Growing Passenger Traffic

Malaysia

Economic News

22 Jul 2010
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Airport operator Malaysian Airports Holding (MAHB) has recently announced a host of incentives designed to attract new airlines to Malaysia, including a three-year waiver of landing fees and discounts on airport tax or passenger service charge (PSC). It is part of a plan to foster continued growth in passenger traffic to the country.

New foreign airlines and existing airlines that add new destinations or frequencies to Malaysia will continue to enjoy a three-year waiver on landing fees, and then respective 75% and 50% discounts for the following two years. The current full waiver on parking fees will cease to be offered, however. Parking will be free for the first three hours, after which prices are open to negotiation on a case-by-case basis.

Bashir Ahmad, the managing director of MAHB, told OBG that landing and parking charges at airports in Malaysia have not been increased for 25 years, and were still among the lowest in the region. “Costs keep going up, so a rate increase is absolutely necessary. Of course, in the end it’s entirely up to the government, but we suspect it will happen at some stage,” he said.

A growth incentive scheme has also been announced to reward existing airlines for bringing more passengers to the country. The incentive, which will also be available to Malaysia Airlines and Air Asia, will offer 10% rebates on the PSC for the first 10% growth achieved in passenger load factor, using 2006 as the base year. The maximum rebate will be 25% for growth above 20%.

These rebates are part of MAHB’s continued efforts to lure international airlines into Malaysia. But all international airlines are not alike, and Bashir made no secret that he is looking beyond East Asia, with hopes of wooing European carriers in particular. “If you look at the region, we are pretty well-covered…We would like to encourage more European carriers to come into the country, particularly British Airways, which has been here before, and new ones such as Air France.”

Several airlines will be serving Malaysia for the first time in 2007, including Abu Dhabi-based Etihad and Qantas’s low-cost subsidiary Jetstar. Advancement on the European front has proved more elusive. This year, Austrian Airlines will cease flights to Kuala Lumpur (KL) in March and Finnair, who had previously planned to begin flying to KL from Helsinki in May, has decided to postpone its Malaysian foray, reportedly to focus on expansion in India.

MAHB operates 39 airports in Malaysia, including the KL international Airport (KLIA). The company, a unit of Khazanah Nasional, the government’s investment arm, has been under pressure to improve its performance for some time. 

Part of the solution is growing passenger traffic. But according to Bashir, incentives are only part of the formula for encouraging growth, and the most important task is convincing airlines that Malaysia can offer sufficient loads and yields. “Malaysia’s long-term growth and ability to attract more carriers into the country will depend on the ability to deliver outbound traffic. Malaysians travel a lot, and we will continue to offer a large load factor to airlines,” he said.  

For 2007, growth should be most significant in the low-cost segment, particularly with the launch of long-haul carrier Air Asia X. A joint venture between Air Asia and Fly Asian Xpress (FAX), the company will introduce low-cost flights in July to Manchester, Melbourne, Tianjin and Hangzhou in China. The company plans to expand to India and Europe.

Moreover, Jetstar is expected to begin its Sydney - Kuala Lumpur service by September. 

The country is making the necessary preparations and an expansion of the Low-Cost Carrier Terminal (LCCT) in Sepang, which opened in 2006, is expected to be finished in June. Additional parking bays will also be created to accommodate Air Asia X's use of bigger aircraft for its operations. “This is mainly to accommodate long-haul traffic, and we are focusing primarily on the international terminal,” said Bashir.

Though 2006 saw a growth in air traffic, profits were down. The key for this year will be translating the expected spike into a rise in returns. “Growth in traffic will undoubtedly mean increased revenue and we are anticipating increased (PSC) rates as well,” he said. 

Long-term issues could however affect the industry. Improved aviation technology allows long-haul, particularly Australian, travelers to bypass the region. Southeast Asia had traditionally been a stopover spot for flights between Australia and Europe.  Bashir, however, does not believe this will have the effect some anticipate.“We’re not so affected by the new long-distance aircraft – Singapore and Hong Kong are much more popular in terms of kangaroo routes,” he said.

Other issues linger, such as Malaysia’s relative reluctance, compared to elsewhere in the region, in liberalising its skies, or the recent construction and expansion of large airports in the region – most recently in Bangkok. Bashir commented, “Open skies agreements in other areas can’t be bad for us, as they will bring more airlines into the region generally. As for the growth of Bangkok, they serve their own market. We are not competing with the new airport.”

 


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