Analysts: AirAsia clear winner in LCCT relocation

Analysts: AirAsia clear winner in LCCT relocation
By Kang Siew Li
Published: 2008/12/23

AirAsia Bhd (5099) is expected to emerge as the main beneficiary from the move to set up and operate a new low-cost carrier terminal (LCCT) in Labu, Negri Sembilan, due to potential savings from lower airport charges, say analysts.

On the flip side, Malaysia Airports Holdings Bhd (MAHB) stands to lose the most, with some analysts estimating the airport operator could forego as much as RM175 million in aeronautical revenue per year.AirAsia shares rose as much as 3.8 per cent to an intra-day high of RM0.965, before closing unchanged at RM0.93 yesterday, after the government on Friday gave its nod to the new LCCT by conglomerate Sime Darby Bhd and AirAsia.MAHB shares closed up three sen or 1.4 per cent to RM2.23.

A source close to the matter told Business Times that AirAsia could grow its business faster by having its own airport."The carrier has been growing its business successfully with passenger numbers increasing by double digits each year. However, it could have grown at a significantly faster rate were it not for the limitations on capacity at the current LCCT (which can only handle 10 million passengers)," the source said.

It is understood that the LCCT in Labu could also be ready earlier than MAHB's proposed expansion plans in Sepang."It takes much longer for MAHB to move its permanent LCCT plan forward because it is dependent on the government for funds. However, that won't be the case for the new airport in Labu since it is a private sector-driven initiative," the source added.

OSK Research Sdn Bhd analyst Ng Sem Guan sees AirAsia as the clear winner from the latest move."AirAsia may bring down the cost of running the new airport based on its low operation costs model, but with current budget passengers already enjoying lower passenger service charges (PSC) and passenger service security charges (PSSC) from MAHB, we are doubtful that the quantum of savings will eventually be passed on to the passengers," he wrote in a report yesterday.

On top of that, AirAsia also enjoys various incentives in the form of lower or free landing and parking fees for introducing new routes."Thus, the new airport may not necessarily result in significantly lower cost although we would rather think that the company may continue to lower operating costs similar to the previous years," said Ng, upgrading AirAsia's fair value to RM0.93 and its recommendation to "neutral" from "sell".The AirAsia group (comprising AirAsia Bhd, Thai AirAsia, Indonesia AirAsia and AirAsia X) is currently the major user of the present LCCT-KLIA (in Sepang), having carried 7.6 million passengers last year, a combination of domestic and international traffic."As the figures are likely to exceed 10 million (passengers) this year or later next year, and continue to grow by double digits based on (AirAsia's) aggressive aircraft purchases, we estimate that MAHB may lose as much as RM80 million in revenue solely on PSC and PSSC," Ng said, adding that the number would be greater if landing and parking charges were included.

Ng believes the airport operator will not merely sit back and will seek government compensation if the new airport in Labu is to be operated by AirAsia upon completion."While there is no immediate impact on MAHB's bottomline in the near future as the new airport is only expected to commence operation in February 2011, this may eventually affect the company's long-term cash flow if the operation rights are loosened."In addition, there are still many uncertainties surrounding the new proposal by Sime Darby Bhd and AirAsia (to run the new LCCT), and we think this may negatively affect market sentiment on MAHB and investors may switch to value the immediate profitability," said Ng, downgrading MAHB to "neutral" with a fair value of RM2.39.

Aseambankers Malaysia Bhd senior analyst Khair Mirza expects MAHB's earnings to dip in 2011 and 2012 by over 20 per cent at the EBITDA (earnings before interest, taxes, depreciation and amortisation) level with the opening of the new LCCT."Based on the estimated 10 million passengers at the existing LCCT in 2008 and a 50:50 split between international and domestic passengers, we estimate the loss of LCCT to MAHB's revenue to be RM125 million from passenger service charges, and about RM50 million from aeronautical charges," Khair said in his report yesterday.