24 September 2014

Low cost carriers (LCCs) such as AirAsia Bhd and airport operators such as Malaysia Airport Holdings Bhd (MAHB) will benefit from Indonesia’s ratification of the 2009 Asean Open Skies agreement that will bring the region closer to the formation of a single aviation market by end-2015.

According to UOB Kay Hian, the adoption of open skies by Indonesia will boost intra-Asean tourism, benefiting primarily LCCs operating in the region and hospitality firms.

The research house said among aviation services, its top pick was AirAsia, while among hospitality firms, it favoured Thai-based Erawan Group, and Singapore-based CDL Hospitality REIT and Ascott REIT.

In a report yesterday, UOB Kay Hian said Indonesia had ratified the 2009 Multilateral Agreement on Air Services (MAAS) that would give Asean airlines unlimited third, fourth and fifth freedom rights to operate between capital cities.

The third and fourth freedom rights involve the right to carry passengers and cargo between two countries without restriction while the fifth freedom is essentially the right to carry passengers and cargo from one country to another, and then pick up passengers and cargo from the second country to a third country.

UOB Kay Hian noted that intra-Asean LCC penetration which was already at 59% would rise further if MAAS was fully ratified.

Travel time between most Asean capital cities is under four hours, which is within the purview of LCCs.

“The two dominant LCCs in Asean – Lion Air and AirAsia – will be the main beneficiaries. AirAsia will benefit via higher intra-Asean travel, utilisation of its extensive orderbook, and higher lease income.

“Thai AirAsia, which is Thailand’s largest LCC, will also benefit from greater intra-Asean travel and can serve as an LCC hub to China.

“The airline has the second-largest LCC capacity to and from China,” the research house said.

It said airport operators MAHB and Airports of Thailand (AOT) would also be beneficiaries in the long term.

“Bangkok’s Suvarnabhumi airport is operating at 90% capacity and a new terminal will only be completed in 2017. However, LCC airport Don Maung will see greater pax throughput.

“The primary beneficiary, however, will be klia2 as just nine LCCs are serving klia2, five of which are from the AirAsia group. MAHB will be able to benefit from higher aeronautical and non-aeronautical revenue.

“A case can also be made for uniform passenger service charges for LCCs and full-service carriers (FSC). Currently, MAHB’s charges at klia2 for LCCs are at a 50% discount compared with FSCs operating out of Kuala Lumpur International Airport (KLIA),” UOB Kay Hian said.

Aviation analysts said the “fifth freedom rights” for airlines would help KLIA and klia2 to grow further. They added that the ratification by Indonesia could be the start of a more liberal structure on air traffic rights around the region.

Within the context of MAAS, UOB Kay Hian said the fifth freedom rights would be restricted to within Asean.

“For example, a Singapore Airline (SIA) flight will be able to pick passengers/cargo from Kuala Lumpur and fly to Bangkok before returning to Singapore. Prior to that, SIA would not have the right to pick up passengers/cargo from Kuala Lumpur en route to Bangkok.

“Airlines which are signatories to MAAS will have reciprocal rights. This will come into place once Asean ministers officially ratify the agreement by end-2015,” it explained.

The Philippines is the only Asean member which has not ratified the agreement. It has cited a lack of infrastructure at Manila as the primary reason for not ratifying the agreement and has instead offered secondary cities as an option for ratifying the agreement.

Original Source: www.thestar.com.my

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