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PETALING JAYA: The proposed airport departure levy announced in Budget 2019 will have a negative impact on the local aviation industry, said RHB Research analyst Stephanie Cheah.
“What is unclear now is who will bear the brunt of the negative impact, be it Malaysia Airports Holdings Bhd (MAHB) or the airlines. On one end of the spectrum, if airlines decide to absorb the cost and lower airfares, this will translate negatively to airlines’ yields and profitability,” she said in her report last Friday.
Cheah said if airlines decide to maintain fares, they may still be hit in terms of load factor while MAHB will see its passenger volume growth decline.
According to her, the airlines are likely to absorb a portion of the departure levy, balancing between the impact on yields and load factors while the airport operator will be negatively affected by lower passenger volumes but to a less extent.
The departure levy, which comes into effect on June 1, is set at RM20 per passenger for Asean destinations and RM40 for others.
Meanwhile, Cheah said the establishment of an airport real estate investment trust (REIT) will reduce the capital expenditure burden on MAHB. “But at the same time it could also compete with MAHB in terms of financing choices for its projects, which could limit MAHB’s growth potential under the Regulated Asset Base (RAB) framework.”
Cheah said the higher cost of funding from the REIT giving rise to higher user fee is not a major red flag for MAHB as the cost will be accounted for in determining the necessary aeronautical tariffs to recoup its fair return under the RAB framework.
“However, the same cannot be said for the airlines, which will be impacted by resulting higher aeronautical tariffs.”
Last Thursday, the Malaysian Aviation Commission said in a commentary that the two proposals, if not designed carefully, could materially constrain the development of the RAB framework and the renegotiation of the operating agreement between the government and MAHB.
The key issues highlighted in relation to the proposed REIT include the complexity of land ownership of the land on which the airports are located and the possible risk of airport charges being subjected to artificial upward pressure by the REIT’s yield requirements. It also said the government risks contravening the International Civil Aviation Organisation guidelines and international good practices with the proposed departure levy, if the proceeds are not ploughed back into the industry and a similar tax is not imposed on other modes of transport.
PETALING JAYA: The proposed Airport Real Estate Investment Trust (Airport REIT) and departure levy could materially constrain the development of the Aeronautical Charges Framework/Regulated Asset Base framework (RAB Framework) and renegotiation of the Operating Agreement.
The two proposals, if not carefully designed, could affect the RAB Framework and Operating Agreement which seek to resolve issues surrounding airport development funding, industry investment, airport planning, capital expenditure (capex) discipline and quality of service.
In its 2019 Budget Commentary, the Malaysian Aviation Commission (Mavcom) commended the government’s commitment to only embark on the proposed REIT after the RAB Framework and Operating Agreement between government and Malaysia Airports Holdings Bhd (MAHB) are concluded.
However, one of the key issues that remain before the airports are injected into the REIT is the complexity of the ownership of the land on which these airports are located, as some airports sit on land with multiple ownership structures.
“This is potentially an operational issue requiring resolution prior to inclusion of any airport asset into the proposed REIT,” it said.
It noted that the REIT’s yields and attractiveness to potential investors would be linked to the level of airport charges of those airports under the REIT, thus airport users including passengers and airlines, will need to be cautious of the possible risk of airport charges being subjected to artificial upward pressure by the REIT’s yield requirements.
While the government’s proceeds arising from the REIT could be used to fund or subsidise MAHB’s capex requirements for future airport developments, it could also undermine the long-term capital planning process improvements being pursued by the RAB Framework and the new Operating Agreement.
In addition, there is lack of clarity on the utilisation of the initial RM4 billion proceeds of the REIT and the REIT could be a costlier source of funding for the government compared with other modes of financing.
Meanwhile, the government risks contravening the International Civil Aviation Organisation (ICAO) guidelines and international good practices with the proposed departure levy, if the proceeds are not ploughed back into the industry, and a similar tax is not imposed on other modes of transport.
The ICAO guidelines state that any cost imposed on the air traveler should be used for the benefit of the aviation industry and any collection without the intention to recover the costs of providing facilities and services for the civil aviation sector, is considered as a form of tax.
The government will also need to institute discipline to retain the levy at its proposed introductory rates, to avoid consumers from being charged higher amounts in the future and render Malaysia as a costlier place to fly from.
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KUALA LUMPUR: The Malaysian Aviation Commission (Mavcom) saw a 38.1% increase in number of complaints from consumers in the first six half of the year, compared to the same period last year, indicating an increased level of awareness among travelers.
The fourth issue of the aviation commission’s Consumer Report said out of the 858 consumer complaints received, it successfully resolved and closed 99.4% of total complaints throughout the six-month period.
Of that 53.0% of the resolved complaints resulted in the airlines reversing its initial decision for a resolution in favour of the consumers.
Mavcom continued to showcase its high success rate in terms of resolving complaints amidst the increase in the number of complaints lodged.
For every one million passengers carried, Mavcom received an average of 20 complaints in the period under review.
Compared to the same period in the previous year, there has been an increase recorded for almost all categories of complaints.
Mishandled baggage, processing of refunds and flight delays taking the top three categories of complaints, collectively accounting for 57.4% of total complaints encountered.
Malaysia Airlines accounted for 49.8% of the total complaints, with 427 complaints from 317 last year.
Meanwhile, AirAsia recorded 22.4% or 192 of the complaints received, while Malindo Air's share of complaints grew to 119 from 106 or 12.3%.
“While we are tasked with the economic regulation of the aviation sector, our mandate includes protecting the interests of consumers as well. We are glad to note a marked improvement in the level of consumer awareness as evidenced by the increase in the number of complaints received by the Commission. The Commission will continue to ensure that consumer complaints are addressed, resolved and closed expeditiously,” said Mavcom Executive Chairman Dr Nungsari Ahmad Radhi.
“The Consumer Report is a regular publication of the Commission that also provides consumer feedback to the service providers in the industry as a means for them to improve levels of service quality,” he added.
The report provided a detailed look at the types as well as the frequency of complaints by consumers pertaining to both airlines and airports operating in the sector.
The report also detailed the Commission’s latest consumer-centric initiative, FlySmart, in line with MAVCOM’s efforts to heighten the level of awareness among consumers of their rights throughout Malaysia. Information on the Commission’s Quality of Service (QoS) Framework aimed at improving service levels at airports in Malaysia, was also detailed in the report.
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