Tuesday, 22 November 2011
Written by Isabelle Francis
In the midst of the war of words between Transport Minister Datuk Seri Kong Cho Ha and AirAsia Bhd co-founder Tan Sri Tony Fernandes over the recent rise in airport charges, speculation is rife that the cost of klia2 has increased significantly from the initial estimates of between RM2 billion and RM2.5 billion.
Officials from Malaysia Airports Holdings Bhd (MAHB) declined to comment on the cost of the project, emphasing that even if there was an increase in expenditure in constructing the klia2, it would not affect the passengers nor the airlines.
“The only avenue for us to recoup the costs is from non-aeronautical revenue such as the retail segment,” said an official.
The official was commenting on speculation that the cost of completing the klia2, the new low-cost carrier terminal (LCCT), has escalated to more than RM4 billion and a costlier airport would mean MAHB has to increase its charges – including airline parking and landing fees and airport taxes – to recoup its investment.
The MAHB official said these concerns are unfounded because aeronautical charges are regulated. “It’s already set in stone and subject to review every five years. It should not matter if the cost is above RM2.5 billion because MAHB will account for all costs. It is not the government or any airline’s concern as we can’t simply raise charges.
“Be mindful that aeronautical charges, particularly PSC (passenger service charge), are never based on the cost of building MAHB’s airports. Airports are never built on ROI (return on investment). It’s very unlike the models they have in the UK … the ROI for MAHB on klia2 is only based on non-aeronautical income,” said the official.
It has been reported recently that the klia2 retail space, which takes up about 20% of the terminal area, will generate some RM1.2 billion in revenue.
The official also said MAHB is a well-run company and the stock is favoured by analysts for its performance and governance.
“It would only be sensible for it to be accountable for what it builds and ensure that it will recoup every cent it invests.”
The Transport Ministry was dragged into the ongoing dispute between AirAsia and MAHB after the airport operator obtained the green light to increase landing and parking charges and airport tax from Nov 10 this year. This is the first increase in charges after 17 years.
The Transport Ministry approved a RM14 increase in airport tax to RM65 per passenger in most of its international airports while the LCCT in KLIA and the Terminal 2 in Kota Kinabalu saw charges go up by RM7 to RM32 per international passenger. Landing and parking charges will rise in three stages over three years – landing charges will be 9% while parking charges will be increased by 18% per year. Fernandes, when contacted by The Edge Financial Daily, defended the need for low airport charges and raised questions on the efficiency of MAHB. He was also disappointed that the Transport Ministry has not given attention to AirAsia’s requests.
“It is the poor decision making of MAHB that made me disappointed. When they were building the klia2, they say it will cost RM1.2 billion, but now, the airport won’t only cost more but probably will not be ready by 2012 as initially planned,” he said.
Fernandes also responded to Kong’s statement in an interview with Sin Chew daily over the weekend that PSC (passenger service charge) at airports operated by MAHB were subsidised by the government.
He argued that the passengers at the LCCT were not subsidised by the government and that although MAHB had not raised charges for 17 years, the existing terminal to cater for low-cost travellers was new and did not exist for that long a period.
Kong had told the Chinese daily that the recent increase in airport charges was to lift the government’s burden of subsidising the airport operator to the tune of RM180 million per annum in PSC (passenger service charge) and it was mainly enjoyed by passengers going abroad.
It is understood that the subsidy was part of an operating agreement between the government and MAHB in 2009.
Fernandes pointed out that the cost of building the existing LCCT was RM300 million and that the airport operator was able to recover the costs within one year based on the previous airport charges.He also argued that it is not fair for MAHB and the government to compare the cost of KLIA and LCCT to Singapore’s Changi Airport.
“Malaysians aren’t paid Singapore salaries. Our advantage is cost, so, let’s have volume instead of cost,” he said.
Another matter that Fernandes has touched on is the appointment of high-position Transport Ministry officials to the board of MAHB and claimed that it was unfair as the ministry was also the regulator of the aviation industry.
However, Kong refuted the claims made by Fernandes, stating that the appointment was before his tenure in the ministry.
Kong also said that the recent increase in airport charges was not made by the Transport Ministry but came about as a result of negotiations between the Finance Ministry and MAHB. He said the Transport Ministry was only responsible for implementing it.
Kong said the agreement with MAHB was to allow an increase as long as the charges remain competitive in the region.
He said as a Malaysian, he is proud of AirAsia’s success, but highlighted that the government has been supportive of the airline’s growth.
“Of course, I do not deny the airline also has merit, it is important that the government has never prevented the development of AirAsia,” he added.
This article appeared in The Edge Financial Daily, November 22, 2011.