net of having operating agreements which was supposed to be strengthened via the RAB implementation now faces uncertainties for MAHB,’’ says an industry executive.

RHB Research has maintained its “buy’’ call on MAHB. The research house believes that the selling of MAHB’S shares has been overdone as “a lower PSC charge is likely to be neutralised by a decrease in user fees payable to the government.’’

“We estimate that it could take another one to two years to come out with a new framework, as it involves many stakeholders. Hence, we believe there is still a likelihood that the RAB framework will still be implemented, although the details may change, for example, its validity may only apply for Phase 1, which covers the 2020-2022 period.

“The selldown has lowered MAHB’S valuation to 22.6 times in FY20 price earnings (PE) multiple, which means that most of the negatives have already been priced in,’’ it adds.

As for the regulators, there are currently two regulators governing the industry with the Transport Ministry itself overseeing the entire industry.

Loke, during a closed door luncheon session with fund managers this week, said the government was considering the restructuring of regulatory bodies in the air sector. The two regulators are Civil Aviation Authority of Malaysia (CAAM) and Mavcom.

“There are some overlaps and with the privatisation of CAAM, it makes sense for Mavcom to be merged into CAAM. This will result in a an integrated regulator,’’ says an industry executive.

This forms a thrust of the National Transport Policy 2019-2030 that was launched this week as there are some overlapping of functions between the agencies.