KUALA LUMPUR: CIMB Equities Research estimates AirAsia will have to pay slightly more than RM130mil per annum on a full-year basis as a result of the higher air navigation facility charges (ANFC).
It said on Thursday this works out to about 10%-12% of its FY1718 group core net profit forecasts.
“However, the true impact on AirAsia would likely be less than this, depending on whether the airline industry is able to reduce, postpone, or lobby for the additional charges to be scrapped,” it said.
StarBiz reported that Malaysia’s Department of Civil Aviation (DCA) will raise various fees charged to airlines by substantial amounts.
The DCA has proposed to raise a multitude of charges to airlines. The most critical increase is for ANFC which is based on distance flown within Malaysia’s airspace.
The previous rate for an A320 was 20 sen per nautical mile, which could be raised 10-fold to RM2 from April 15 onwards.
Other rate increases include higher fees for the annual renewal of the Air Operator’s Certificate and the renewal of pilot and crew licences but these are not expected to be material in the overall scheme of things.
Domestic flights that travel wholly within the Malaysian airspace will be affected the most, while international flights will be affected only for the portion of the flight that is within the country.
“About half of AirAsia’s flights are domestic, and in our calculation, we have assumed that 600km of each international flight travels within Malaysian airspace.
“AirAsia’s group earnings will be affected by 10%-12% if it absorbs the additional cost, or if the industry does not succeed in scaling back the proposed new rates.
“Our target price is still based on eight times CY17 price-to-earnings; our forecasts are intact as most of the cost increase will be eventually passed on to passengers.
“We remain confident in our Add call, as the founders plan to increase their stake to 32.4%, and FY16 will be a good year will low oil prices and a stronger ringgit,” it said.
CIMB Research said the increase in the ANFC rates works out to be around RM5 per pax on a full-year basis, which is about 4% of the average underlying fare (excluding ancillary income), or about 2.5% of the average revenue per pax (including ancillaries).
This is a relatively small amount that may not be too difficult to pass through since air fares have already come down in the current environment of low oil prices.
CIMB Research said it was leaving its earnings forecasts intact for now, pending the airline industry’s appeal.
It pointed out AirAsia is likely to have a good year in FY16, with oil prices remaining low, the ringgit recovering, and with the efforts behind the restructuring of Indonesia AirAsia and AirAsia Philippines bearing even more fruit this year.
“We also like the fact that the founders are planning to raise their stake in the company from 18.9% to 32.4%, meaning that they will have even greater commitment and incentive to ‘make it work’. This is why we recently raised our target P/E multiple from six to eight times (around average of the six to 12 times peer range,” it said.
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