World class’ KLIA2 may make airlines question KLIA, says Maybank IB

KLIA2 is due to open for business in April 2013. — Picture by Jack Ooi

KUALA LUMPUR, Nov 30 — The new low-cost carrier terminal being built by Malaysia Airports Holdings Berhad (MAHB) conforms to such high specifications that it risks making airlines question the value of paying a premium for the main KLIA terminal, Maybank Investment Bank said today.

The research house noted in a report today that now any airline can land at KLIA2, which is equipped to cater for even the world’s largest passenger plane — the A380 — and that it is not exclusive to budget airlines like AirAsia.

“We are concerned that if KLIA2 turns out to be as good as according to plans, airlines executives may then question the premium at the KLIA main terminal,” said Maybank.

A model of KLIA2. — Picture courtesy of MAHB

It estimated that by moving from the main terminal to KLIA2, international passengers will only pay RM32 PSC (passenger service charges) as opposed to RM65 at the main terminal, or the equivalent of 51 per cent cost savings.

“This may potentially dilute MAHB’s earnings as KLIA2’s charges are lower than the main terminal,” said the report.

KLIA2, which was originally conceived as a terminal for low cost carriers, grew sizeably in scope including the construction of facilities that will make the terminal a back-up for the main terminal, almost doubling the cost to RM3.9 billion in the process.

MAHB also decided to bring forward capital expenditure in an attempt to future proof the airport — the terminal features a runway capable of handling A380s and 747s and also a higher capacity of 45 million passengers per annum, or three times that of the present low cost carrier terminal and three million more passengers than what Singapore’s Changi Airport handled in 2010.

It also made a publicly popular decision to install aerobridges, a decision which earned the ire of AirAsia which has been against the concept as it would mean longer aircraft turnaround times and additional charges, although MAHB insists the cost to passengers is negligible.

AirAsia chief, Tan Sri Tony Fernandes, who built his empire by focusing on cost-cutting measures, said he feared that the ballooning price tag of KLIA2 would translate to higher airport taxes and fees in the future despite assurances from MAHB that it would not.

Maybank said in its report that it agrees with MAHB that KLIA2 will have an internal rate of return of more than 10 per cent but that was premised on an additional RM2-3 billion in non-aeronautical revenue to be derived from the expanded terminal over the concession period.

KLIA2 will surpass Dubai’s T3 in terms of offering the single largest passenger terminal capacity in the world when it opens. — Picture by Jack Ooi

When it opens for business in April 2013 after a 17-month delay, KLIA2 will feature amenities that will rival those of most full featured airports including a huge shopping mall, premium and VIP lounges, hotels and Asia’s first airport skybridge measuring about 300 metres.

A Maybank analyst noted that MAHB appeared to be “going for broke” and by catering for 45 million passengers per year instead of the planned 30 million, it will have the single largest passenger terminal capacity in the world, surpassing the previous record holder, Dubai’s T3 which has a capacity of 43 million.

The analyst noted that while KLIA2 will earn MAHB bragging rights, the financial implications have changed.

“As an investor, the investment thesis for MAHB has now changed to a very long-term project. Big mammoth projects take time to grow and churn significant cash flow, the initial period will be a cash flow burden,” said the analyst.

The analyst concluded, however, that the new terminal was “very positive” for Malaysian aviation as the infrastructure will support uninterrupted growth for the next 10-15 years but the cash flow burden in the initial years will likely lower profit margins and undermine valuations.

* This article has been amended from the original to better reflect the contents of the Maybank Investment Bank report on KLIA2. We apologise to Maybank Investment Bank for any inconvenience that our earlier report may have caused.