Price caps may put pricing pressure on local airlines

  • Business
  • Tuesday, 20 Mar 2018

PETALING JAYA: Locally-based airlines may feel pricing pressures should new regulations to impose price caps on air tickets be approved by the government.

The government is reportedly in the midst of drafting a ceiling price to control airfares for domestic flights, according to Deputy Transport Minister Datuk Ab Aziz Kaprawi.

It would be done through the Malaysian Aviation Commission (Mavcom) and this ceiling price plan would be completed before the middle of the year, he said.

“We will establish the ceiling price for domestic flight tickets (and not for the international flights), and thus far, we do not control everything. However, this time the government will control the fares for domestic flights,” he said yesterday.

Analysts contacted by StarBiz said it was too early to gauge the potential impact of this move and noted that the proposal was still in its early stages.

“We will have to wait and see the outcome of this proposal and how it will be implemented,” an analyst from a local research house said.

Local airlines could feel the heat from this ruling and be affected by it.

These players include AirAsia Bhd, Malaysia Airlines Bhd and Malindo Air.

AirAsia is the only one that’s listed while the rest are privately owned.

The low-cost carrier’s shares closed three sen lower yesterday with 5.39 million shares changing hands.

According to Bernama, Ab Aziz said the move was implemented following complaints received on the expensive flight tickets, especially during the festive seasons, apart from a study carried out by Mavcom that showed a five-fold increase in airfares during the period.

Another analyst said investors might take some profit on this news as it introduced some uncertainty in the industry.

AirAsia has seen its share price sustaining an uninterrupted uptrend since the beginning of last year, with its share price having more than doubled since then.

It closed three sen lower at RM4.12 yesterday with a market capitalisation of RM13.77bil.

Sentiment in the company has been aided upwards by the expectation of a special dividend payout, following its decision to dispose of its aircraft leasing business, Asia Aviation Capital Ltd.

Despite the rise, the counter is trading at a reasonable historical price-to-earnings ratio (PER) of 8.67 times and a forward PER of 9.24 times, according to Bloomberg statistics.

Most analysts have rated the counter a buy (14), seven a hold and two a sell.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3

Business , AirAsia , shares , MAVCOM , government , ceiling price


Did you find this article insightful?


Across the site