AirAsia X will be Hit Hardest by PSC Increase

26th Sep 2016

In its report regarding the passenger service charge rate hike, Affin Hwang Capital said that AirAsia X will probably be hit hardest by the PSC increase. The report was released this Friday.

The report said:

While consensus has been expecting PSC hike by end-2016, we were surprised by the steep quantum, based on the figures quote by the Sun. Immediate impact could lead to passengers' volume loss for both airlines under our coverage. AirAsia X (AAX) is especially vulnerable to any load factor loss, given it has barely broken even in 2Q16. AirAsia will be impacted as well, but of lesser extent given its more intra-Asean centric portfolio.

The PSC increase was approved last week by the PM Cabinet. The new rates will be RM11 for domestic flights, RM 35 for ASEAN region and RM73 for international flights. At the moment, the rates are RM9 for domestic, RM32 for ASEAN and RM32 and RM65 for international flights out of KLIA2 and KLIA respectively.

PSC Change to Take Effect from 1^st Jan. 2017

The change was confirmed last Friday by Malaysian Transport Minister Liow Tiong Lai, who said the new rates will be implemented as of 1^st January, 2017.

Even though AAX is likely to be hit hardest by the hike, its parent company AirAsia will unlikely be significantly materially impacted, the report said.

Bulk of klia2 flights are still dominated by AirAsia Group with up to 98% capacity being deployed for the group, according to management. We do not have the breakdown of AirAsia capacity deployed on non-Asean routes, but it's unlikely to be substantial as a whole. AirAsia still runs on an intra-Asean business model and its capacity is unlikely to be materially impacted by the PSC hike.

The report also revealed that:

The new PSC rates attempt to standardize the charges at all airports in Malaysia, most notably the huge difference in KLIA and klia2. All categories will likely see an increase in the range of 9-128%, with the biggest quantum hike for international PSC (ex-Asean) in klia2. Apart from domestic and international categories, the new PSC rate structure will feature a new category for intra-Asean flights.

The report also said that it does not envision the 12 per cent increase in KLIA to materially disrupt passenger movements. The full service carrier passengers, the report reasons, will be less price sensitive than LCC passengers in KLIA2.