7 April 2016
Malaysia’s Department of Civil Aviation (DCA) is reportedly upping its fees for everything from a pilot’s yearly flight licence renewal to annual Air Operating Certificates (AOC), among others. Initial flight crew licence will cost MYR500 (from MYR100) while yearly renewals will be MYR300 (from MYR60). These will be enforced not next year or next month but next week – on 15 April.
So what’s going on?
The DCA argues that there’s not been a fee raise since 1970, over 40 years ago. The director-general of the DCA, in explaining the drastic moves, had this to say – “they have to understand that our expenses for delivery of services is (sic) going up as well… we want to give them the best”
Based on the proposal given to airlines, monthly air navigation flight charges (ANFC) will rise from 5 sen per nautical mile to 50 sen for lightweight aircraft. This essentially means bigger, widebody twin-aisle aircraft such as the Airbus A330 and A350 and Boeing’s 777 and 787 will see a rise in cost to MYR1-2.50/nautical mile, from 10-25 sen previously. For the gigantic A380 it’s even worse – today it’s 30 sen per nautical mile; come 15 April it’s MYR3 and so the six A380s belonging to Malaysia Airlines are likely to make even less money.
There’s absolutely no reason why the DCA shouldn’t raise its fees, especially since it hadn’t done so in over 40 years. However, to impose a 10-fold hike within a fortnight of making the decision is rash, reckless and shows a lack of foresight and preparation. It also smacks of desperation, to squeeze money out of airlines at a time when carriers are just starting to benefit from low oil prices. Fee hikes ought to be done incrementally, and with sufficient room for stakeholders (airlines and airports) to work out their sums and for a compromise that benefits all parties.
It’s unclear how the DCA arrived at its numbers or what mathematical formula it had applied but here’s the clue – the regulatory body said it had spent MYR1.4 bln on an air traffic management system, on top of MYR650 mln for a new Kuala Lumpur Air Traffic Control Centre. Plus, there is an upcoming upgrade in Kota Kinabalu that would need MYR550 mln.
Presumably the DCA’s number crunchers took all the figures into account and came up with the latest pricing, without factoring and deciphering market dynamics and the implications of a sudden and drastic jump in fees. Not a smart move indeed, even if the reasons for an increase are justified.
For airlines, there will be many variables that they have to take into account, apart from the size of the aircraft. From 15 April onwards, destinations are key considerations, too. In a nutshell, the longer and further an airline flies, with a widebody aircraft, the more it needs to pay. The more an airline has to pay, the more passengers will pay. Fares will inevitably go up.
The ramifications are many. For one, it will likely have an adverse impact on air travellers. And airlines, which are already struggling to make ends meet, will find the going and flying more costly. The net result would be a decline in passenger numbers and a decline in tourist arrivals. Period.
One area that has made Malaysia such a success for low-cost carriers and turned it into a discount hub is its attractive airport charges. Not anymore. Can AirAsia or Malindo remain competitive? Can these carriers afford to offer flights for MYR5-10 in future? What about start-up carriers such as Rayani? It could sound the death knell for airlines with weak financial profiles.
Below is a cost comparison between airports in Malaysia and Singapore airports, denominated in Ringgit –
LANDING COST FOR AIRCRAFT:
|MALAYSIA AIRPORTS (MYR)||SINGAPORE CHANGI AIRPORT (MYR)||SELETAR AIRPORT (MYR)|
PARKING FOR CONTINUOUS 365 DAYS AIRCRAFT IDLE PARKING
|MALAYSIA AIRPORTS||SINGAPORE SELETAR AIRPORT||SINGAPORE CHANGI AIRPORT|
|Per Block of 24 hours (MYR)||104.08||224.11||224.11|
|365 Days Idle Parking (MYR)||37,989.67||327,200.60||818,001.50
Note: SGD1 = MYR2.90
Notice how favourable Malaysia’s fees are in comparison to Singapore. This advantage will be severely eroded from 15 April onwards. Our forecast is for uncertainty and turbulence for airlines operating out of Malaysia in the coming weeks and months.