Maybank Research cuts outlook on AirAsia Group, AirAsia X

The levy, announced in the Budget 2019 proposals, is applied to every international departure at a rate of RM20 to Asean destinations and RM40 to other regions.

KUALA LUMPUR: Maybank Investment Bank Research has downgraded AirAsia Group (AAG) and AirAsia X after the government proposed to impose a levy for international departues.

The research house said on Monday the levy, announced in the Budget 2019 proposals, is applied to every international departure at a rate of RM20 to Asean destinations and RM40 to other regions. 

“This will deliver more than RM766mil per annum, we estimate,” it said about the levey which will be introduced on June 1, 2019.

Maybank Research said the departure levy will negatively impact AirAsia and AirAsia X’s passenger load as their passengers are perceived to be price sensitive. 

Historical accounts are mixed regarding the impact of tax hikes on air travel; in Europe, it caused a multi-year traffic decline while in Hong Kong and Singapore, it merely reduced the traffic growth momentum ever so slightly. 

“The jury is not yet out whether the departure levy will kill passenger demand,” it said.

Maybank Research said the tax burden for international air travel will rise by 49% (within Asean) and 51% (outside Asean). 

Malaysia Airports Holdings Bhd (MAHB) is largely unaffected but it is negative for airlines. 

“We cut our FY19-20 earnings forecast for AirAsia Group and AAX on yield erosion and downgrade AirAsia Group to Hold and AAX to Sell. MAHB is the sole Buy. We remain Neutral on the sector,” it said.

The levy, Maybank Research pointed out, was a material shift by the government in its aviation policy whereby users will now pay for the industry’s operating expenses as opposed to taxpayers. 

Apart from the levy, the government also plans to sell a 30% stake of its airport assets via a REIT structure for targeted net proceeds of RM4bil. 

These monies will be used to upgrade existing airports and expand congested ones. 

“The exact structure of the Airport REIT is sketchy for now, but we do not think it will be punitive to MAHB due to safeguards from its operating agreement (OA) with the government,” it said.

The research house noted the government expenditure to manage the entire aviation industry was RM1.125bil in 2017 and is expected to grow by 4% per annum.

The government derived 90% of its revenue from GST on domestic flights (47%) and MAHB related collections (43%). 

With this new departure levy, the government will be able to widen its revenue base and enjoy a surplus, based on the research house's estimates. 

It can use the surplus to hire and train more people, enhance equipment and systems, and invest to improve the overall system.

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levy , AirAsia Group , AAX , MAHB


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