aeronautical charges framework second consultation paper · mahb’s tariff proposal per june 2019...

Aeronautical Charges Framework –

Second Consultation Paper

18 June 2019

2

TABLE OF CONTENTS

GLOSSARY ............................................................................................................... 4

EXECUTIVE SUMMARY ............................................................................... 10

BACKGROUND ............................................................................................ 12

Statutory basis of price cap ...................................................................................... 12

Objective of Consultation Paper ............................................................................... 12

Context .................................................................................................................... 13

Complementary initiatives for the RAB ..................................................................... 19

KEY POLICIES UNDERLYING RAB FRAMEWORK ................................... 20

Written stakeholder feedback from October 2018 Consultation Paper...................... 20

Application of RAB framework on MAHB and exclusion of other airport operators ... 20

Form of control ......................................................................................................... 21

Form of till ................................................................................................................ 22

Starting RAB ............................................................................................................ 23

Regulatory Period .................................................................................................... 24

Groupings of tariffs ................................................................................................... 25

Tariff setting ............................................................................................................. 26

User fees ................................................................................................................. 27

Capex responsibility ................................................................................................. 27

WACC ...................................................................................................................... 28

Regulatory risk ......................................................................................................... 29

Adjustment mechanisms .......................................................................................... 29

REVIEW OF MAHB NOVEMBER 2018 SUBMISSION ................................. 30

Opening RAB ........................................................................................................... 30

MAHB Business Plan & key strategies ..................................................................... 31

Capital expenditure .................................................................................................. 36

Key projects – before & after verification .................................................................. 39

Operating costs & drivers ......................................................................................... 49

Depreciation & amortisation ..................................................................................... 55

Non-regulated revenues (commercial and other) ..................................................... 56

WACC ...................................................................................................................... 61

Traffic forecast from MAHB for RP1 ......................................................................... 66

SUMMARY OF ADJUSTMENTS TO MAHB’S SUBMISSION ...................... 69

ILLUSTRATIVE PRICE CAP......................................................................... 77

ILLUSTRATIVE TARIFF STRUCTURE ........................................................ 78

Differentiated charges by level of service and infrastructure ..................................... 78

Transfer PSC ........................................................................................................... 79

Landing & parking fees ............................................................................................ 80

Option #1 – Single network ...................................................................................... 80

Option #2 – Geographical clusters ........................................................................... 81

Option #3 – Geographical clusters, with equalised International PSC ...................... 82

MAHB’s tariff proposal per June 2019 submission ................................................... 83

MAHB’S JUNE 2019 SUBMISSION ............................................................. 84

MAHB’s proposed tariff – Option #1 ......................................................................... 92

3



CONSULTATION PROCESS ........................................................................ 94

NEXT STEPS ................................................................................................ 95

Details of the consultation ........................................................................................ 95

APPENDIX 1: TRAFFIC FORECAST FROM MAHB ............................................... 96

Historical traffic (2012 to 2018) ................................................................................. 96

MAHB’s forecasted passenger traffic (2019 to 2022) ............................................... 97

MAVCOM’s forecasted traffic (2020-2022) ............................................................... 98

Description of MAVCOM’s passenger traffic forecast model .................................... 99

Forecast data and parameters ............................................................................... 101

MAVCOM’s passenger traffic forecast .................................................................... 102

Advantages and limitations of MAVCOM’s passenger traffic forecast model .......... 105

References............................................................................................................. 106

APPENDIX 2: AIRPORT FACILITIES DATA ........................................................ 107

4

GLOSSARY

Abbreviations

ACC Airport Consultative Committee

Act 771 Malaysian Aviation Commission Act 2015 [Act 771]

AFRS Airport Fire Rescue Service

AGL Airfield Ground Lighting

AICC Assets in the course of construction

Airport REIT Airport Real Estate Investment Trust

ASQ Airport Service Quality

AVSEC Aviation Security

bbl barrel

BHS Baggage Handling System

BIMP-EAGA Brunei, Indonesia, Malaysia, the Philippines & Timor Leste – East

ASEAN Growth Area

BP Business Plan

capex Capital expenditure

CAGR Compounded Annual Growth Rate

CAPM Capital Asset Pricing Model

CCR Constant Current Regulator

CCTV Closed Circuit Television

CP Contact Pier

CIP Capital Investment Plan

Commission Malaysian Aviation Commission

EPS Electrical Power Systems

F&B Food & beverages

FIDS Flight Information Display System

FTE Full time employee

GAS Gate Allocation System

GDC Gas District Cooling

GDP Gross domestic product

GLC Government-linked company

GoM Government of Malaysia

GPU Ground Power Unit

HQ Headquarters

5

Abbreviations

ICAO International Civil Aviation Organisation

ILHBS In-line Hold Baggage Handling System

IMT-GT Indonesia-Malaysia-Thailand Growth Triangle

KUL Kuala Lumpur International Airport

LOS Level of Service

MA Management Agreement

MA Sepang Malaysia Airports (Sepang) Sdn Bhd

MA (Niaga) Malaysia Airports (Niaga) Sdn Bhd

MAHB Malaysia Airports Holdings Berhad

MASB Malaysia Airports Sdn Bhd

MAVCOM Malaysian Aviation Commission

MGP Minimum Guaranteed Payment

MGS Malaysian Government Securities

Minor Repex Minor repair expenditure

MoT Ministry of Transport

mppa Million passengers per annum

MTB Main Terminal Building

NAP National Aviation Policy

NPV Net present value

OA Operating Agreement

PBB Passenger boarding bridge

pax Passenger

PCA Preconditioned Air Unit

Peninsular Peninsular Malaysia

pph Passengers per peak hour

PSC Passenger Service Charge

PSSC Passenger Security Service Charge

QoS Quality of Service

R&M Repairs and Maintenance

RAB Regulated Asset Base

Repex Repair expenditure

RET Rapid Exit Taxiway

RM Ringgit Malaysia

RP1 First regulatory period

6

Abbreviations

RP2 Second regulatory period

SATS Senai Airport Terminal Services Sdn Bhd

SITC Supply Installation Testing Commissioning

STOLports Short Take-off and Landing Ports

TMDSB Tanjung Manis Development Sdn Bhd

TTS Track Transit System

UOP Unit of Production

USD United States Dollar

User-pay principle A framework where the user pays for airport infrastructure

WACC Weighted average cost of capital

VDGS Visual Docking Guidance System

YoY Year-on-Year

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7

AIRPORT CODES

No. Airport

code

Airport name No. Airport

code

Airport name

1 AOR Sultan Abdul Halim

Airport, Alor Setar

14 LDU Lahad Datu Airport

2 BKI Kota Kinabalu

International Airport

15 LGK Langkawi International

Airport

3 BTU Bintulu Airport 16 LMN Limbang Airport

4 IPH Sultan Azlan Shah

Airport, Ipoh

17 MKZ Melaka Airport

5 JHB Senai International Airport 18 MYY Miri Airport

6 KBR Sultan Ismail Petra

Airport, Kota Bharu

19 MZV Mulu Airport

7 KCH Kuching International

Airport

20 PEN Penang International

Airport

8 KTE Kertih Airport 21 SBW Sibu Airport

9 KUA Sultan Ahmad Shah

Airport, Kuantan

22 SDK Sandakan Airport

10 KUL Kuala Lumpur


23 SZB Skypark Terminal Sultan

Abdul Aziz Shah Airport,

Subang

11 KUL-T1 Kuala Lumpur


Terminal 1

24 TGG Sultan Mahmud Airport,

Kuala Terengganu

12 KUL-T2 Kuala Lumpur


Terminal 2

25 TWU Tawau Airport

13 LBU Labuan Airport

8

TABLES

Table 1 – MAHB assets as at 31 December 2018 ............................................................... 31

Table 2 – Overall RAB and price cap for all airports (MAHB November 2018) .................... 33

Table 3 – Overall RAB and price cap for KUL (MAHB November 2018) .............................. 34

Table 4 – Overall RAB and price cap for Peninsular (MAHB November 2018) .................... 34

Table 5 – Overall RAB and price cap for Sarawak (MAHB November 2018) ....................... 35

Table 6 – Overall RAB and price cap for Sabah (MAHB November 2018) .......................... 35

Table 7 – Summary of proposed capex ............................................................................... 39

Table 8 – List of proposed projects at KUL .......................................................................... 41

Table 9 – List of proposed projects at BKI ........................................................................... 42

Table 10 – List of proposed projects at PEN ....................................................................... 43

Table 11 – List of proposed projects at KCH ....................................................................... 44

Table 12 – List of proposed projects at LGK ....................................................................... 45

Table 13 – List of proposed projects at SZB ........................................................................ 46

Table 14 – List of proposed projects at TWU ...................................................................... 47

Table 15 – List of proposed projects at SBW ...................................................................... 48

Table 16 – Elasticity assumptions for staff number estimates ............................................. 50

Table 17 – Depreciation policies ......................................................................................... 55

Table 18 – WACC assumptions .......................................................................................... 62

Table 19 – Gearing Ratios & Operations Cash Flow/Debt Ratio ......................................... 63

Table 20 – Overall RAB and price cap for all airports (MAVCOM draft base case) .............. 71

Table 21 – Overall RAB and price cap for KUL (MAVCOM draft base case) ....................... 72

Table 22 – Overall RAB and price cap for Peninsular (MAVCOM draft base case) ............. 72

Table 23 – Overall RAB and price cap for Sarawak (MAVCOM draft base case) ................ 73

Table 24 – Overall RAB and price cap for Sabah (MAVCOM draft base case) .................... 73

Table 25 – Illustrative price cap for all airports .................................................................... 77

Table 26 – Illustrative price cap per cluster ......................................................................... 77

Table 27 – Illustrative tariffs: Option #1 ............................................................................... 80



Table 30 – Comparison from MAHB’s November 2018 to June 2019 capex plan ................ 85

Table 31 – Comparison from MAHB’s November 2018 to June 2019 capex plan for KUL ... 86

Table 32 – Comparison from MAHB’s November 2018 to June 2019 capex plan for PEN .. 87

Table 33 – Comparison from MAHB’s November 2018 to June 2019 capex plan for LGK .. 88

Table 34 – Comparison from MAHB’s November 2018 to June 2019 capex plan for SZB ... 88

Table 35 – Comparison from MAHB’s November 2018 to June 2019 capex plan for TWU . 89

Table 36 – Overall RAB and price cap for MAHB - all airports (MAHB June 2019) .............. 89

Table 37 – Overall RAB and price cap for MAHB – KUL (MAHB June 2019) ...................... 90

Table 38 – Overall RAB and price cap for MAHB – Peninsular (MAHB June 2019) ............ 90

Table 39 – Overall RAB and price cap for MAHB – Sabah (MAHB June 2019) ................... 91

Table 40 – Overall RAB and price cap for MAHB – Sarawak (MAHB June 2019) ............... 91

Table 41 – MAHB’s proposed tariff Option #1 ..................................................................... 92



Table 44 – Variables used in MAVCOM’s passenger traffic forecast model ........................ 99

9

Table 45 – MAVCOM’s regression model by cluster ......................................................... 100

Table 46 – Variables employed to forecast passenger traffic, 2019 – 2022 ....................... 101

Table 47 – Facilities matrix at MAHB airports .................................................................... 107

FIGURES

Figure 1 – Historical PSC in Malaysia ................................................................................. 14

Figure 2 – International PSC benchmarking – Global as at 31 March 2019 ......................... 15

Figure 3 – Domestic PSC benchmarking – Global as at 31 March 2019 ............................. 16

Figure 4 – Historical landing and parking fees in Malaysia .................................................. 17

Figure 5 – Benchmark analysis on turnaround costs regionally ........................................... 18

Figure 6 – MAHB BP ........................................................................................................... 32

Figure 7 – Average weekly Beta (until 31 March 2019) ....................................................... 65

Figure 8 – Actual vs. forecasted passenger traffic, 2012 – 2018 ......................................... 67

Figure 9 – MAVCOM vs. MAHB: Malaysia passenger traffic forecast, 2018 – 2022 ............ 68

Figure 10 – Price cap on a network level, All airports .......................................................... 74

Figure 11 – Price cap by cluster, KUL ................................................................................. 74

Figure 12 – Price cap by cluster, Peninsular ....................................................................... 75

Figure 13 – Price cap by cluster, Sarawak .......................................................................... 75

Figure 14 – Price cap by cluster, Sabah .............................................................................. 76

Figure 15 – Actual vs. forecasted passenger traffic, 2012 - 2018 ........................................ 97

Figure 16 – Original vs. Revised Passenger Traffic Forecast, 2017 – 2022 ........................ 98

Figure 17 – Air passenger traffic, Malaysia, 2007 – 2022 .................................................. 102

Figure 18 – MAVCOM vs. MAHB: Malaysia passenger traffic forecast, 2018 – 2022 ........ 103

Figure 19 – MAVCOM vs MAHB: KUL passenger traffic forecast, 2018 – 2022 ................ 103

Figure 20 – MAVCOM vs MAHB: Peninsular passenger traffic forecast, 2018 – 2022 ...... 104

Figure 21 – MAVCOM vs MAHB: Sabah passenger traffic forecast, 2018 – 2022 ............. 104

Figure 22 – MAVCOM vs MAHB: Sarawak passenger traffic forecast, 2018 – 2022 ......... 105

10

EXECUTIVE SUMMARY

The Malaysian Aviation Commission is responsible for the economic regulation of

aviation service charges in Malaysia. Pursuant to section 46 of Act 771, the Malaysian

Aviation Commission is responsible for the economic regulation of the aviation service charges

in Malaysia, which includes the power to set airport1 aeronautical charges2 such as the PSC3,

landing fees and aircraft parking fees.

Setting out the illustrative tariffs for the incentive-based, cost-related airport

aeronautical charges setting framework. The Commission has been developing an airport

aeronautical charges mechanism premised on an incentive-based, cost-related RAB

Framework which shall serve as the long-term methodology for setting airport aeronautical

charges for all commercial airports in Malaysia. The Commission’s plan to develop this

framework was announced to industry stakeholders in the August 2017 Consultation Paper

on the PSC, and further discussed in the Information and Consultation Papers published in

February and October 2018 respectively. This Consultation Paper lays out the first illustrative

tariffs setting out the level of airport aeronautical charges expected to commence in January

2020.

The need for investment balanced against necessity and affordability. The Commission

has endeavoured to balance the need for investment and asset replacement during RP1

against key stakeholder issues such as the impact on airport aeronautical charges, quality of

service, timelines, cost of capital, passenger traffic forecast, affordability and capex quantum.

Several key policy decisions relating to the RAB Framework have been made. The

Commission has made several key policy decisions from the issuance of the Consultation

Paper in October 2018 and after MAHB had submitted a BP and CIP on 30 November 2018.

These policy decisions relate to, amongst others, the form of control, form of till, starting asset

base and term of the regulatory period.

The Commission has performed a review of MAHB’s November 2018 BP. As part of the

development of the RAB Framework, MAHB submitted a BP and CIP in November 2018 for

the Commission’s consideration. MAHB’s November 2018 BP included a capex plan of

RM11.2 billion (for the 2019-2022 period), or RM10.0 billion for RP1 (2020-2022 period). The

Commission subsequently performed a review of MAHB’s BP and CIP and formed its view of

the submission, including proposed adjustments to the capex, operating costs, depreciation,

cost of capital and traffic projections. The Commission’s current view is that only an amount

of RM5.0 billion of capital expenditures can be admitted into the RAB for RP1 (2020-2022

period).

1 Airport refers to the definition of “aerodrome” as provided for in Act 771. 2 Airport aeronautical charges refers to a category of charges within the “aviation services charges” as provided for in Act 771. 3 Cited together with PSSC.

11

MAHB subsequently submitted updates to its BP and CIP on 3 June 2019. MAHB

subsequently on 3 June 2019 submitted updates to its BP and CIP to the Commission which

include a capex plan of RM6.2 billion for the 2019 to 2022 period (RM5.2 billion for RP1) and

a proposed tariff structure. Due to the short time available, the Commission has not performed

a review of this plan. However, the updated plan is added to this Consultation Paper in Section

8.0. Both the plans submitted in November 2018 and June 2019 were approved by MAHB’s

Board of Directors.

The Commission shall facilitate consultation sessions between MAHB and airlines

subsequent to the issuance of this Consultation Paper. Since commencing development

of the RAB Framework up to May 2019, the Commission has conducted a total 41 clarification

sessions totaling 94 hours of engagement with MAHB (via both face-to-face meetings and

conference calls) to discuss the BP and CIP. The Commission will also facilitate consultation

sessions between MAHB and the airlines pursuant to the issuance of this Consultation Paper.

These consultation sessions are part of a process intended to ensure that MAHB’s BP and

CIP, and consequently the charges, are defensible. The outcome of this exercise will form the

basis of the Commission’s price cap intended for implementation in RP1.

The Commission intends to set differentiated tariffs. In arriving at the illustrative tariff

structure, the Commission examined the current level of facilities and services at the airports,

the current structure of charges (including the impact of domestic, ASEAN and long-haul PSC,

as well as the historical relationship of PSC, landing and parking fees), and considered the

airport network-based tariff structure versus cluster-based tariff structure.

The Commission invites comments on this document. The Commission is inviting

comments within 4 weeks of publication of this Consultation Paper; to be received by 5pm on

Thursday, 18 July 2019. The Commission will release a paper by October 2019 to announce

its final decision.


Disclaimer: The opinions and information contained in this document are for consultation purposes only and should not be taken

as the final airport aeronautical charges framework and tariffs. The views reflected in this consultation paper only provide an

indication on the airport aeronautical charges framework and must not be construed as the Commission’s final stance on the

airport aeronautical charges framework and tariffs. The Commission shall not be responsible for, inter alia, any decision, financial

loss or damages incurred due to any reliance on this document.

12

BACKGROUND

Statutory basis of price cap

The Commission is responsible for the setting of airport aeronautical charges. Section

46 of the Malaysian Aviation Commission Act 2015 states that the Commission shall have the

power to do the following:

a) set charges, including maximum charges, or establishing the method for determination

of such charges for aviation services;

b) carry out reviews of PSC, aircraft landing and parking fees, third party ground handling

charges and other aviation charges at such intervals as the Commission decides; and

c) following such reviews, revise any charges set or method established as the

Commission decides.

The Commission had conducted PSC reviews in 2016 and 2017. Following a review, the

Commission conducted a PSC revision in October 2016 which included the introduction of an

ASEAN PSC, the equalisation of PSC at KUL in one years’ time and the introduction of a

service level mechanism called the QoS framework. The Commission then issued a

consultation paper on full equalisation of the rates at KUL-T1 and KUL-T2 in August 2017.

Embarked on the development of a cost-based airport aeronautical charges framework

in 2017. Following PSC revisions in 2016 and 2017, the Commission subsequently embarked

on the development of an airport aeronautical charges setting framework premised on a

Regulatory Asset Base intended, amongst others, to facilitate a fair rate of return for the airport

operator, more commercial and service-mindedness by the airport operator, more robust

capex planning and execution and more efficient operations. These objectives would be

pursued by providing a cost-based method for charging users together with extensive

consultation with stakeholders. The Commission also released an Information Paper in

February 2018 and a Consultation Paper in October 2018, from which written feedback from

users were obtained.

Objective of Consultation Paper

Purpose of this Consultation Paper is to introduce illustrative tariffs for the airport

aeronautical charges framework. The purpose of this Consultation Paper is to introduce

illustrative tariffs for the RAB framework which consists of the price cap mechanism for long-

term, incentive-based airport aeronautical charges for Malaysian airports and to provide

stakeholders with the opportunity to provide feedback on the proposed framework.

This Consultation Paper shall be read together with The Commission’s Information Paper and

Consultation Paper which were published in February and October 2018 respectively.

13

Context

Malaysia is one of several countries in the world which has an airport network structure, where

one company operates and manages most of the commercial airports within a single

ownership and control structure. The entity, MAHB, manages and operates 39 out of 42

commercial airports, including 18 STOLports. The remaining commercial airports are operated

by SATS in Senai, Johor and Kertih, Terengganu; and TMDSB in Tanjung Manis, Sarawak.

The Commission is excluding SATS and TMDSB from the RAB Framework whereby both

operators are required to submit their proposed charges to the Commission for approval

before any revision.

As highlighted in the October 2018 Consultation Paper, the capex responsibility under the OA

signed in 2009 is shared between the GoM and MAHB’s two subsidiaries, MA Sepang and

MASB. The RAB Framework is usually applied where the airport has full responsibility and

autonomy for both the expansion and operational expenditure at the airport, and the

framework to be applied in Malaysia will consider the local context accordingly.

The Commission takes note that the Malaysian Cabinet on 5 April 2019 had approved and

announced for the two OAs currently with MA Sepang and MASB to be substituted with 4 new

OAs, which are categorised in accordance to geographical clusters — for KUL, Sarawak and

Sabah airports, as well as for all airports in Peninsular. The Cabinet also approved for a longer

duration of the OA until 2069, an additional 35 years over the current OAs which expires in

2034.

As highlighted in the October 2018 Consultation Paper, the split capex responsibilities

between the GoM and MAHB is a unique arrangement and has posed some challenges. The

GoM’s default funding responsibility for airport development as stated in the OA had resulted

in most of Malaysia’s airport infrastructure being paid out of general GoM taxation revenues.

Moreover, MAHB is required to obtain the approval of GoM for expansion or upgrade works

at any particular airport before proceeding with the tender and award of projects.

In terms of the history of the PSC, the domestic and international PSC was set at RM5 and

RM40 respectively in 1998. The PSC underwent a few revisions, one of which was associated

with the opening of new terminal (LCCT in 2006). The latest revisions were effected in 2017

and 2018, whereby the ASEAN PSC was introduced, resulting in a lower rate of RM35

compared to the Beyond ASEAN PSC. Meanwhile, the Beyond ASEAN and domestic PSC

were set at RM73 and RM11 respectively. For landing and parking fees, these were raised in

stages over a 3 year period commencing 2012. These fees had not been reviewed for a total

of 17 years prior to that.

All tariffs had been implemented on a uniform basis historically (with the exception of

departures from secondary domestic airports to ASEAN destinations or to points in BIMP-

EAGA and IMT-GT).

14

Figure 1 – Historical PSC in Malaysia

Source: MAVCOM

In formulating the PSC for airports in Malaysia, the Commission was cognisant of the desire

for the cost of air travel in Malaysia to remain relatively affordable. Despite the revised PSC

structure announced in October 2016, PSC in Malaysia for both domestic and international

destinations remain amongst the lowest regionally and globally.

For instance, in comparison with other airports in ASEAN, the Malaysian domestic PSC of

RM11 remains amongst the lowest compared to other ASEAN airports such as Jakarta, Bali,

Bangkok, Manila, and Phnom Penh, with the only 3 airports with lower domestic PSC being

Yangon, Haneda, and Vientiane.

The equalisation of international PSC between KUL-T1 and KUL-T2 at RM73 took place in

2018. After the equalisation, Malaysia’s international PSC of RM73 is still lower compared to

Singapore and most major airports outside of ASEAN such as London, Dubai, Paris and

Seoul.

The Commission had also undertaken a comparison of charges on the basis of aircraft

turnaround costs, which takes into consideration the PSC, landing and parking fees at airports

regionally. The analysis was done based on A320 and A330 aircraft, as depicted in Figure 5.

It can be seen that KUL turnaround costs remain amongst the lowest in the region.

The GoM is planning to impose a Departure Levy for all departing international air travellers

starting from 1 July 2019. The proposed levy rates are two-tiered at RM20 and RM40 on air

travellers flying to ASEAN countries and Beyond ASEAN countries respectively.

5 5 5 5 6 6 6 6 69 9 9 9 9 9 9 9 9 9

11 11

6 6 6 6 6 6 6 6 6 6 6

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RM

Domestic Domestic - LCCT / klia2 ASEAN Beyond ASEAN Beyond ASEAN - LCCT / klia2

LCCT opens

OA signed

PSC revision

klia2 opens

PSC revision

15

Figure 2 – International PSC benchmarking – Global as at 31 March 2019

Source: MAVCOM, airport websites

36.00

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PSC Govt Charges/Tax Current PSC Charges Current PSC Charges + Proposed Levy

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16

Figure 3 – Domestic PSC benchmarking – Global as at 31 March 2019

Source: MAVCOM, airport websites

12.00

0.0

10.0

20.0

30.0

40.0

50.0R

M

PSC Govt Charges/Tax

17

Figure 4 – Historical landing and parking fees in Malaysia

Source: MAVCOM

18

Figure 5 – Benchmark analysis on turnaround costs regionally

Source: MAVCOM, IATA Charges manual

7.0

15.6

8.7

19.1

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19

Complementary initiatives for the RAB

The Commission recognises that for the full benefits of the RAB framework to be realised, the

identification of a NAP, which would identify clear objectives and priorities for the development

of the civil aviation sector, would be highly beneficial. NAP will set out the GoM’s priorities and

policies, from which subsequent decisions could be holistically and consistently applied into

plans such as the proposed Airport REIT and Departure Levy. There could also be, for

example, clear objectives to maximise air connectivity, enable foreign investment and improve

passenger experience whilst meeting ICAO technical standards for safety and security.

Next, it is important for aviation services players to have a regulatory and governance system

that is stable, transparent and non-discriminatory. Commercially stable and viable operators

would require an independent governance system which would allow for the execution of its

own corporate strategy and BP in order to achieve its commercial as well as strategic

objectives. Consistent indications of the opposite would spell challenges for the airport

operator, its management, investors and the financial markets due to higher regulatory risks.

The airport operator should have control over the execution of its BP and CIP, which would

result in a more efficient and disciplined capital planning process which may in turn improve

the quality of the passenger experience at Malaysia’s airports. The arrangement where the

airport operator is responsible for airport developments and its funding is aligned with global

practices and typically results in a more efficient, disciplined and cost-conscious airport capital

planning approach, and with airports designed in accordance with commercial and industry

needs.

The Commission continues to propose for the Malaysian airport industry to move towards a

user-pay principle rather than burdening taxpayers, some of whom are not air travellers.

However, the Commission recognises that this is a significant change from the current

arrangement, and it recognises the potential impact on affordability to users.

The Commission also recognises the need for a national airports industry strategy that would

set out clear policies of the airports industry in Malaysia. The Commission is currently working

closely with MoT to develop this, which will take into account multimodal connectivity, capacity

and expansion plans. This will help to ensure a holistic and consistent implementation of

policies and regulations which will in turn impact day to day operations of the aviation industry.


20

KEY POLICIES UNDERLYING RAB FRAMEWORK

Written stakeholder feedback from October 2018 Consultation Paper

Subsequent to the release of the October 2018 Consultation Paper, the Commission received

24 written responses from aviation and non-aviation stakeholders in November 2018, including

airlines, airport operators, aviation associations and investment institutions. Of the 24 written

responses, 16 of the stakeholders released published reports pursuant to the release of the

October 2018 Consultation Paper.

The stakeholders who provided written feedback to the Commission are broadly supportive of

the development of the RAB Framework, particularly on its emphasis on cost linkage and

consultation, while at the same time have differing views on some details of the planned RAB

Framework. The Commission’s response, and explanations of the decisions taken, are

described in the section below.

Application of RAB framework on MAHB and exclusion of other airport

operators

The Commission had previously written in the February 2018 Information Paper and the

October 2018 Consultation Paper that a structured framework of economic regulation of the

airports industry in Malaysia is required due to the implied high degree of market power of

MAHB, resulting from their operation of almost the entire airport network in Malaysia. As such,

the Commission proposed to implement the RAB framework for the purposes of setting airport

aeronautical charges for MAHB.

The Commission also undertook a market power assessment and found that SATS operates

Senai Airport in a distinguishable market from Singapore and the rest of Malaysia, and is the

monopoly provider of air transportation infrastructure to airlines for that market. However,

despite the monopoly status, Senai Airport is unable to exercise its market power due to the

existence of a countervailing buyer power of a dominant airline operating at the airport.

Therefore, the Commission proposes for SATS to be excluded from the regulated airport

aeronautical charges framework currently intended for MAHB but is still subjected to a tariff

oversight and approval process.

Stakeholder feedback

Only one stakeholder questioned the Commission’s preference for the RAB Framework for

MAHB, arguing that MAHB actually does not have market power due to the strong bargaining

power of the airline oligopoly in Malaysia and thus the market would be better served with a

light-touch regulation format.

On the proposal to exclude SATS from the RAB Framework, 2 stakeholders disagreed. The

arguments made were that the current level of incentives may not remain as high in the future

and that airlines do not have countervailing market power. The comments were followed by

21

suggestions that SATS should still be regulated on either a standalone basis or a “negotiation-

appeal” procedure.

Commission views

The Commission considers that the RAB Framework is appropriate for MAHB due to its

business model as an airport network operator with a near-monopoly position in the Malaysian

airports industry, capturing a 96.7% share of total passengers in 2018 (99.1 million pax out of

total Malaysian passenger market of 102.4 million). Based on the GoM’s decision on the OA

in April 2019, MAHB will have a long-term concession until 2069 to operate GoM-owned airport

assets throughout Malaysia (with airports in almost every state). MAHB is operating in an

industry that has significantly high barriers to entry. As such, the Commission is proceeding to

carry out the RAB Framework on MAHB. The RAB Framework allows for charges to be

differentiated according to the level of facilities. This is in-line with the Commissions view that

MAHB needs to be subjected to regulations, given the services that are rendered at the airports

and its implied market power

The Commission is also proceeding to exclude Senai Airport from the RAB Framework due to

the lack of effective market power because of a strong countervailing buyer power of a

dominant airline operating at the airport. The Commission is also proposing to exclude Kertih

Airport and Tanjung Manis Airport from application of the RAB Framework as the passenger

traffic levels there are below the threshold that the Commission deems to be significant for an

independent market power study to be conducted (more than 500,000 passengers per annum)

and to be subjected to the RAB Framework.

Form of control

As described in the February 2018 Information Paper, there are a number of implementation

options for the form of charges control: price cap, revenue cap or hybrid cap. The main

difference is the degree of traffic risk assumed by the airport operator under a particular form

of control. The airport operator undertakes the highest degree of traffic risk in a price cap and

lowest in a revenue cap. In addition, a price cap provides the most incentive for out-

performance relative to targets set by the RAB, while the revenue cap allows for greater

certainty of revenue for the airport operator relative to traffic which would thus be appealing to

debt subscribers seeking for certainty of returns.


Most stakeholders were positive on the Commission’s intention to implement a price cap as

the airport operator arguably benefits the most from high passenger traffic growth at the airport.

Some stakeholders believe that the hybrid control is the most effective solution as it would

provide a cushion against low traffic in crisis scenarios and it would allow both the airport

operator and the airline to be incentivised to bring in traffic. Some believe that no single party

should be fully responsible for traffic risk and hence both airport and airlines should share

traffic risk and be compensated for any upside accordingly.

22

Commission views

In making its decision, the Commission considered several factors such as:

a) the traffic forecasts made by MAHB have historically been in line with actual passenger

traffic, as explained further in the discussion on traffic forecasts on page 66;

b) incentive for performance, where MAHB is allowed to keep the revenues generated

should it exceed the targets set by the Commission. This is to promote commercial

decision-making and efficiency; and

c) the current operating environment where MAHB has been given the extension of its OA

tenure, and for MAHB to take on more responsibility for airport development.

The Commission thus maintains the view that the implementation of the RAB Framework for

2020 to 2022 should be through a price cap method.

The Commission, however, recognises the need to anticipate for cases of extreme events so

as to ensure Malaysia’s airport system is not unduly compromised for reasons beyond MAHB’s

control – as an illustration, a severe reduction in traffic as a consequence of war or

extraordinary meteorological conditions, which could result in MAHB generating significantly

lower revenues to the extent that it is not able to cover for necessary operating or capital

expenditures, and thereby compromise safety and service for the passengers. To mitigate this

risk, the Commission proposes that in the event that the actual number of passengers deviates

more than 10% from the forecast assumed in the price cap, there will be an opportunity for the

airport operator or airline to apply to the Commission to recalculate the price cap. The

difference between actual and forecasted passenger traffic will be measured on a cumulative

basis over the course of the price cap period.

The extreme events clause is based on similar practises and arrangement applied in the global

aviation industry, such as in Spain, European Union (Single Air Traffic Management System),

UK, Singapore and Ireland; the specific threshold varies between system. As such, the

Commission proposes to include an allowance for an extreme event, with a 10% threshold,

into the RAB Framework.

Form of till

The Commission had stated the merits of adopting a single till mechanism for the RAB

Framework in the October 2018 Consultation Paper. From its initial assessment, the

Commission had found that the lack of available data does not readily permit the ability for

allocation of costs and assets between the regulated aeronautical and non-aeronautical

operations, which would be a prerequisite under the dual till mechanism. The single till

mechanism is less complex and requires significantly less data than the dual till mechanism,

which considers only aeronautical costs and assets and hence requires an allocation of costs

and assets. Therefore, a move towards a more sophisticated hybrid or dual till in Malaysia

does not appear to be practical as a first step.

23


Most stakeholders have written in to say that they are in agreement with the Commission’s

views. One stakeholder in particular agreed with the Commission that the dual till mechanism

would result in a highly complex arrangement and would require detailed data beyond what is

likely available presently.

Some stakeholders preferred a dual till mechanism as it is said to encourage innovation and

a better customer experience for non-aeronautical activities (such as F&B), retail, car park and

advertising) since the airport operator has the incentive to maximise revenues from these

sources and develop these facilities outside of the regulated asset base. Non-aeronautical

services are said to be competitive and should not be regulated, thereby incentivising the

airport operator to run the non-aeronautical services in a more competitive manner.

Commission views

Since the location of the non-aeronautical services are at the airport which effectively

ringfences the passengers within the airport perimeter and puts other retail competitors, such

as the high street shops and malls, at a significant distance, the Commission considers that

the argument that non-aeronautical services should not be considered within the RAB

Framework due to a competitive environment as not effective.

Although the Commission is cognisant of the increasing trend towards e-commerce and its

effects on an airport operator’s non-aeronautical revenues, the Commission assessed that the

airport operator should still be able to be incentivised to develop their non-aeronautical

offerings in order to compete effectively as a commercial airport and maximise profitability. In

addition, MAHB would still be able to obtain outperformance if it achieves non-aeronautical

revenues that are higher than the forecasts assumed in the framework.

Thus, the Commission has decided on a single till implementation for RP1.

Starting RAB


There was general consensus with the Commission’s definition of the starting RAB of RM8.4

billion (as at 31 December 2017, in reference to the October 2018 Consultation Paper),

although some stakeholders requested for further clarification on the composition of assets

and the list of key projects.

Some stakeholders, meanwhile, stated that the assets which were previously developed by

the GoM should also be included in the RAB Framework, which would more accurately reflect

the true asset base of MAHB airports in Malaysia.

24

Commission views

The Commission’s position on the starting RAB is explained in more detail in Section 4.0 on

page 30. In essence, the Commission considers that the starting RAB of RM8.3 billion based

on the data as at 31 December 2018 is appropriate as this represents the asset base funded

by MAHB and is in line with the principles of the RAB Framework where the operator is allowed

to recover its costs.

The Commission takes note that significantly higher charges would result should MAHB be

compensated for assets that it did not spend on. There is a possibility of a sudden and

significant increase in charges if MAHB invests on top of a lower asset base, but such

investment would be subjected to further review and consultation ahead of RP2.

Regulatory Period

The Commission had proposed in the October 2018 Consultation Paper for the term of RP1

to be 3 years. Whilst the Regulatory Period is commonly set for 5 years, there are examples

of shorter regulatory periods being introduced in other jurisdictions especially during the initial

price cap process. For example, Civil Aviation Authority of Singapore started with an initial 2.5

years before moving into a 5-year regulatory period cycles. The shorter regulatory period at

the initial setting allows for an earlier second regulatory cycle to implement improvement

opportunities identified during the first regulatory cycle. This could therefore result in a more

improved RAB Framework over the long term from the perspective of the airport operator,

airport users and investors alike.


Almost all the stakeholders were in agreement with the RP1 duration of 3 years. Those who

disagreed stated that the duration should be 5 years to enable cost efficiencies and ensure

regulatory stability. Some stakeholders also felt that the timeline for the planned 3Q 2019

commencement was too aggressive.

In February 2019, MAHB wrote to the Commission in any event requesting for a deferment of

the effective date of the framework implementation to 1 January 2020.

Commission views

The Commission regards a shorter 3-year regulatory cycle for RP1 to be more beneficial for

the reasons stated above. Pursuant to the request by MAHB, the Commission had also agreed

to MAHB’s proposal for the deferment of the effective date of RP1 to 1 January 2020. Thus,

The Commission shall proceed with its plan for a 3-year regulatory cycle beginning 1 January

2020.

25

Groupings of tariffs

The Commission had highlighted in the October 2018 Consultation Paper that the current

tariffs were formulated at a network level, as opposed to geographical or individual airport

level, with uniform tariffs set for all airports in Malaysia (for the PSC, landing and aircraft

parking fees). This is largely consistent with how the GoM had historically treated airport

aeronautical charges given the airport network structure in Malaysia.

The Commission had highlighted in October 2018 Consultation Paper that it wishes to move

to a tariff regime allowing for differentiated charges at different airports depending on service

levels and infrastructure provided. Pursuant to this objective, there are various approaches to

structuring the RAB in order to determine different price caps and therefore set differentiated

charges – for instance, by structuring the RABs by network, cluster or individual airport.

Structuring the RAB by geographical region involves calculating separate RABs for groups of

airports in accordance to their location. This creates an opportunity to have different RABs and

price caps for each OA, which themselves are being organised under the 4 different regions.

By structuring the RAB in this manner, each geographical cluster would be economically

feasible, with cross-subsidisation occurring amongst airports within a particular group only.

This subject is further discussed in Section 7.0.


Some stakeholders agreed with the proposed 4 geographic groupings and highlighted the

benefit of being structurally consistent with the new OAs currently being negotiated between

the GoM and MAHB. In addition, one stakeholder noted that the Sarawak cluster would require

subsidies to be viable and without which, PSC levels could be too high. Only the international

airports would be profitable, while the remaining domestic airports would be unprofitable and

would require cross-subsidisation within the cluster.

Some stakeholders disagreed with cross-subsidisation within geographic groupings as they

argued that different airports should be regulated individually, and they believe charges should

be based on size and facilities rather than geographic groupings. Should charges for

secondary airports be higher due to the low passenger volume, one stakeholder believes that

the GoM should pay subsidies to reduce this.

Commission views

The Commission takes note that the GoM is currently negotiating with MAHB for the current 2

OAs to be replaced with 4 new OAs based on geographic regions. The Commission is

therefore presently considering as a possible option for the RAB to be organised in accordance

with the 4 OAs (discussed further in Section 7.0). The Commission lays out other options in

Section 7.0 and highlights the pros and cons of each option and continues to seek feedback

from stakeholders on this particular matter before deciding on how the RAB should be

structured.

26

Tariff setting

The Commission had stated in the October 2018 Consultation Paper that within an incentive-

based framework like the RAB, the airport operator can set its own structure and level of

charges provided that it is within the regulated price cap as set by the Commission. In other

words, MAHB in this case would be free to determine tariffs, with the Commission’s primary

regulatory concern is whether the implied regulated revenue per departing passenger is within

the price cap determined by the Commission.

In such a case, MAHB would also be free to propose new types of tariffs such as transfer PSC

or increasing the ratio of landing and aircraft parking revenues vis-à-vis PSC. The current ratio

of revenues generated by PSC and landing and aircraft parking fees based on MAHB’s 2018

financial performance is 81:18:1 (gross).


Most stakeholders agreed with the Commission that MAHB should be given the freedom to

charge different charges across different airports as per their business strategy, with most

agreeing with tariff differentiation based on airport sizes and facilities. For example, the PSC

could be lowered at specific tourist destinations to encourage tourism or raised at overcrowded

airports to combat congestion.

One stakeholder in particular strongly disagreed with the Commission that MAHB should be

given the freedom to charge different tariffs across different airports and requested for the

Commission to maintain the current weightage of PSC, landing and parking fees. Some

stakeholders also believe that airport development costs should not be funded by parking and

landing charges due to low service quality by the airport operator.

Some stakeholders agreed for an introduction of transfer PSC to reduce impact to PSC, though

almost all stakeholders disagreed with prefunding as discussed in the October 2018

Consultation Paper. Others highlighted that incentives should be non-discriminatory. Almost

all stakeholders emphasised on how increases in tariffs should consider the affordability of

users and the current economic climate vis-à-vis the Departure Levy.

Commission views

The Commission maintains its opinion that within an incentive-based framework like the RAB,

the airport operator should have freedom to set its own structure and level of charges provided

that it is within the regulated price cap as set by the Commission as the airport operator should

be incentivised to carry out a pricing strategy consistent with its BP.

The Commission retains its statutory right, however, to determine the tariffs itself if the set of

tariffs proposed by MAHB is deemed unreasonable by the Commission.

27

User fees

User fees are paid by MAHB to the GoM for the right to operate the airports and provides the

GoM with a source of funding for airports’ capex. The Commission had previously stated that

it is likely to include user fees into the cost base.


Some stakeholders questioned whether the inclusion of user fees could be double counting

given that there is also a corresponding amortisation cost associated with the asset base

(which includes concession rights). Almost all stakeholders requested for more clarity on the

utilisation of the user fees and whether the fees have been reinvested back into the airports

industry.

Commission views

The user fees are defined contractually under the 2009 OA. User fees paid to the GoM are

part of the GoM’s revenues and not specifically ring-fenced for reinvestment back into airports

currently. Therefore, user fees are in effect an operating cost to MAHB, which can also be

argued to represent a proxy remuneration of the GoM assets (airport development capex) that

were historically not paid by MAHB. The arrangements between MAHB and the GoM are

determined by the OA. If airport aeronautical charges are not able to remunerate these costs,

then it could lead to underperformance impacting the financial stability of the airport operator.

As such, the Commission maintains its position to allow the recovery of user fees into the RAB

framework.

Capex responsibility


There are a number of feedback received on capex, as listed below:

a) some stakeholders questioned MAHB’s implementation capability and wanted more

involvement in approving the projects to be undertaken under the BP and CIP;

b) some proposed for only projects that will be commissioned for use to be included in RP1

while some others questioned whether the cost projections have included an efficiency

factor;

c) there was a suggestion for the Commission to consider the setting up of an ACC forum

to be held to discuss capex, as well as a clawback mechanism on non-delivery of

projects, while another requested for the Commission to include a monitoring

mechanism to avoid issues in deliverability; and

d) there was a concern that the significant capex programme may affect the QoS levels

delivered at the airports.

28

Commission views

The Commission believes that moving forward, the default capex and funding responsibility

should lie with the airport operator. In addition, placing such responsibility with the airport

operator is in accordance with global practices, and results in a more efficient, disciplined and

cost-conscious airport operator, resulting in airports that are designed in accordance with

commercial and industry needs. This will be a change for MAHB which has not been operating

within such an environment as the OA signed with the GoM in 2009 due to the shared

responsibilities for capex and funding.

In tandem with this view, MAHB is planning to increase their proposed capex significantly due

to their transition from an asset-light airport operator to an operator that would be responsible

for both development and maintenance capex.

However, the Commission questions whether MAHB has the internal capability to implement

a significantly higher amount of capital expenditures than it has historically been used to. As

an illustration, MAHB implemented capital expenditures of RM200 to RM300 million per annum

in between 2014 and 2017, while in its BP and CIP submissions, MAHB proposes to implement

capital expenditures of approximately RM2 billion to 3 billion per annum in RP1. This is a

significant increase, and will require internal process, culture and mindset change in MAHB in

order to execute projects of such quantum. Should MAHB fail in executing those projects within

the timescale provided, it would result in airport users overpaying in terms of charges.

There is also a concern that MAHB may be requested to execute certain ad-hoc government

projects during RP1, and whether MAHB should bear the burden of funding these projects. If

the funding burden would indeed fall on MAHB, then another issue arises on whether capex

for these projects should be included in the RAB, whereby their inclusion would increase the

price cap and the associated tariffs.

WACC


There were no significant comments on the WACC apart from some stakeholders as outlined

below:

a) risk free rate and cost of debt: Should be more forward-looking rather than using

historical averages;

b) beta: Some argue that the beta should be taken from the more recent period (last 5

years) rather than 2009-2013 and that MAHB’s beta showed that the stock volatility was

driven by local Malaysian operating factors rather than foreign operations. Another

highlighted that MAHB’s loss-making overseas businesses have resulted in a higher

perception of risk and thus the Commission should use sectoral benchmarks instead;

c) gearing: Some argued that the debt to capital ratio should be based on market value

rather than book value, with the ratio proposed to be lower at 40-45% due to debt and

29

rating limitations while some agreed with the Commission on the proposed 60% notional

gearing; and

d) overall WACC: One stakeholder argued that the 9.0% to 11.0% nominal WACC range

proposed by the Commission was too low and could harm both debt and equity investors.

Commission views

The Commission’s views are outlined further in Section 4.0 on page 61.

Regulatory risk


Some stakeholders had written to the Commission to ask for the commitment from the

authorities to reduce regulatory risk and ensure investor protection. They argued that the

authorities should consider the protection of the investors’ rights as minority shareholders and

capital providers to airport operators and hence their interests must be considered in the

implementation of the RAB Framework. The Airport REIT, departure levy and OA renegotiation

were quoted as examples of regulatory risks.

Commission views

The Commission takes note and concurs with the stakeholder comments. The Commission

had outlined its views on how the full realisation of the benefits of the RAB Framework on page

19.

Adjustment mechanisms

The Commission would like to highlight that the price cap is calculated in nominal terms based

on MAHB’s submission. There will be no adjustments made for the actual inflation being

different to forecast inflation.

The only adjustment mechanism will be for the case where the actual regulated revenue per

departing passenger (based on audited figures) is different from the price cap.

The Commission will then adjust for an such differences in the next RP as described in Section

4.0. The differences usually stem from a different mix of traffic compared to those assumed in

the forecast (e.g. a different proportion of international vs domestic departing passengers

paying tariffs).

30

REVIEW OF MAHB NOVEMBER 2018 SUBMISSION

On 30 November 2018, MAHB submitted a BP and CIP to the Commission, which consists of

historical data for the period of 2014 to 2017 and forecast data for the period of 2018 to 2022.

The data was provided by MAHB in the form of individual airport spreadsheets, to enable the

RAB Framework to be applied to a form of grouping of airports to be determined by the

Commission.

Between August 2017 to May 2019, the Commission conducted a total of 41 clarification

sessions with MAHB totaling 94 hours of engagements (via both face-to-face meetings and

conference calls) to discuss the content of the BP and CIP. The Commission undertook a

verification exercise, the outcome of which forms the basis of the proposed draft price cap. In

April 2019, the Commission was also provided with MAHB’s audited 2018 financial statements

and the actual traffic statistics. For the purposes of the RAB Framework verification and review

for RP1, the Commission has used the historical data for 2014 to 2018, the forecast data for

2019 and the forecast RP1 figures (2020 to 2022).

Opening RAB

The Commission has included all assets which MAHB has invested in and used to operate

airports in Malaysia including intangible assets, land and concession rights. These mainly

consist of MAHB’s investment in KUL-T2 and some other airport investments. The opening

asset base has been provided for each of MAHB’s airports.

The Commission is using a starting asset base that includes airport assets under MA Sepang

and MASB, the two airport operating subsidiaries. STOLports are excluded from the

calculation of the asset base due to the impending MA to be signed between MAHB and the

GoM. The Commission has also excluded assets held at overseas airports and ancillary

operations which are not used to operate airports. Current assets such as cash, inventories

and short-term investments are not included in the RAB.

As stated in the October 2018 Consultation Paper, these asset value estimates do not include

terminal infrastructure and other development capex on assets financed and developed by the

GoM. Therefore, the airport aeronautical charges calculated from the RAB Framework is

calculated on a smaller base compared to the total airport assets in Malaysia. However, MAHB

also pays the GoM user fees, which are an in effect a type of concession fee or proxy

remuneration paid to the GoM for the use of GoM’s airport assets.

The main components of MAHB’s asset base are categorised into building and structures,

infrastructure and operating equipment. It is based on the assets used for the provision of

aeronautical and related services and includes, under the chosen single till regime: all assets

used for aviation activities as well as commercial activities (e.g. runways, terminals, retail, car

parks, property used for these customers (offices), etc.). These will usually lie within the airport

perimeter boundary.

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As tabulated in Table 1, MAHB assets are distinguished between assets (excluding

concession rights and assets in the course of construction), concession rights and assets in

the course of construction4. As at 31 December 2018, the depreciated asset value is RM8.3

billion.

Values in

RM million

Assets

excluding

concession

rights and AICC

Concession

Rights AICC

Total

assets

Opening Balance 6,615.6 1,510.7 209.0 8,335.3

Additions 303.8 - 45.5 349.3

Disposals (5.9) - - (5.9)

Depreciation (311.2) (20.1) - (331.3)

Closing balance 6,602.4 1,490.5 254.5 8,347.4

Table 1 – MAHB assets as at 31 December 2018

Source: MAHB

MAHB Business Plan & key strategies

MAHB stated in its 2019-2022 BP that the Malaysian airport industry would need to address 4

key objectives in the immediate term. The industry needs to achieve higher growth and

performance by growing KUL’s prominence as a regional hub, expand airports’ capacity and

uplift quality of service. There is also a need to ensure competitive prices for the airlines that

take into account affordability for consumers. At the same time, there is a need to ensure that

airport operators maintain fair returns to encourage further investment into the airports system

whilst minimising subsidies required by the GoM.

Through the BP, MAHB aims to deliver 5 key strategic themes - becoming a best-in-class hub,

attaining world-class service levels, strengthening the non-aeronautical business, unlocking

potential through Aeropolis and expanding the international business. For the purposes of the

RAB Framework, the Commission will only review the BP relating to the domestic airports

sector. A snapshot of the BP, its strategic themes, burning platform issues, initiatives and

business model enablers are as listed below.

4 AICC, also known as Capital-in-Progress, represent assets which are being built or developed but not yet completed and available for use at the end of the financial year. Once completed they are transferred to asset categories and depreciated.

32

* Pages refer to MAHB’s 2018 Annual Report

Figure 6 – MAHB BP

Source: MAHB

The Best in Class Hub strategic theme aims to strengthen Malaysia’s overall airport network

with KUL at its heart, contributing 60.5% of total passenger traffic in Malaysia (60.0 million

passengers out of total 99.0 million passengers in 2018). Other airports in MAHB’s network

are positioned as feeders for KUL’s traffic, while also taking steps to attract point-to-point traffic

for themselves. This is also in line with the MoT’s National Transport Master Plan, which

envisions KUL as the nation’s primary hub in a hub-and-spoke model airport system.

MAHB also aims to raise MAHB airports’ service levels to world-class standards in line with

aspirations to position KUL as a hub and MASB airports as secondary airports respectively.

Its initiatives are to meet the QoS regulations imposed by the Commission as well as ensuring

a customer-centric culture.

33

Lastly, MAHB aims to strengthen its non-aeronautical businesses by conducting a commercial

reset strategy as well as establishing an e-commerce platform. Its initiatives include

commercial revenue enhancement, strengthening retail duty-free and enhancing the

commercial business at MASB airports respectively.

The financial impact of the BP and CIP were extracted and tabulated in the form of starting

and projected RAB and price cap levels for the whole Malaysian airport business as well as

individual geographic clusters as shown below.

Overall RAB and price caps for MAHB’s Malaysian airports business, based on MAHB

November 2018 submission

RM million 2018A 2019F 2020F 2021F 2022F

RAB Opening balance 8,335.3 8,347.4 9,173.7 11,446.0 14,069.8

Capex 349.2 1,212.1 2,723.2 3,152.7 4,119.4

Disposals (5.5) - - - -

Depreciation (331.6) (385.8) (451.0) (528.9) (596.1)

RAB Closing balance 8,347.4 9,173.7 11,446.0 14,069.8 17,593.1

Operating costs 1,911.0 2,231.0 2,419.9 2,574.9 2,737.4

Depreciation 331.6 385.8 451.0 528.9 596.1

Return on capital (WACC) 1,167.8 1,226.5 1,443.4 1,786.1 2,216.4

Non-regulated aeronautical revenues (65.9) (66.4) (70.6) (75.3) (80.1)

Non-aeronautical revenues (1,163.7) (1,213.9) (1,294.0) (1,420.9) (1,494.8)

Regulated revenues 2,180.8 2,563.0 2,949.7 3,393.6 3,975.0

Departing passengers (thousands) 49,797.8 52,498.0 55,603.8 58,888.9 62,333.5

Price cap (RM) 43.8 48.8 53.0 57.6 63.8

Note: 2018 and 2019 price caps are illustrative of what price caps would have been had the RAB Framework been in place

and do not reflect the actual revenues per departing passenger in 2018 and 2019

Table 2 – Overall RAB and price cap for all airports (MAHB November 2018)

Source: MAVCOM analysis, MAHB November 2018 submission

The MAHB BP and CIP submissions, updated for 2018 actual data and an amendment to the

user fee calculation, leads to an escalating level of regulated revenues over the forecast

period, which implies almost a doubling of tariffs would be required across the network to fund

this plan (from RM34.8 actual revenue per pax earned in 2018 to RM63.8 in 2022).

The implications to the clusters are contained in the subsequent 4 tables. Cluster RAB have

been calculated by applying consistent WACC across all clusters and allocating all allowable

HQ costs to KUL.

34

RAB and price caps per cluster, based on MAHB November 2018 submission

RM million 2018A 2019F 2020F 2021F 2022F


Capex 242.1 767.8 2,002.3 1,825.0 2,993.5

Disposals 4.6 - - - -

Depreciation (286.2) (339.4) (400.9) (467.2) (519.8)


Operating costs 1,385.0 1,635.8 1,787.1 1,879.3 2,001.8

Depreciation 286.2 339.4 400.9 467.2 519.8



Non-aeronautical revenues (962.4) (994.3) (1,063.1) (1,175.8) (1,238.6)



Price cap (RM) 55.5 64.6 69.4 72.5 78.5



Table 3 – Overall RAB and price cap for KUL (MAHB November 2018)


RM million 2018A 2019F 2020F 2021F 2022F

RAB Opening balance 757.1 781.8 1,020.5 1,536.8 2,330.5

Capex 62.6 271.0 551.9 838.0 527.4

Disposals (5.2) - - - -

Depreciation (32.6) (32.3) (35.6) (44.3) (56.7)

RAB Closing balance 781.8 1,020.5 1,536.8 2,330.5 2,801.2

Operating costs 243.2 272.9 293.1 326.5 344.3

Depreciation 32.6 32.3 35.6 44.3 56.7

Return on capital (WACC) 107.7 126.2 179.0 270.7 359.2


Non-aeronautical revenues (117.1) (136.5) (145.2) (155.4) (160.8)

Regulated revenues 260.4 288.5 355.7 478.8 591.7


Price cap (RM) 31.5 32.8 38.2 48.5 56.6



Table 4 – Overall RAB and price cap for Peninsular (MAHB November 2018)


35

RM million 2018A 2019F 2020F 2021F 2022F

RAB Opening balance 174.6 179.4 245.5 292.0 486.9

Capex 14.8 74.5 54.9 204.3 318.7

Disposals (3.7) - - - -

Depreciation (6.3) (8.4) (8.4) (9.4) (9.6)

RAB Closing balance 179.4 245.5 292.0 486.9 795.9

Operating costs 126.9 152.3 158.7 172.1 183.1

Depreciation 6.3 8.4 8.4 9.4 9.6






Price cap (RM) 23.1 25.7 26.5 29.8 34.8



Table 5 – Overall RAB and price cap for Sarawak (MAHB November 2018)


RM million 2018A 2019F 2020F 2021F 2022F


Capex 29.7 98.9 114.2 285.4 279.8

Disposals (1.2) - - - -

Depreciation (6.5) (5.6) (6.1) (8.1) (9.9)


Operating costs 155.9 170.0 181.0 197.0 208.2

Depreciation 6.5 5.6 6.1 8.1 9.9






Price cap (RM) 19.7 19.8 22.0 26.3 30.9



Table 6 – Overall RAB and price cap for Sabah (MAHB November 2018)


36

Capital expenditure

MAHB November 2018 CIP summary

Through its BP and CIP, MAHB plans to focus on 3 key strategies: becoming a best-in-class

hub, attaining world-class service levels and strengthening the non-aeronautical business.

Through the new OAs5, MAHB is planning to depart from its traditional business model of an

asset-light operator which would only be responsible for maintenance capex and not

development capex. In this regard, the Commission is of the opinion that even though MAHB

was traditionally an operator without any default developer duty, it was still MAHB’s

responsibility to identify the airports’ development needs and operate the airports in

accordance with the appropriate standards.

MAHB highlighted that the estimates for Development Capex submitted in November 2018

were preliminary and subject to further in-depth consultation and studies that were planned to

be carried out in the first half of 2019. The estimates for Maintenance Capex meanwhile were

developed on a bottom up project by project basis based on a combination of historical and

comparable benchmarks of unit costs, asset replacement values, vendor quotations, tender

documents and other methods.

The total capex in MAHB’s proposed CIP is RM11.2 billion for the 2019-2022 period, consisting

of RM7.1 billion for KUL, RM3.6 billion for MASB airports while RM0.5 billion is attributable to

corporate capex6. However, the Commission were not able to reconcile the total capex stated

in the CIP with the detailed capex spreadsheets furnished by MAHB, with the latter providing

a total capex of RM10.8 billion instead (of which RM10.0 billion is for RP1 period of 2020-

2022).

MAHB identifies the need for capital investment based on the asset‘s useful life, asset

performance, regulatory requirement, spare parts availability, provision of technical support

and alternative options. For replacement capex, the asset replacement master plan will be

triggered when the asset is reaching its predefined useful life. The condition and performance

of the asset will first be assessed to determine the possibility of extension of asset’s useful life.

In the event where extension is not recommended, the asset will be replaced at its end of

useful life and the timeline of the replacement programme depends on the complexity of this

programme.

MAHB highlighted that the scale and pace of the capex programme will require a significant

ramp up in terms of execution capabilities. While over the long term, MAHB acknowledged the

requirement to build a robust in-house capex planning and delivery team, given the

accelerated execution timeframe for many critical projects, it is likely that MAHB will need to

secure external technical expertise or partners to deliver on the investment programme for

RP1.

5 Targeted to be signed in 2019. 6 80% allocated to regulated business and included in KUL capex.

37

Proposed adjustments to capex allowed into the RAB Framework

The Commission embarked on a review process of the CIP in December 2018, shortly after

the BP and CIP were submitted. As part of the evaluation, the Commission reviewed the

current capacity and layout of the airports, forecast traffic growth, peak hour passenger

demand, project costs, demand by airlines, timing and the necessity of each project. In

addition, the Commission considered whether MAHB has fully exhausted other possibilities

such as implementing operational efficiencies, or alternative, less capital-intensive solutions

(such as internal reconfiguration), before planning its capital investment.

In reviewing the proposed projects, the Commission considers the following key target

outcomes:

a) the airports must be able to provide sufficient future capacity to its users (airlines, ground

handlers, passengers) for daily operations;

b) the airport infrastructure is provided at good levels of service;

c) the cost efficiency of the infrastructure; and

d) the operational efficiency of the airports’ infrastructure and services.

The annual design capacity refers to the nominal capacity of the airport’s facilities to process

the aggregate passengers per annum. On the other hand, the peak hour capacity refers to the

number of passengers being processed by the airport during the peak hour which allows for

development of design requirements.

Proposed monitoring process to monitor project execution

The Commission takes note that MAHB is expecting to significantly increase the capex across

the network from historic levels of RM200 million to RM300 million per annum to a RP1 CIP

which is in the range of RM1 billion to RM2 billion per annum. A number of stakeholders have

also raised concerns about MAHB’s ability to deliver the development and maintenance capex

programme, particularly with large projects such as BHS, TTS and commercial reset programs

to be executed over a period of 3 years.

The Commission recognises the risk of MAHB not being able to plan and execute the delivery

of projects proposed in its BP and CIP. However, the Commission also takes note of the

investment need due to the ageing facilities, increasing congestion and the need for large-to-

medium scale refresh programmes at many of MAHB’s airports. It may also be appropriate to

provide MAHB with the ecosystem and funding mechanism needed to encourage it to take the

required steps to deliver the capital programme that is needed for the airports, such as building

up internal execution capacity and enhancing capital delivery.

38

Options being considered by the Commission include:

a) identification of priority projects;

b) monitoring levels of expenditure and progress on delivery of projects on a periodic basis;

c) high-level reactive monitoring in response to stakeholder concerns raised on delayed

and inappropriately scoped projects; and

d) undertake an ex-post review of the level of actual expenditure compared to the plan

underpinning the price cap.

The Commission intends to monitor MAHB’s implementation of its capital expenditure plan

through the setting of interim way points. The detailed solution needs to recognise the trade-

off between the costs of monitoring and the need to ensure the timely and cost-effective

implementation of the capital programme, which underpins the regulated tariffs to be paid by

users for RP1.


39

Key projects – before & after verification

MAHB submitted a total capex of RM11.2 billion for the 2019 to 2022 period, of which RM10.0

billion is for RP1 (2020-2022). Overall, the adjustments the Commission is proposing to make

(by assessing the cost estimates and adjusting the timelines) are as below:

Total capex for RP1

(RM million)

MAHB’s

November 2018 CIP

MAVCOM

draft base case revision

KUL 7,080.6 3,290.5

BKI 398.5 228.0

PEN 890.9 1,045.2

KCH 370.9 164.1

LGK 342.0 233.7

SZB 146.8 6.4

TWU 98.3 0.4

SBW 64.6 0.5

SDK 85.9 7.3

KBR 519.7 12.6

Total * 9,998.4 4,988.7

* The total includes KBR and SDK, where development capex will be funded by the GoM

Totals may not add up due to capex at smaller airports not listed above and rounding of numbers

The GoM has directed MAHB to fund the following projects totaling RM103m: ATC and meteorology

projects in PEN; ATC system update in SZB

Table 7 – Summary of proposed capex

Source: MAVCOM analysis, MAHB

KUL – both terminals

KUL is currently operating at 86% of the combined capacity of 70 million pax per annum (2018

traffic: 60.0 million pax). The KUL-T1 has reached 112% of its annual design capacity of 25

million pax per annum (2018: 28.1 million pax) while KUL-T2 is operating at 71% of the annual

capacity of 45 million pax per annum (2018: 31.9 million pax). However, on a peak hour pax

basis, both terminals are operating below capacity. For KUL-T1, MAHB is projecting a peak

hour passenger of 6,661 pax in 2019 compared to the design peak hour capacity of 8,909 pax

while for KUL-T2, MAHB is projecting 6,669 pax in 2019 compared to design peak hour

capacity of 11,371 pax. The Commission takes note that MAHB is projecting that the peak

hour passenger will not breach designed peak passenger per hour capacity throughout RP1,

with a peak hour passenger projected for 7,734 at KUL-T1 and 8,249 at KUL-T2.

MAHB proposed several projects within the regulatory period to increase the capacity of all

airport areas. This included increasing aircraft stand capacity with new satellite buildings for

each terminal, expanded and reconfigured terminal areas, passenger connections between

terminals, major refurbishment programmes for the baggage handling systems, aerotrain and

airfield pavement, expanded short-term car park and various operational and corporate

initiatives.

40

Overall, the Commission assessed that there is no requirement to take on the planned

expansion of a new satellite building, with the expansion to both the main terminal and piers

allowed to proceed only after optimisation projects have been examined, in line with the

findings from IATA optimisation study commissioned by MAHB in 2018. If MAHB is able to

process 400,000 passengers per stand, the Commission assessed that KUL-T1 will be able

to cater for up to 34 million pax per annum by utilising more remote stands and adding new

bus lounges. The Commission is therefore proposing to allow the proposed expenses for

optimisation whilst deferring a few large development capex projects but allowing for a

significant portion of maintenance capex such as the BHS, TTS and runway pavement

programs. These projects will also be required to undergo consultation, both by MAHB and

also at the consultation sessions to be organised by the Commission.

On the airfield, the Commission notes that though the aircraft movements per hour at the

airport are close to the maximum capacity of 84 movements per hour, the Commission

assessed that the airfield capacity can be further improved given that 84 movements per hour

are not high for a 3 wide-spaced parallel runway system7. The peak movements anticipated in

2019 are 42 and 40 for KUL-T1 and KUL-T2 respectively. However, given that MAHB is

projecting peak hour aircraft movements of 101 in 2023, the Commission is allowing capital

for MAHB’s proposed projects to improve runway efficiencies.

The Commission is proposing to allow for a capital allowance for MAHB to conduct further

master planning and development studies in RP1, especially given the potential long-term

need to enhance airside connectivity and transfer service between the two terminals to

maximise KUL’s operating efficiency as a multi-terminal hub. However, the Commission also

notes that MAHB would have to set out a comprehensive argument on why KUL should have

these facilities to meet airline, passenger and national interest.

KUL Project description

Development Capex proposed by MAHB

Interim solution Conversion/Renovate the existing ramp office (Ground Floor) at CP to cater

new bus departure lounges (left & right).

MTB right/left

expansion

Expansion of MTB in both right and left directions

Link bridge right/left

expansion

Expansion of the link bridge (right/left) to accommodate more international

passengers

Satellite B Construction of new satellite B (4 floors)

Runway 2 western

parallel taxiway

New western parallel taxiway at Runway 2

Multi-storey car

park

New multi-storey car park (2 blocks)

Inter-terminal

connections

Airside Inter-Terminal Transfer between the two terminals (TTS, BHS etc).

Execution to be deferred but planning can commence during RP1. Planning

should be coordinated with the Satellite B project. As an interim solution, to

consider using buses and trucks for airside connectivity.

7 A single runway airport could achieve up to 55 movements per hour while a two-runway airport system could achieve up to 80 movements per hour subject to airspace capacity management constraints.

41

KUL Project description

KUL-T2 Pier

reconfiguration

Pier reconfiguration to accommodate more passengers

KUL-T2 terminal

building expansion

Expansion to KUL-T2 MTB and Satellite to accommodate more passengers

Maintenance Capex proposed by MAHB

Baggage flows Replacement of life-expired major systems such as sorting, IT, transporting

and screening equipment

Aerotrain

replacement

Replacement of existing aerotrain that serves as the main transportation

mode in ferrying passengers at KUL MTB and satellite

Airport

management

centre (AMC)

Integrating all subcentres and implementation of Airport Collaborative

Decision Making (ACDM)

Taxiway loop Construction of loop taxiway at Runway 2 14R and associated works

Pavement repairs Refurbishment of runway, taxiway and apron system

Building facility

maintenance

Upgrade of the 20-year old KUL-T1 including toilet upgrades, roof repairs

and floor upgrades

Commercial reset Upgrading of commercial retail lots and product offerings

Terminal ambience Airport beautification and interior makeover

Big data analytics Big data analytics and Internet Of Things (IOT) system implementation to

manage passenger flow

Navigation Improving wayfinding

Security processing Upgrading of security checkpoints

CCTV Refresh of CCTV technology and perimeter intrusion system

Fire safety Fire safety system enhancement

AGL Upgrade of AGL

MAHB Rebranding Corporate rebranding

Corporate office

expansion

Revamp of existing office and construction of new office due to capacity

constraints

SAP system Implementation of SAP GRC Access Control

Minor Repex Minor Repex allowance (based on benchmark)

Projects proposed by the Commission

Master planning Instigate a masterplan refresh for KUL

PBB replacement Commence PBB replacement program at KUL

Terminal

optimisations

Implement projects recommended by IATA for terminal optimisations

Table 8 – List of proposed projects at KUL


BKI

BKI is currently operating at 89% of the design capacity of 9.0 million pax per annum (2018

traffic: 8.6 million pax) and this is projected to be breached in 2019. However, on a peak hour

passenger basis, the airport is still operating below capacity (projected at 2,485 pax compared

to design peak passenger per hour of 3,200 pax). MAHB is also not projecting for peak

passenger per hour to exceed design capacity throughout RP1, with the peak hour passenger

for 2022 projected at 2,881. However, stand capacity could be considered as full, with only 19

stands and 474,000 passengers handled each stand per year.

42

For BKI, MAHB’s initial capex plan as per its November 2018 submission includes, among

others, expansion of the MTB, pier expansion and construction of multi-storey car park. MAHB

has also proposed maintenance capex items such as AGL, BHS, EPS, pavement and PBB

upgrades.

After its review, the Commission is proposing to allow the MTB expansion (Phase 1) and pier

expansion to be implemented only after operational efficiencies have been identified and

implemented, subject to consultation with airlines. Further master planning and development

studies can be conducted while the design and construction for expansion can be deferred

until the next RP. The Commission is also allowing all of the maintenance capex projects such

as on the AGL, BHS and pavement upgrades. The Commission, on the basis of MAHB’s

capacity assessment, concurs that development of a new multi-storey car park should

proceed.

For the airfield, MAHB has projected that the runway capacity of 26 movements per hour will

be breached in 2023. The Commission assessed that the available infrastructure should be

able to cater for more than that given there is a full parallel taxiway and 2 RET in both

directions.

BKI Project description


MTB left

expansion

Phase 1 upgrading and expansion of BKI - MTB left expansion, pier expansion,

new multi-storey car park

Pier expansion Pier expansion including new PBB, VDGS and new aircraft stands

Multi-storey car

park

New multi-storey car park to accommodate more capacity


AGL Upgrading and maintenance works for AGL

BHS upgrade Upgrading works for BHS as it is more than 10 years old – replacement of drive

motor, roller/support bearing, link to Energy Monitoring System etc.

EPS upgrade Replacement of apron floodlights

Pavement Reconstruction and resurfacing of pavement

PBB upgrade Upgrade of PBB, VDGS and refurbishment of current PBB

Terminal

building upgrade

Upgrade of terminal building – public announcement system, toilet refurbishment

etc.

Others Digital interactive directory, digital standee, repainting works

Table 9 – List of proposed projects at BKI


PEN

The Commission concurs that there is an urgent need to expand PEN. It is currently operating

at 120% of the design capacity of 6.5 million pax per annum (2018 traffic: 7.8 million pax) and

this is projected to grow to 9.7 million in 2022. On a peak hour passenger basis, the airport is

projected to breach its capacity in 2020 (projected at 2,540 pax compared to design peak

passenger per hour of 2,553 pax). Stand capacity is also essentially at reasonable capacity,

with only 16 stands and 405,000 passengers handled each stand per year. The Commission

43

notes that MAHB has commenced projects to provide short-term interim solutions to improve

traffic flow, overall layout and reduce safety risks, such as enlarging the inbound immigration

area. The Commission is also aware that MAHB has commenced plans for expanding the

airport to 12 million pax per annum and has initiated airport user consultations.

For PEN, MAHB’s initial capex plan as per its November 2018 submission include, amongst

others, terminal extension, apron extension, BHS upgrade, provision of additional PBBs and

construction of multi-storey car park. For the maintenance capex items, MAHB has proposed

upgrades to be done for the terminal building, AGL, EPS, BHS, pavement and PBB.

MAHB was not able to send any data on the breakdown of the proposed PEN capex due to

the early stages of procurement and design process. Therefore, the Commission had to

conduct a bottom-up review, with cost estimates being derived as per the project descriptions.

After its review, the Commission is proposing to allow the terminal expansion and apron

expansion to proceed, subject to consultation. However, the Commission proposes deferment

of some contact stands construction. The Commission considers that, given MAHB will now

be in control of the timeline and funding, expansion based on incremental stages should be

further considered. The Commission would welcome stakeholders’ feedback on this

consideration. The Commission is also allowing all of the maintenance capex projects.

For the airfield, MAHB has projected that the runway capacity of twenty (20) movements per

hour will be breached in 2021 at 21 movements per hour, increasing to 24 in 2022. The

Commission understands that the airspace management is a key capacity constraint due to

the nearby Butterworth military airport. There is a risk that the development program at PEN

will not be realised due to runway capacity constraints.

PEN Project description


Terminal

extension

Additional floor area for the terminal and contact pier to cater for international

wing

BHS Upgrade of BHS

Apron extension Expansion of aircraft parking apron

PBB Additions of PBB

Car park Construction of multi-storey car park

Enabling works Enabling works – ATC, AFRS, MET, GA, apron



BHS upgrade Supply, Install, testing and commissioning BHS high level control (HLC) at PEN

EPS upgrade Replacement of apron floodlights


PBB upgrade Upgrade of PBB and replacement of VDGS

Terminal

building upgrade

Upgrade of terminal building – public announcement system, toilet refurbishment

etc.

Others SITC of FIDS hardware and system, signages, GAS

Table 10 – List of proposed projects at PEN


44

KCH

KCH is currently operating at 105% of the design capacity of 5.3 million pax per annum (2018

traffic: 5.6 million pax). However, on a peak hour passenger basis, the airport is still operating

below capacity (projected at 1,868 pax in 2019 compared to the design peak passenger per

hour of 2,000 pax). MAHB is projecting for peak passenger per hour to exceed design capacity

in 2021. Stand capacity is not observed to be at capacity, with 9 contacts stands and up to 7

gates being used at peak times. There are 3 remote bays which can also be used.

MAHB proposed development capex projects to expand the terminal, pier and apron as well

as install new ILHBS, multi-storey car park, and relocate the cargo and other facilities.

Maintenance capex was identified to achieve airfield compliance for AGL and pavement works

as well as refurbish BHS, replace PBBs, and replace dilapidated electrical equipment. Repair

and improvement of the terminal building was also identified.

After its review, the Commission is proposing to defer construction of the terminal expansion

and allow apron expansion to proceed only in stages, subject to stakeholder consultation. A

more efficient ratio of 70:30 ratio for contact stands to remote stands is recommended, in line

with global practice. The Commission is also allowing most of the maintenance capex projects

such as on the AGL, BHS and pavement upgrades.

For the airfield, MAHB has projected that the runway capacity of 30 movements per hour and

it will not be breached throughout RP1, growing to 21 movements in 2022. As such, there is

no runway capacity issue at KCH.

KCH Project description


Terminal

extension

Additional floor area for the terminal and contact pier

BHS Upgrade to Inline BHS

Apron extension Expansion of existing aircraft parking apron and associated works


Car park Construction of multi-storey car park

Cargo relocation Relocation of existing cargo, maintenance and catering facilities



BHS upgrade Refurbishment of Baggage handling system

EPS upgrade Replacement of the CCR, new cable for high mast lighting, main switchboard etc


PBB upgrade Upgrade of PBB

Terminal

building upgrade

Upgrade of terminal building – toilets refurbishment of cooling towers etc

Others other projects involved include flood light at car park, digital signages, repainting

works and few replacement programs like signages

Table 11 – List of proposed projects at KCH


45

Langkawi (LGK)

LGK is currently operating at 68% of the expanded design capacity of 4.0 million pax per

annum (2018 traffic: 2.7 million pax), after the completion of its expansion in 2018. However,

on a peak hour passenger basis, the airport is operating above its design peak hour capacity

of 1,200 pax (projected at 1,252 pax in 2019) and there is congestion at processing areas. The

airport has plenty of stand capacity as it has 15 aircraft stands at the airport (and no

aerobridges).

MAHB identified development capex to relieve the congestion through terminal expansion,

stand reconfiguration and providing new PBBs and car parking facilities. Maintenance capex

was identified for upgrade of AGL fittings, runway resurfacing and upgrading various terminal

facilities.

After its review, the Commission is proposing to allow the terminal expansion, which will target

to increase the critical processing areas and allow for optimisation projects, subject to

consultation. However, the Commission is proposing to defer the proposed addition of a

second floor and PBBs as it was found that operational and procedural processes should be

reasonably able to resolve the lack of separation for international and domestic passengers in

the short and medium term. The Commission is allowing most of the maintenance capex

projects such as on the AGL and pavement upgrades.


be breached in 2019 (12 in 2022). As such, there is a runway capacity issue at LGK. The

Commission assessed that the available infrastructure should be able to cater for more than

10 movements per hour given the current infrastructure.

LGK Project description


Terminal

extension

Expansion for processing areas including construction of new floor and PBBs

Aircraft stand

reconfiguration

To accommodate new contact stands and PBBs


Car park Construction of new car park




Terminal

building upgrade

Upgrade of terminal building – new safety line for roof access, aluminium

composite cladding, PA system, refurbishment of toilets for staff/passenger and

the replacement of chillers

Others Other upgrading works include security fencing, construction of new schedule

waste storage, offices, and the replacement program for X-rays


Master planning Instigate a masterplan refresh for LGK

Table 12 – List of proposed projects at LGK


46

SZB

The Commission concurs that there is a need to optimise and alleviate the congestion at SZB.

SZB is currently operating at 133% of the design capacity of 1.5 million pax per annum (2018

traffic: 2.0 million pax), though this has been declining over the last few years and the urgency

to expand has somewhat subsided. On a peak hour passenger basis, the airport is operating

above its design peak hour capacity of 660 pax (projected at 737 pax in 2019) and there is

congestion at processing areas. The airport has limited stand capacity as it has 11 aircraft

stands handling 265,000 passengers annually per stand while the peak aircraft movements

per hour forecast is 17 in 2019.

Substantial development capex was identified by MAHB in its regulatory submission. This

included refurbishment and expansion of Terminal 3, including a new departure and arrivals

facility and associated apron and stands, demolition of Terminal 2. Installation of a new ILHBS

was also included.

After its review, the Commission is proposing to defer the terminal expansion but allow for

optimisation projects through Minor Repex projects. It is thought that monies should be

invested which will target and increase in the critical processing areas. Given the declining

passenger numbers such optimisation should be subject to consultation. For example, the

existing international gate lounge could be converted to a swing gate facility given there are

limited international flights. There is also an opportunity to repurpose the existing international

duty-free offering to mitigate constraints in the passenger screening area.


be breached only after 2023 (17 movements in 2019 and 22 in 2022). As such, there is no

runway capacity issue at SZB. The Commission assessed that the available infrastructure

should be able to cater for more than 24 movements per hour given the current infrastructure.

SZB Project description


T2 demolition Demolition of T2 and development of temp car park

T3

refurbishment

T3 refurbishment, expansion and new domestic B

Lounge upgrade Upgrade and refurbishment of existing lounge

New ILHBS Installation of new ILHBS

Terminal

expansion

Terminal expansion to increase processing areas and increase capacity

Apron extension Extension of apron area


Minor Repex Minor Repex allowance (based on benchmark)

Table 13 – List of proposed projects at SZB


47

TWU

TWU is currently operating at 109% of the design capacity of 1.5 million pax per annum (2018

traffic: 1.64 million pax). On a peak hour passenger basis, the airport is operating above its

design peak hour capacity of 580 pax (projected at 896 pax in 2019) and there is some

congestion at processing areas. The airport has limited stand capacity as it has 6 aircraft

stands (2 PBBs; 4 remote bays) while the peak aircraft movements per hour forecast is 8 in

2019 (growing to 10 in 2022).

MAHB proposed to increase the terminal capacity to 2.5 million pax per annum through a

terminal reconfiguration and modernisation project with new check-in counters and ILHBS.

Airfield expansion was identified through increasing the apron and additional PBBs.

After its review, the Commission is proposing to allow for optimisation projects which will target

to increase the critical processing areas, subject to stakeholder consultation. The Commission

is proposing to defer the additional two PBBs as they are not required for improved efficiency

of the airport (MAHB could build more remote bays instead since airlines such as AirAsia prefer

to use walk-out / remote stands) and also deferring the requirement for code E aircraft stand

(which requires more justification of its business case). Most of the maintenance capex

projects will be allowed although the upgrade of the BHS to ECAC Standard 3 is only required

if the airport is increasing international traffic.


be breached only after 2023 (8 movements in 2019 and 10 in 2022). As such, there is no

urgent runway capacity issue at TWU. The Commission assessed that the available

infrastructure should be able to cater for more than 10 movements per hour given the current

infrastructure.

TWU Project description


Terminal

expansion

Expansion of terminal and upgrade to air-conditioned terminal

New check-in

counters

New check-in counters

ILBHS New ILBHS with dedicated international and domestic carousel

Apron

expansion

Expansion of parking apron to accommodate additional parking stands


Minor repex Minor Repex allowance (based on benchmark)

Table 14 – List of proposed projects at TWU


48

Sibu (SBW)

SBW is currently operating at 88% of the design capacity of 1.8 million pax per annum (2018

traffic: 1.6 million pax). On a peak hour passenger basis, the airport is operating above its

design peak hour capacity of 900 pax (projected at 919 pax in 2019).

With the above design peak hour capacity, the area per pax is 15m2 which is below IATA LoS

optimum levels. MAHB proposed to expand and upgrade the existing terminal with

development capex to achieve 2.8 million pax per annum. An additional car park and ILHBS

was also proposed. However, the expanded functional area with the projected capacity will

result in a decline to the area per pax in the long-term. Overall, the Commission proposes to

defer the terminal and car park expansion subject to Masterplan findings and consultation.

For the airfield, MAHB has projected that the runway capacity of 20 movements per hour which

is anticipated to not be breached during RP1 (2019: 9). Although the airfield does not currently

have a parallel taxiway and it may be difficult to achieve the capacity of 20 movements per

hour, the Commission assessed that there is no urgent runway capacity issue at SBW.

SBW Project description


Additional car

park

Expansion of car park

Terminal

expansion

Expansion and upgrade of terminal

New ILBHS New ILBHS


Minor repex Minor Repex allowance (based on benchmark)

Table 15 – List of proposed projects at SBW



49

Operating costs & drivers

As part of the BP, MAHB submitted operating cost assumptions for the forecast period (2018

till 2022). The Commission has reviewed the submission, focusing on the 5 international

airports - KUL, PEN, LGK, BKI, KCH as well as overall trends for the rest of the 16 domestic

airports. The analysis undertaken included:

a) comparison of MAHB’s projections in terms of real growth trends against the historical

data (2015-2017) as well as a comparison between the Malaysian airports analysed;

b) comparison of the performance of MAHB airports against regional airport comparators;

and

c) selective bottom-up modelling.

Overall, the Commission found that the operating costs projected over the first RP1 to be

reasonable when reviewed against historical trends and regional benchmarks. The operating

costs8 is expected to grow by 5.6% per annum from 2017 to 2022, which is lower than the

historical growth of 6.6% per annum from 2014 to 2017.

The airports used in the benchmarking include 12 regional airports or national networks

reflecting data for 7 Asian nations: Vietnam, Indonesia, Thailand, India, Singapore, Hong Kong

and The Philippines. The analysis was undertaken in real 2017 prices to allow trends in

underlying parameters to be analysed.

The outcome of this review is provided in the following sections.

Staff costs

The Commission found that MAHB is projecting a significant increase in staff numbers at KUL

for the 2018 to 2022 period driven by material increases in the following departments: AVSEC

(+412), Operations (covering a range of functions but explained by MAHB as resulting from

the new QoS mechanism) (+182), Engineering (+66) and smaller increases in AFRS, Support

and Commercial (+21). In total, MAHB is projecting to increase its staff force by a total of 681

staff from 3,773 (2017) to 4,454 (2022) which translates into 18% growth (or 317 for RP1

period). The increases in staff at other MAHB airports were less significant (+209 or 9%

growth), mainly focused on Aviation Security, AFRS and Engineering functions.

For KUL, the Commission noted that the staff number increments are high in relation to the

expected growth in traffic and the fact that no significant terminal expansion is being planned.

The staff level is expected to grow by 3.5% per annum from 2017 to 2022 compared to a -

2.3% reduction per annum from 2014 to 2017 (which were attributed to efficiency

improvements). The limited staff increments expected at other Malaysian airports are

considered to be more reasonable and appropriate (1.4% per annum compared to -1.5%

historically, which can also be attributed to efficiency improvements).

8 Excluding user fees and repair & maintenance expenditure.

50

The Commission has built a bottom up estimate of the level of staff that would be justified by

the level of change in activity at the airport (passenger growth, new terminal area, commercial

revenue growth) forecast by MAHB by using the following elasticity assumptions:

Department Value Driver

AFRS 0.5 Passenger

AVSEC 0.5 Passenger

Car Park Management 0.6 Commercial Revenue

Commercial 0.6 Commercial Revenue

Engineering 0.6 Terminal area

GM's Office 0.6 Commercial Revenue

Operations 0.5 Passenger

Support 0.2 Passenger

Table 16 – Elasticity assumptions for staff number estimates

Source: MAVCOM analysis

This results in an estimated increment in staff numbers of 394 as compared to the 681

forecasted by MAHB for KUL for the 2018 to 2022 period.

However, MAHB is projecting low salary cost escalation assumptions. There is no real growth

in salaries projected between 2017 and 2022 which seems ambitious given that salaries are

expected to keep growing in real terms in Malaysia by 2% to 3% per annum based on a recent

industry report9. This is also in clear contrast with the trend observed in recent years when

salaries increased by around 3% to 5% per annum in real terms in the Malaysian economy10.

Following discussions with MAHB, the Commission understands that this forecast is driven by

a change in the mix of staff (lower wage staff replacing relatively higher wage staff) and also

reflects productivity improvements meaning that on average the expected cost per staff

member is not growing in real terms. MAHB has also recently highlighted that 95% of the

additional AVSEC hiring (in the 2019 to 2022 period) is attributed to National Civil Aviation

Security Programme (“NCASP”) as required by the Civil Aviation (Security) Regulations 2019

(“CASR2019”) under CAAM. As such, the Commission is keen to hear feedback from

stakeholders in this area before making a final adjustment on staff increments.

Staff numbers and levels are difficult to benchmark across other regional airports due to

different operating models (outsourcing vs insourcing). The Commission has undertaken

benchmarking on a staff cost per passenger and passengers per FTE basis using the sample

of airports described above. While recognising the limitations of the analysis, the Commission

found that KUL falls towards the lower quartile of both measures. For the other larger airports

9 https://www.theedgemarkets.com/article/malaysia-see-steady-salary-growth-2019 10 Salaries & Wages survey reports (2015-2017), Department of Statistics of Malaysia

https://eur01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.theedgemarkets.com%2Farticle%2Fmalaysia-see-steady-salary-growth-2019&data=02%7C01%7C%7Cf3017d22296a483b7b9608d6d77d55e4%7Cc1eae432c4d141b4998cde12d49f7913%7C0%7C0%7C636933331271388466&sdata=AMHKjPdtZPywvdrVlpyBzN4WTIOcb1ohb3bIb0Mp4hg%3D&reserved=0

51

within MAHB’s network, the Commission observed that these airports fall in the middle of the

group for staff costs passenger and in the lower quartile for passengers per FTE.

Taking all the evidence into consideration, the Commission has made a downward adjustment

of 6% to staff costs. As stated above, the Commission is keen to hear feedback from

stakeholders in this area before making a final adjustment on staff costs.

Utilities costs

Utilities costs refer to electricity, water, chilled water, communications and waste management

costs. MAHB is projecting an increase in the electricity cost which is linked to the tariff and

volume increases. Increases for water and chilled water costs are associated with the removal

of the RM18 million per annum adjustment due to the expiry of the GDC concession in 2018.

For the telecommunications cost, the extension of the contractual revenue and cost sharing

arrangements with the telco operators at KUL-T1 terminal (which was previously the case for

only KUL-T2 terminal) has increased the level of revenues and costs recognised.

The Commission assessed that the increment in utilities costs are considerably higher at KUL

as compared to the other Malaysian airports analysed (except at LGK), where an increment is

related to the proposed increase in terminal size). The Commission understands that this is

primarily driven by higher tariff increases at KUL for electricity and the removal of an

accounting adjustment for the GDC concession.

KUL has the highest unitary costs of all the larger comparator airports, both in term of per

square metre or on per passenger basis. KUL costs are also high when compared to the wider

ASEAN context, being significantly higher than Thailand, Indonesia, Vietnam, India and the

Philippines. However, the Commission recognises that the cost of energy is determined by

local arrangements for generation, distribution and supply.

Taking all the evidence into consideration, the Commission has not made any adjustment to

the utilities costs.

Administrative costs

Administrative costs are generally lump sum costs or discretionary expenditures ranging from

professional fees, licences, travel expenses, insurance payments to sundry costs. These types

of costs are not linked to traffic volumes or the floor area of a terminal. Licence and insurance

costs will vary when they are renegotiated whilst the amount of travel expense and the

appointment of professional services are a discretionary decision.

MAHB forecasts a large increase in professional services fees linked to land subdivision and

legal cases, as well as material increase in marketing costs to support tourism authority actions

to attract new routes. The quit rent is also expected to increase due to recategorisation by the

land office.

52

Administrative costs excluding marketing support are projected to decline in real terms across

all airports excluding Langkawi Airport, ranging from -14% at KUL to -30% to -40% at KCH,

BKI and PEN. The decline is even more significant when it is measured on a per passenger

basis. Around -50% for KCH, BKI and PEN, and -30% for KUL.

Based on its assessment that the costs are reasonable, the Commission has not made any

adjustment to this category of costs.

Repairs & Maintenance

The magnitude of the R&M costs is driven by the age and condition of assets and should be

considered as being split between regular planned and unplanned maintenance. MAHB has

not presented further information on the breakdown between planned and unplanned

maintenance, despite evidence showing that the age of some assets is leading to significant

unplanned or reactive maintenance activity.

The level of R&M costs would normally be impacted by the size of the asset base, which in

turn is linked to the capex programme. According to MAHB’s BP, R&M costs as a percentage

of the regulated asset base are projected to be around 4% of the asset base in the forecast

period. The Commission assessed each of the airports individually in terms of the R&M costs

on a per passenger basis against international benchmarks. On a per airport basis the

Commission found that the R&M costs proposed were generally in alignment with

benchmarks. However, the Commission considers that MAHB should consider ensuring

maintenance outcomes are properly considered and measured so that their value can be

considered against the sums spent.

In coming to the conclusion that the level of R&M costs spend was reasonable, the

Commission also considered the level of Minor Repex proposed at each airport as a

percentage of the asset base. International benchmarking indicates that allowances for Minor

Repex should usually fall within a 1% to 3% band. Consideration was given as to whether

MAHB were seeking R&M costs and / or Minor Repex that were both high against benchmarks

at each airport in turn, which was then found not to be the case. However, in some cases

MAHB’s Minor Repex proposals have been adjusted downwards in the Commission’s

assessment.

As part of the Commission’s review, the R&M costs were benchmarked against comparable

airports (in US dollars and converted to RM using an average exchange rate of RM4.00/USD).

The larger international airports were found to have an equivalent annual benchmark of

approximately RM5 per pax, whilst the smaller international or larger domestic airports being

approximated at RM2.50 per pax. On the other hand, the smaller domestic airports were found

to be approximated at RM1.25 per pax.

While there is general alignment in R&M costs based on the airport size, the Commission

found that there may be a case of inefficiencies of the costs utilised given the decline in ASQ

ranking, Skytrax ranking and general feedback on the performance of the airports’ assets. For

53

the smaller airports, there is general alignment with the benchmarked values. However, the

following outliers require additional justification:

a) MKZ, MZV and LMN have a significantly higher R&M costs per pax than the benchmark

values (between RM12 and RM18 per pax); and

b) LBU and LDU R&M costs are higher than benchmarks (between RM3 and RM6 per pax).

Given the MAHB plans for expansion and refurbishment at each airport, it would also be

assumed that the R&M cost per pax ratio could reduce as assets are being replaced and

refurbished or increased as new assets are added. This is not the case however, and the

Commission will look to receiving feedback from MAHB on this matter.

Taking all the evidence into consideration, the Commission has not made any adjustment to

R&M costs.

User fees

Pursuant to the OA, user fees are paid by MAHB to the GoM for the right to operate the airports

and provides a source of funding for GoM’s airport capex. Any commercial activities that

generate revenues from the use of airport infrastructure provided by the GoM, assets provided

or financed by the GoM or land belonging to the GoM are subject to user fees. The user fees

percentage consists of a Baseline Percentage which is equivalent to 8.30% for the first quarter

beginning 1 April 2008 plus a cumulative quarterly increase of 0.0625% per quarter which is

capped at a maximum of 33.0%11. In 2018, the user fees percentage was 11.8% of revenues.

The user fees are in effect an operating cost to MAHB, which can also be argued to represent

a proxy remuneration of the GoM assets (airport development capex). As such, the

Commission maintains its position to allow the recovery of user fees into the RAB framework.

The value of user fees is a function of the level of allowed regulated revenue that MAHB is

allowed to earn. Therefore, if the level of regulated revenue is lower than the BP submitted by

MAHB, the level of user fees should also reduce.

The Commission has worked with MAHB to gain a better understanding of their calculation of

user fees contained in the BP. The Commission had some initial concerns about the potential

for taking into account some categories of non-aeronautical revenues more than once in the

calculations. Following this clarification, an adjustment was agreed with MAHB to better reflect

intercompany transfers and their impact on user fees.

The Commission understands that as part of the ongoing discussions with the Ministry of

Finance on the OA, there are possible changes to the level of user fees to be paid. However,

until such agreement has been reached between both parties, the Commission assumes

11 In addition, the percentage increases by a further 0.3% for every RM100 million that the GoM spends in development capex.

54

continuation of the current OA arrangements regarding user fees, ranging from RM549 million

in 2020 to RM660 million in 2022.

Taking all the evidence into consideration, the Commission has applied the methodology

developed by MAHB and applied it to the Commission’s assessment of the building blocks.

Headquarters (discussion of allocation mechanism)

Essential services for the operation of the airports managed by MAHB are provided by its

Headquarters (including Information Technology, Finance, Human Resources, Strategy,

Technical and Operations) located in Sepang. Therefore, the costs of these services should

be able to be recovered through the regulated revenue. An allocation of headquarters costs to

each of the airports or airports groups is needed when looking at MAHB on a de-consolidated

basis. Some of the headquarters costs should also be allocated to the non-regulated business

(overseas airports, duty free, hotels, project repair and maintenance, and plantations).

Within MAHB’s BP, an 80% allocation of headquarters’ costs were allocated to the Malaysian

airports’ regulated business. A bottom-up analysis was undertaken by MAHB using

management accounting allocation metrics driven by operating costs, capital costs, revenue,

headcount and transactions which were then applied to specific cost lines. A minimum of 80%

or the outcome of the bottom up analysis was used to allocate these headquarters costs.

The Commission has reviewed the methodology and considers that based on the information

available, 80% is a reasonable estimate for RP1.

The Commission has reviewed the increase in staff numbers at MAHB’s HQ, 80% of which

are charged to the MAHB airports covered by the price cap. The Commission notes that MAHB

is forecasting material increases in staff numbers over the RP1 period, mainly due to increased

positions in Finance (including positions related to the RAB mechanism) and Strategy (related

to the planning of capital programme, legal and other functions).

Based on a bottom-up elasticity analysis, the Commission found that the proposed increases

appear high. However, the Commission recognises that additional skilled manpower will be

needed to develop and manage the large capital programme under MAHBs control. Further

clarification will be sought from MAHB through the consultation process as to the extent this

manpower is a HQ cost or should form part of the capitalised costs of the capital programme.

The Commission has not made any changes to the HQ staff cost assumption but will review

this decision following clarification of the treatment of staff for supporting the delivery and

management of the capital programme of MAHB.

HQ costs are expected to increase by 7.2% (lower than the historical growth of 10.9%),

primarily due to the increased headcount discussed above. The Commission has not made

any downward adjustments to these costs pending further explanation and discussion with

MAHB on their HQ staff cost assumptions and links to the delivery and management of the

capital programme.

55

Depreciation & amortisation

In principle, the depreciation from MAHB’s financial statements or a regulatory depreciation

assumption can be taken into the building block calculation. In some jurisdictions, a straight-

line depreciation over an average life period of between 10 and 15 years is used.

MAHB uses a UOP approach to depreciation and amortisation based on passenger volume

and usage of airport activities over the operation period which is until 2069. This method

measures the depreciation based on the asset’s usage which is in turn based on passengers’

volume to reflect the usage of airport facilities over the concession period. The method reflects

the pattern in which the concession’s future economic benefits are expected to be consumed

and is applied consistently from period to period, unless there is a change in the expected

pattern of consumption of those future economic benefits.

Depreciation of other property, plant and equipment is provided for on a straight-line basis to

write off the cost of each asset to its residual value over the estimated useful life, at annual

rates tabulated in the following table:

Asset category Depreciation assumption

Freehold land Not depreciated

Leasehold land Over lease period

Buildings and building renovation 2%-20%

Hotel property 2%

Infrastructure, safety equipment and motor vehicles 4%-50%

Office, communication and electronic equipment 10%-50%

Furniture and fittings 10%-20%

Plant and machinery 10%-20%

Crockery, glassware, cutlery and linen 20%

Table 17 – Depreciation policies

Source: MAHB

The two methods lead to different profiles of depreciation, with straight line leading to an even

profile, which is close to the remuneration of debt, while the UOP method is aligned to usage

and therefore will be weighted to the later years where there is a higher number of passengers

projected to use the asset. The UOP also has the advantage of being aligned to the approach

MAHB presents in its accounts, and those used in its subsidiaries MASB and MA(S).

The Commission has considered the different options and decided that there is merit to retain

close alignment to MAHB’s financial accounts and has therefore used MAHB’s depreciation

costs, adjusted for the Commission’s allowable capex programme, in its price cap. Although

the Commission agrees with MAHB’s depreciation method, the adjustments made by the

Commission to the capex programme has resulted in a lower asset base. Thus, the 3-year-

average depreciation over the period of RP1 has been adjusted downwards from

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approximately RM525 million in MAHB’s November 2018 submission to around RM446 million

in the Commission’s draft base case.

Non-regulated revenues (commercial and other)

As part of the BP, MAHB submitted non-regulated revenues assumptions for the forecast

period till 2022. The Commission has reviewed the submission, focusing on the 6 largest

airports: KUL (Peninsular); PEN (Peninsular); LGK (Peninsular); SZB (Peninsular); BKI

(Sabah); and KCH (Sarawak), as well as overall trends.

Similar methods as described in the operating costs discussion were used, drawing upon

historical trend analysis, benchmarking to other comparator airports and some bottom-up

modelling based on industry trends.

Retail, F&B

Rent is paid to MAHB for the use of space by retail, duty free, and F&B concession operators.

Rental is charged based on a monthly MGP and a percentage of rental royalty (if applicable).

Rental royalty is calculated based on a certain percentage of the gross sales by the tenants.

The level of royalty paid is an outcome of the negotiation. Nevertheless, it may be influenced

by the form of the tender. For example, the duty-free concessions are let out to MAHB’s fully

owned subsidiary, MA (Niaga) which means the arrangements is on an intra-Group basis and

there being no open tender conducted to open up the duty-free concession to third parties.

The range of royalty levels reported in the BP of 5% to 27% appear to be relatively low by

international standards. Depending on the arrangements, a more common royalty rate12 would

be based on the followings; F&B: 12% to 25%, Duty Free: 30% to 40%, and speciality retail:

15% to 25%, with the lower end of the range for more domestic passenger dominated airports

and the higher end of the range at international capital city airports such as KUL.

MAHB is in the process of implementing a commercial reset of its retail activities. The benefits

of this reset are expected to be realised in 2021 and 2022, with some downturn in performance

in 2019 and 2020 as the reset involves some closures of space and conversion to alternative

use.

The profile of spend is impacted by the mix of passenger expected. MAHB is expecting some

decline in sales per passenger linked to the types of passengers using its airports (with fewer

high spending passenger and more medium and lower level spenders).

Following the Commission’s assessment, KUL’s yield per passenger is found to be 2 or 3 times

higher than at the other large Malaysian airports but considerably below regional standards.

KUL’s yield per passenger (RM11) is considerably lower than the yields achieved in Hong

12 Based on international benchmarking exercises done by the Steer Group

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Kong International Airport (RM55) and Changi Airport (RM60), representing less than one fifth

of the yield achieved in these two main terminals of South East Asia. It is also lower than

Thailand International Airports (RM15) which includes Suvarnabhumi Airport but also smaller

regional airports such as Hat Yai, Chiang Mai and Chang Rai. On the other hand, KUL

achieves better yields than airports from India, Indonesia and Vietnam but it worth noticing that

these countries have a considerably lower cost of living and for the latter two nations, these

numbers also reflect the yields of smaller and more regional airports.

MAHB has announced its intentions to maximise retail, F&B revenue at KUL, however, yield

per passenger is assumed to remain unchanged (when comparing 2022 to 2017 in real terms

per passenger).

For LGK, MAHB is projecting an increment in retail, F&B revenue yield per passenger and per

sqm yields. However, sales per square metre at LGK will be 20% lower than in BKI and circa

40% lower than in PEN, on average.

Minor total revenue growth in real terms is expected for PEN. Yield per passenger is expected

to decline which can be partially explained by the potential overcrowding of the terminal. Yield

per passenger is projected to decline by 10% at BKI but to grow strongly in terms of per square

metre of terminal space. KCH is expected to decline in real terms, which when combined with

traffic growth, leads to a large reduction in the yield per passenger (-34%). Subang yields per

passenger and per square metre of commercial terminal are atypically low linked to

commercial arrangements there.

For the other 5 largest Malaysian airports, it is clear that yields per passenger are at the low

end of the regional benchmark. Yields at these 5 airports are lower than in Thailand, Indonesia,

the Philippines and India. Countries with a considerably lower income per capita. Furthermore,

with the exception of LGK, MAHB is projecting a decline in the yields per passenger across

these airports.

Based on the Commission’s assessment, the retail, F&B forecasts appear relatively

unambitious despite the retail reset initiative being implemented by MAHB. There appears to

be a case for the level of retail and F&B yield per passenger in real terms to increase back to

2018 levels following the full implementation of the commercial reset program in 2020 and

2021. This also reflects the outcome of benchmarking on yield per passenger and concession

royalty rates described above. There should also be significant opportunity for improvements

to royalty levels as contracts expire and are renegotiated on a commercial basis.

Taking all the evidence into consideration, the Commission has adjusted the yields to be closer

to 2017 or 2018 real yields per passenger for the years after the commercial reset program

has been completed in 2021 and 2022 (the final two years of RP1).

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Car parking and car rental

MAHB receives income from the operation of car parks and the concession and rental income

from third party car rental companies. Many of MAHB’s car parking facilities are old and in

need of a refresh, which may need to be extended to lighting, overall maintenance and yield

management of the facilities.

MAHB expects limited revenue growth at KUL due to high levels of utilisation, while at the

other Malaysian airports, there is growth at PEN due to a new multi-storey facility. Some

airports, particularly KUL is subject to off-airport competition, and in addition the increased

uptake of e-hailing services has caused some disruption to the car parking market. In LGK, a

number of the car parking spaces are utilised by car rental fleets, meaning it is a relatively poor

performer on a benchmark basis.

The Commission assessed that total car parking and car rental revenue is expected to grow

in real terms only at KCH and SZB. Yields per passenger are expected to decline across all

airports except SZB, which is in contrast with increments observed between 2015 and 2017.

In 2018, based on MAHB’s actual results, car parking yield per passenger has increased at a

rate of greater than inflation at KUL, SZB and KCH, but yields have reduced in nominal terms

at PEN and BKI. LGK sees more pronounced reductions, potentially resulting from use of

space by car rental companies.

MAHB states that car parking facilities are at capacity in KUL and this is likely to be the case

for the other large Malaysian airports which is a restriction to organically growing the business.

However, this should open an opportunity for an active yield management strategy and

introduction of new products.

MAHB included several expansion plans in its car parking facilities in its BP and CIP. However,

this is not reflected in total amount of revenue generated across any of these airports.

Overall, the Commission assessed that, given MAHB’s initiatives and historic trends, it would

be expected that car parking revenue could grow at a faster rate than MAHB is projecting,

potentially at a similar rate to traffic growth. If growth is constrained by parking capacity

(volume), this should open up an opportunity to grow revenue through higher prices (yields),

new products (valet, pre-booking) and replacement forms of income (access charges).

For regional benchmarking, there is limited data available in terms of car parking and car rental

yields in the region. Most of the information available is for airports in India, the western

network of Indonesian airports and Songshan Airport in Taiwan. As most of the benchmark

points refer to India, it is important to note that car parking yields in India tend to be relatively

low due to limited disposable income and cultural aversion towards paying for vehicle parking.

KUL’s yield in 2017 is largely aligned with the yield achieved in Western Indonesia and with

most of the airports from India apart from Hyderabad where it is more than twice this value.

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For the other international airports, with the exception of PEN, their yields per passenger are

located in the lowest quartile of the comparison.

The Commission assessed that there is an opportunity for better yield management and

introduction of new products in car parking and car rental. Taking all the evidence into

consideration, the Commission has made adjustments across all the main airports to be closer

to historical 2018 yields over the forecast period or has taken the MAHB’s revenue forecasts

if higher.

Advertisement

The existing contract for advertising income at MAHB’s airports ends in 2024. The contract is

fixed related to space utilisation and does not contain a royalty. There is some escalation in

the per annum fixed payment every 3 years, which do not seem to be in line with inflation.

For international airport contracts, it would be expected that some element of royalty payment

would be included as advertising revenues should be driven by the footfall in the terminal as

well as the space available for advertising which will be correlated with terminal area. MAHB

forecasts for advertising revenues to be constrained by full utilisation of advertising space.

MAHB’s advertising revenue forecasts, in real terms, is projected to decline across all the

airports except at KUL where a small increment is anticipated due to renting additional space

at the KUL-T2 terminal. The forecasts appear to be consistent with advertisement contracts

that are not linked to inflation, traffic volumes or expected to be renegotiated over the period

to 2022. As a consequence, yields per passenger are expected to drop over RP1, which is

worth noting given that current yields are at the low end of regional benchmarks.

Based on international precedent of contractual structures, it would be reasonable to expect

advertisement revenues to grow at least in line with inflation, and to reflect some real growth

due to higher passenger volumes. This is not reflected in MAHB’s projections in the BP.

Limited benchmarking data is available. KUL achieves lower yields than the two Indian airports

(Delhi and Hyderabad) and higher than networks in Indonesia and Vietnam. The other

Malaysian airports are all lower yields than the regional benchmarks.

As the contract is fixed until 2024, the Commission recognises that MAHB does not have the

ability to change the commercial arrangements for this contract and has therefore not made

any adjustments to this line. There are opportunities for MAHB to address this in RP2.

Property revenue

MAHB’s property revenue includes income derived from the rental of office spaces, lounges,

storages, land lease and point of sale services, based on a fixed monthly charge. MAHB’s

forecasts are based upon organic growth based on finalised contracts.

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The Commission assess that there is a significant increment in property revenue anticipated

for KUL, SZB and PEN. This growth is generally linked to renting additional space and to a

lesser extent via renegotiation of contracts. Revenue growth trend for LGK, KCH and BKI

suggests that rental contracts are neither linked to inflation, nor are expected to be

renegotiated over the next 4 years.

The Commission has not made any changes to this revenue line.

Other commercial revenues

MAHB also receives income from the recoupment of utilities costs from concessionaires and

other sources of income. The recoupment of income is expected to grow in line with

consumption and cost increases. The other sources of income are relatively small and consist

of items such as revenue from AVSEC and engineering revenues.

The Commission has not made any changes to these revenue lines.

Total commercial non-aeronautical revenues

Overall, total commercial non-aeronautical revenue is projected by MAHB to grow by 6.7% per

annum from 2017 to 2022, lower compared to the historical growth of 8.0%.

Total commercial non-aeronautical revenue is projected by MAHB to grow across all the major

MAHB airports except KCH. However, revenue growth is expected to fall behind traffic growth

leading to a material decline in yield per passenger across the airports, in particular at KCH,

BKI and PEN.

Deterioration in total non-aeronautical yield per passenger is consistent with the profile

observed across individual revenue lines for which MAHB is anticipating a material decline,

especially, across car parking and car rental and advertisement, but also for the retail, F&B

category.

This trajectory is not consistent with MAHB’s strategic goal of boosting non-aeronautical

revenue as part of its objectives for RP1. It is also in clear contrast with the most recent

historical trend observed in yield per passenger (2015-2017) when yields went up at some

airports and marginally declined at others.

KUL’s total commercial non-aeronautical yield is not high in the regional context, considerably

behind the main hubs of the region, and below the performance achieved by Thai international

airports. Similar comments apply to the other Malaysian international airports where yields are

lower than the values achieved by airport of similar size in the Philippines or Taiwan as well

as the consolidated networks of Indonesia.

As discussed earlier in the paper, there are opportunities for MAHB to increase the royalty

rates received from concessionaires across the portfolio of services (Duty Free, F&B, speciality

retail and advertisement). To achieve this, it would need to allow full competition for the

61

provision of these services rather than the prevailing arrangements. As such, the Commission

would expect to see by RP2 that the commercial yields from MAHB’s non-aeronautical

business has increased to be in line with the average amongst ASEAN countries. As such, the

Commission would expect to see by RP2 that the commercial yields from MAHB’s non-

aeronautical business has increased to be in line with the average amongst ASEAN countries.

Other non-regulated aeronautical revenues

MAHB receives income from aerobridge, check-in-counters and other miscellaneous items.

These are classified as non-regulated aeronautical revenues.

MAHB projects them to grow with passenger traffic, as well as an expectation of an increased

uptake in the GPU and PCA consumption.

The Commission has not made any adjustments to the MAHB forecasts.

WACC

Under the RAB Framework and as per ICAO’s Policies on Charges for Airports and Air

Navigation Services (Doc 9082), airport operators are allowed to earn a reasonable rate of

return on its assets. This is provided through an allowance of the WACC applied to the RAB.

Following the October 2018 Consultation Paper, the Commission has undertaken additional

analysis on the WACC to be applied under the RAB Framework. The foundation for, and range

of WACC values are provided in the table below.

These are built on the basis of the CAPM, and a targeted nominal, pre-tax WACC. Table 18

below provides the summary of each component of the WACC.

WACC Component Oct 2018

Consultation Paper

MAHB

proposal

MAVCOM

revised

Reference sub-

section

Optimal Debt/Capital

ratio – (G) 40 - 60% 44% 50% (a)

Risk free rate (Rf) 3.90% - 4.00% 4.25% 3.90% (b)

Tax rate 24.00% 24.00% 24.00% (c)

Cost of debt (Kd) 4.1% - 4.5% 5.62% 5.46% (d)

Beta (levered) 0.7 – 1.5 1.41 1.07 (e)

Adjusted Beta (re-

levered) (β) 1.2 – 1.7 1.66 1.20 (e)

Market return (Rm) 11.0% 11.1% 11.0% (f)

Cost of equity (Ke) 12.3% - 15.7% 15.7% 12.39% (g)

62

WACC Component Oct 2018

Consultation Paper

MAHB

proposal

MAVCOM

revised

Reference sub-

section

Nominal pre-tax

WACC 9.0% - 11.0% 14.0%^ 10.88% (h)

Nominal post-tax

WACC 6.8% - 8.4% 10.64% 8.27% -

^Although a range of 12.7% to 14.0% was submitted in MAHB November 2018 submission, MAHB’s

calculation of the regulated revenues was based on 14.0%.

Table 18 – WACC assumptions

Source: MAVCOM analysis, MAHB, Bloomberg

Methodology Issues

The Commission had stated in the October 2018 Consultation Paper that the methodology to

arrive at the WACC is built on the CAPM. This is consistent with the methodology adopted by

other countries and the other industries.

The Commission had received little feedback regarding the CAPM methodology used to arrive

at the appropriate WACC for MAHB. The feedback to the October 2018 Consultation Paper

did not suggest a departure from the WACC and CAPM approach, and the Commission

therefore concludes that the WACC continues to be the most appropriate way to assess the

cost of capital and the CAPM is the most appropriate way to assess the cost of equity. The

WACC will then be fixed throughout RP1.

The Commission had also proposed the usage of real pre-tax WACC which is the calculation

used by regulators when the forecast tax expenses is not included in the forecast operating

expenses and the tax impact is actually included in the WACC calculation itself, by dividing

the post-tax WACC with the tax shield (1-t). The real pre-tax WACC is derived by applying the

Fisher formula to the nominal pre-tax WACC calculation.

MAHB through the feedback submitted on the October 2018 Consultation Paper, and via

various discussions with the Commission, had stated its preference for nominal pre-tax WACC

to calculate the fair rate of return. The airport operator argued that the figures as per its

regulatory figures submission in November 2018 are all in nominal terms.

Taking into consideration of the feedback and the BP and CIP submissions by MAHB, the

Commission decided to use the nominal pre-tax WACC to be applied in the RAB Framework.

The airport operator, in this case, MAHB, will bear the inflation risk.

63

(a) Optimal debt-to-capital ratio

Most regulators apply an optimal gearing ratio in the calculation of WACC to illustrate that the

airport business is stable and may deserve a higher gearing ratio for a more efficient cost of

capital. Based on research done by the Commission, the range of optimal gearing for airports

that use asset-based frameworks used by regulators globally fall between 40% and 60%. In

the emerging thoughts shared in the October 2018 Consultation Paper, the Commission had

applied an optimal debt-to-capital ratio of 60% [Debt / (Debt + Equity)]. The optimal debt to

capital ratio was in turn utilised in both the re-levered beta and WACC weighting calculation.

The Commission had received some feedback on the optimal gearing ratio applied, which

specifically mentioned that for RP1, the 60% gearing ratio is too aggressive for an airport

operator of an emerging economy. A further feedback also stated that the target capital

structure should be based on market value of equity and not on book value. This was

supplemented by several literature supporting the view of using market value.

A further analysis suggests that other jurisdictions use market value of equity for publicly listed

airport operators. However, the Commission is also aware of the constraints in MAHB’s debt

headroom arising from its historical adherence to its existing debt covenants and rating

thresholds. Further analysis has also been undertaken to consider the potential impact of

higher gearing on MAHB’s share price.

The perpetual sukuk programme by MAHB has resulted in additional constraints for MAHB to

adhere to, to ensure its credit rating remains viable for long-term investment, and to remain at

least at a AA3 rating. The Commission notes that the calculation of the gearing by credit rating

agencies is pegged to the book value of MAHB’s equity, instead of market value. The table

below shows MAHB’s gearing ratio and Operations Cash Flow/Debt ratio over the 2016-2018

period.

MAHB 2016 2017 2018

Gearing Ratio 0.64 0.62 0.56

Gearing Ratio - Credit Rating methodology^ 0.74 0.71 0.65

Operation Cash Flow/Debt Ratio 0.18 0.20 0.24

^Note – the perpetual sukuk value apportioned into debt and equity equally

Table 19 – Gearing Ratios & Operations Cash Flow/Debt Ratio

Source: MAVCOM Analysis

The Commission notes that the investment grade rating of AA3 is 3 notches lower than the

MAHB’s current rating of A3/AAA (Moody’s). At the same time, the Commission’s role is not

to determine the actual gearing levels for MAHB but rather to ascertain an optimum gearing

level. MAHB is therefore free to determine its target capital structure at a level that it deems

fit. Taking all factors into consideration, amongst others, the stability and ability of the airport

operator to gear up as well as ensuring that MAHB’s rating to be at the minimum of long-term

investment grade, the Commission is applying a debt-to-capital ratio of 50% to be applied to

the CAPM and WACC calculation, based on the book value of equity.

64

(b) Risk-free rate

The Commission had used the range of 3.9% to 4.0% for the risk-free rate calculation, which

was the 10-year monthly average of MGS over a few varying time periods. Several

stakeholders, however, had urged caution against using 10-year historical averages.

The Commission argues that a 10-year historical average would be reflective of a full economic

cycle. Whilst the more recent economic conditions could well be different than later years, the

Commission places greater importance to the economic cycle which will provide a more stable

value in estimating the risk-free rate, as compared to using forward-looking figures to estimate

the risk-free rate.

As such, the Commission is applying a risk-free rate of 3.90%, which is the 10-year historical

average of MGS’s 10-year yield as at 31 March 2019.

(c) Tax rate

The Commission had used the tax rate of 24%, which is the corporate tax rate in Malaysia.

The Commission did not receive any feedback with regard to the usage of this rate, thus

maintains the assumption to arrive at the WACC value.

(d) Cost of debt

The Commission had presented the range of 4.1% to 4.5% for the cost of debt, which reflects

MAHB’s historical effective interest rates between 2007 to 2017. The effective interest rate

calculations consider the dividend payable to the perpetual sukuk holders amounting to RM58

million per year, since 2015.

The Commission takes note of stakeholders’ feedback regarding the usage of historical cost

of debt, particularly on MAHB’s previous role as an asset-light airport operator.

This RAB Framework assumes that the airport development is undertaken by the airport

operator. The Commission is agreeable to the idea of ratings-based spread instead of using

historical cost of debt, to ensure a fair rate of return to the airport operator.

Taking into consideration the potential impact to MAHB’s credit rating that may go down by 2

notches to AA3 rating, the Commission is therefore applying a ratings-based spread to arrive

at MAHB’s Cost of Debt. The Commission is using the spread between a 10-year historical

average MGS and AA3-rated debt of 1.55% and 10-year historical average MGS of 3.90% as

stated above, to arrive at Cost of Debt of 5.46% as at 31 March 2019.

(e) Beta (levered and re-levered)

The Commission had given a range of 0.7 to 1.5 for the levered beta in the October 2018

Consultation Paper. This range was derived by using historical averages (1-year, 3-year, 5-

65

year, and 7-year averages) and taking into consideration the average beta between 2009 to

2013.

The number of years used to calculate the average value of beta needs to be carefully

considered as it includes the market movements attributable to MAHB as a holding company.

The Commission views that the beta needs to be calculated post 2009, after the OA was

signed, which represents the current environment MAHB is operating in. The Commission also

takes note of MAHB’s feedback in this regard, where it argues that a more recent, shorter time

period should be used. MAHB cited that its characteristics and risk profile has changed

significantly over recent years driven by recent MH incidences, the extension of the OA by a

further 35 years to 2069, and KUL-T2 development completion in 2014. The chart below shows

the different average levered betas by the number of years.

Figure 7 – Average weekly Beta (until 31 March 2019)


The Commission has deliberated on the factors concerning beta, particularly on the changing

operating market environment of MAHB. The levered betas of comparable airport operators

such as Airport of Thailand and AENA range from 0.60 to 0.7013 as at 31 March 2019. The

Commission is also cognisant that comparable airports may not be the most appropriate

methodology to be used in RP1, considering that MAHB will have to take on a significant

amount of capex whereas some of the comparable airports are already in its third regulatory

cycle.

The Commission is applying a 3-year weekly MAHB historical average levered beta of 1.07 to

generate the cost of equity as at 31 March 2019. The 3-year average beta considers the

completion of KUL-T2 expansion and the impact of the unfortunate MH twin tragedies, both of

which happened in 2014.

13 Historical 3-year betas

0.99

1.22

1.39

1.071.01

0.68

10-Yr 7-Yr 5-Yr 3-Yr 1-Yr 2009-2013

66

The levered beta is then unlevered to arrive at asset beta of 0.68, which then be re-levered

using the optimal gearing ratio of 50.0%, that results in re-levered beta of 1.20.

(f) Market return

The Commission had referenced the Market Return of 11.0% in the October 2018 Consultation

Paper, which was based on the empirical study on Equity Risk Premium by Aswath

Damodaran at the Stern School of Business at New York University, for the year 2017 and

2018.

The Commission continues to refer to the Equity Risk Premium based on Aswath Damodaran

empirical study and has lengthened the time horizon for the average to 3 years, to be from

2017 to 2019. There is a slight difference in the Equity Risk Premium average calculated, and

the Commission has decided to round up the Market Return to be at 11.0%.

(g) Cost of equity

The Cost of equity was derived using the following formula: Rf +β (Rm - Rf). The Commission

had previously stated in the October 2018 Consultation Paper of a range for the cost of equity,

which was between 12.3 to 15.7%.

By applying the same formula, the Commission has applied the risk-free rate, beta and market

return as discussed previously and arrived at the cost of equity of 12.39%.

(h) Summary

To summarise, the Commission has taken into consideration all feedback and have further

analysed the impact of each feedback on the components of WACC. Based on the bottom-up

approach as well as top-down research, the Commission has proposed that a WACC value of

10.88% is to be applied in this framework.

Traffic forecast from MAHB for RP1

As part of the BP and CIP submission on 30 November 2018, MAHB submitted its traffic

forecast for the period between 2019 and 2022. The Commission then reviewed the traffic

forecast as detailed below. The objective is to ascertain the reasonability of the forecast to be

inserted into the RAB model for the eventual target of calculating the regulated revenue yield

per departing passenger at all MAHB airports. The full analysis is appended in Appendix 1.

MAHB traffic forecasts (2019 to 2022)

MAHB forecasts its passenger traffic using an econometric model with GDP as the

independent variable and the passenger traffic as the dependent variable. The correlation

between GDP and passenger traffic is 0.98, indicating that the passenger traffic and GDP are

strongly related. Adjustments are made to the regression output by considering supply-side

67

factors such as, the airlines’ schedule and fleet delivery plans, the non-GDP demand factors

such as, the relaxing of tourist visa policies, currency fluctuations, and special events such as

elections or tourism promotions.

The Commission notes that MAHB’s passenger traffic have historically been in line with the

forecasts, with the deviations (measured on a sum of squares approach) being around 5% per

annum (at an aggregate level). Previous estimates were undertaken on an annual basis and

was developed 1 year ahead of the actual traffic realisation.

Figure 8 – Actual vs. forecasted passenger traffic, 2012 – 2018

Source: MAHB

In their forecasts, MAHB had taken into account an increase in crude oil prices, from a forecast

price of USD55/bbl to around USD71/bbl, a lower level of growth in seat capacity from

Malaysian carriers and projected GDP growth of 4.5% in 2019 and 4.2% CAGR from 2019 to

2022.

MAVCOM traffic forecasts (2019 to 2022)

The Commission has developed its own passenger demand forecast which used annual time

series data from 2000 to 2018. The passenger traffic is divided and forecasted according to 4

clusters of airports proposed under the RAB framework. The dependent variables for each of

the clusters was the sum of passenger traffic in all airports in the cluster, while the independent

variables were Malaysia’s GDP (constant), crude oil price, exchange rate, and the percentage

of state GDP.

Based on the forecast, the Malaysia passenger traffic (ex-JHB, Sabah and Sarawak

STOLports) will increase from 99.0 million in 2018 to 115.2 million in 2022, registering a 4-

year CAGR of 3.9%. When compared to the forecast made by MAHB, they had forecasted its

passenger traffic higher than the Commission’s forecast in each year with a 5.7% CAGR from

65.3

71.9

82.4

85.8

86.0

94.7

103.4

67.2

79.683.3

83.8

89.0

96.699.1

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

2012 2013 2014 2015 2016 2017 2018

Pa

sse

ng

er

Tra

ffic

(m

illio

n)

Projected Actual

68

2018 to 2022 (see Figure 9). The higher growth projection from MAHB may be due to positive

adjustments to airline long-term growth plans, new fleet delivery, and stable fuel prices.

Figure 9 – MAVCOM vs. MAHB: Malaysia passenger traffic forecast, 2018 – 2022

Source: MAHB, MAVCOM Analysis

Selection of MAHB traffic forecasts for RP1

For the purposes of selecting the appropriate traffic forecast for RP1, the Commission is

proposing to select MAHB’s traffic forecasts for the basis of the departing passenger traffic,

due to several factors. Firstly, as air transport is closely associated with economic activity,

passenger traffic growth will generally follow GDP growth; changes in GDP would result in

changes in the passenger traffic forecast. Secondly, given that GDP data and forecasts are

widely available, this model will not be subject to data limitations that can affect more complex

models. Thirdly, MAHB as the airport operator may have better information and access to

granular data through its day to day operations and close relationship with airlines, enabling it

to have more information on airlines’ planned schedules and aircraft deployment. Lastly, the

Commission considers that MAHB’s historical passenger traffic forecasts have been in line

with the actual figures, which lends credence to MAHB’s forecasting ability and is appropriate

given that the traffic risk borne by MAHB in a price cap method.

Taking into account all of the above, the Commission is currently leaning towards MAHB’s

traffic forecasts to be applied in this RAB Framework for the basis of departing passenger

traffic in RP1 due to the fact that MAHB’s historical passenger traffic forecasts have been in

line with the actual figures, which lends credence to MAHB’s forecasting ability and is

appropriate given that the traffic risk borne by MAHB in a price cap method.

99

.1

10

2.9

10

6.7

11

1.1

11

5.2

99

.1

10

4.3

11

0.5

11

7.0

12

3.8

2.93.9 3.7 4.1

3.6

5.45.9 5.9 5.8

-10

-8

-6

-4

-2

0

2

4

6

80

90

100

110

120

130

140

150

2018 2019 2020 2021 2022

YoY

Gro

wth

(%)

Passenger

Tra

ffic

(m

illio

n)

MAVCOM MAHB

MAVCOM Growth (RHS) MAHB Growth (RHS)

69

SUMMARY OF ADJUSTMENTS TO MAHB’S SUBMISSION

As highlighted earlier in the document, the Commission has formed a MAVCOM draft base

case which forms the basis of the draft price cap. As a summary, the following changes were

made to the MAHB November 2018 BP and CIP:

a) Adjustments to operating expenditure;

b) Adjustments to non-aeronautical revenues;

c) Adjustments to capex;

d) Assessment of traffic forecast; and

e) Assessment of an appropriate regulated WACC for MAHB.

The key assumptions used in the modelling are outlined below.

Adjustments to operating expenditure

Based on the Commission’s analysis, headcount growth at KUL has been adjusted downward

to reflect a bottom-up assessment that is more appropriate based on industry benchmarking.

Using industry-standard assumptions, the Commission has estimated that the number of

additional staff should be lower than that forecasted by MAHB. This in turn represents a

difference of approximately 6% in staff costs for KUL.

This has also included the adjustment agreed with MAHB for intercompany transfers and their

impact on user fees.

Adjustments to non-aeronautical revenues

The Commission assessed that there are parts of the non-aeronautical assumptions used by

MAHB in its November BP which are not sufficiently ambitious and not in line with the strategic

theme of enhancing the non-aeronautical business. The Commission has subsequently made

the following adjustments:

a) retail, F&B: Adjustments of yields to be closer to 2017/ 2018 levels (unless forecasted

by MAHB to be higher) for the years following the completion of the commercial reset

program in 2021 and 2022; and

b) car parking: Adjustment across all main airports to be closer to historical 2018 yields

over the forecast period (or the MAHB forecasts if higher).

Adjustments to capex

MAHB submitted a total capex of RM11.2 billion for the 2019 to 2022 period, of which RM10.0

billion was for the RP1 period (2020-2022) for the key projects as tabulated earlier in the

document. Overall, the Commission assessed the projects and made the following

adjustments:

a) reduced the capex requirements at KUL, BKI, KCH, LGK, SZB, TWU and SBU;

70

b) removed the capex requirements for KBR and SDK given the GoM has indicated it will

finance these airports;

c) increased the capex requirement at PEN as the Commission did not receive the detailed

breakdown of the projected capex and therefore had to make its own assumptions;

d) aligned the annual cashflows based on complexity, scale and/or justification for

investment which included deferring some works; and

e) for airports not covered by the detailed review, and included in the clusters, capex has

been kept at the same level as the MAHB CIP submission.

For depreciation, the Commission has adjusted downward the total depreciation. This was

achieved by maintaining the percentage of depreciation over the asset base (based on MAHB

November 2018 submission) and applied the percentages to the Commission’s adjusted asset

base. As a result, the 3-year-average depreciation over the period of RP1 has been adjusted

downwards from approximately RM525 million in MAHB’s November 2018 submission to

around RM446 million in the Commission’s draft base case.

After making all the necessary adjustments, the Commission has arrived at an adjusted capital

programme of approximately RM5.0 billion for RP1.

Assessment of an appropriate regulated WACC

Based on the assumptions described on page 61, the Commission is proposing a value of

10.88% nominal pre-tax WACC compared to the 12.7% to 14.0% range proposed by MAHB

in its November 2018 submission.

Outputs

The accompanying tables show the changes in the RAB values if it were in a network setting

and in a cluster setting. These figures are based on the Commission’s proposed adjustments.

All numbers presented in these tables are in nominal terms including a forecast of price

inflation in Malaysia over the 2018-2022 period of approximately 3% per annum.


71

Overall RAB and price caps for MAHB’s Malaysian airport business, based on MAVCOM

draft base case

RM million 2018A 2019F 2020F 2021F 2022F


Capex 348.5 581.0 1,688.2 1,784.4 1,612.0

Disposals (5.5) - - - -

Depreciation (330.3) (384.4) (408.0) (454.7) (476.7)


Operating costs 1,905.0 2,155.4 2,309.2 2,430.7 2,537.4

Depreciation 330.3 384.4 408.0 454.7 476.7

Return on capital (WACC) 903.6 915.0 995.3 1,137.3 1,271.4





Price cap (RM) 38.4 41.4 42.2 43.1 43.3



Table 20 – Overall RAB and price cap for all airports (MAVCOM draft base case)


The MAHB BP and CIP submissions, updated for 2018 actual data and an amendment to the

user fee calculation, would have led to an escalating level of regulated revenues over the

forecast period, which implies almost a doubling of tariffs across the network as per the MAHB

November 2018 submission (Refer to Table 2). This is based on the 83% increase in the price

cap (regulated revenue per departing passenger) from RM34.8 earned in 2018 to RM63.8 in

2022.

In comparison, the Commission revised base case, after adjusting for each component of the

building block, leads to a 24% increase in price cap from RM34.8 earned in 2018 to RM43.3

in 2022. This results in a more modest set of tariff increases whilst ensuring the airport operator

would have a fair rate of return and sufficient funding for its operations and investments.

The specific RAB values for each cluster are as tabulated in the following 4 tables.

72

RAB and price caps per cluster, based on MAVCOM draft base case

RM million 2018A 2019F 2020F 2021F 2022F


Capex 242.1 465.3 1,214.8 1,019.5 1,056.2

Disposals 4.6 - - - -

Depreciation (286.2) (339.4) (363.5) (406.9) (431.7)


Operating costs 1,385.0 1,578.5 1,703.0 1,772.1 1,853.8

Depreciation 286.2 339.4 363.5 406.9 431.7






Price cap (RM) 48.0 54.6 55.2 54.6 53.6



Table 21 – Overall RAB and price cap for KUL (MAVCOM draft base case)


RM million 2018A 2019F 2020F 2021F 2022F

RAB Opening balance 750.8 775.9 802.8 1,189.8 1,773.6

Capex 62.5 58.8 418.5 618.9 304.7

Disposals (5.2) - - - -

Depreciation (32.2) (31.9) (31.5) (35.1) (33.0)

RAB Closing balance 775.9 802.8 1,189.8 1,773.6 2,045.3

Operating costs 242.0 266.1 282.0 309.9 320.5

Depreciation 32.2 31.9 31.5 35.1 33.0






Price cap (RM) 28.4 27.0 28.9 34.7 37.3



Table 22 – Overall RAB and price cap for Peninsular (MAVCOM draft base case)


73

RM million 2018A 2019F 2020F 2021F 2022F


Capex 14.3 41.2 33.4 70.3 98.6

Disposals (3.7) - - - -

Depreciation (5.4) (7.5) (7.5) (7.5) (7.1)


Operating costs 122.5 143.6 148.2 159.1 166.1

Depreciation 5.4 7.5 7.5 7.5 7.1






Price cap (RM) 20.7 22.5 22.5 23.7 24.4



Table 23 – Overall RAB and price cap for Sarawak (MAVCOM draft base case)


RM million 2018A 2019F 2020F 2021F 2022F


Capex 29.7 15.7 21.6 75.7 152.4

Disposals (1.2) - - - -

Depreciation (6.5) (5.6) (5.4) (5.3) (4.9)


Operating costs 155.5 167.2 176.0 189.6 197.1

Depreciation 6.5 5.6 5.4 5.3 4.9






Price cap (RM) 19.1 18.0 18.1 18.9 19.8



Table 24 – Overall RAB and price cap for Sabah (MAVCOM draft base case)


74

Figure 10 – Price cap on a network level, All airports


Figure 11 – Price cap by cluster, KUL


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2018A 2019F 2020F 2021F 2022F

Price c

ap (

RM

)

MAHB MAVCOM

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2018A 2019F 2020F 2021F 2022F

Price c

ap (

RM

)

MAHB MAVCOM

75

Figure 12 – Price cap by cluster, Peninsular


Figure 13 – Price cap by cluster, Sarawak


0.0

10.0

20.0

30.0

40.0

50.0

60.0

2018A 2019F 2020F 2021F 2022F

Price c

ap (

RM

)

MAHB MAVCOM

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2018A 2019F 2020F 2021F 2022F

Price c

ap (

RM

)

MAHB MAVCOM

76

Figure 14 – Price cap by cluster, Sabah



0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2018 2019 2020 2021 2022

Price c

ap (

RM

)

MAHB MAVCOM

77

ILLUSTRATIVE PRICE CAP

The tables below illustrate the price cap based on MAHB November 2018 submission and the

Commission draft base case for the 4 clusters. This approach would still allow some cross-

subsidisation between airports within each cluster.

The Commission will be regulating MAHB through the setting of the average price caps for

RP1. This forms the basis of the final tariffs for RP1 that the Commission targets to gazette in

October 2019.

The Commission has two options in implementing the price caps, either via applying an annual

price cap revision or by applying an average price cap in the first year of RP1 which will be

fixed throughout the RP. The former would result in a smoother trajectory of tariff increases (in

an environment of increased capex) but would however entail annual revisions in tariffs. The

latter, meanwhile, would result in only one tariff revision per RP but may lead to steeper

increases in RP2.

Price cap for

RP1 (RM)

MAHB November 2018 submission MAVCOM

draft base case*

2020 2021 2022 Average 2020 2021 2022 Average

All airports 53.0 57.6 63.8 58.1 42.2 43.1 43.3 42.9

* excludes STOLports

Table 25 – Illustrative price cap for all airports


Price cap for

RP1 (RM)

MAHB November 2018 submission MAVCOM

draft base case*

2020 2021 2022 Average 2020 2021 2022 Average

KUL 69.4 72.5 78.5 73.5 55.2 54.6 53.6 54.5

Peninsular 38.2 48.5 56.6 47.8 28.9 34.7 37.3 33.6

Sarawak 26.5 29.8 34.8 30.4 22.5 23.7 24.4 23.5

Sabah 22.2 26.3 30.9 26.4 18.1 18.9 19.8 18.9

* excludes STOLports

Table 26 – Illustrative price cap per cluster


78

ILLUSTRATIVE TARIFF STRUCTURE

There are various ways by which the RAB Framework could be structured. The responsibility

of proposing tariffs could be placed with MAHB provided that they are within the regulated

price cap set by the Commission. Ultimately, the Commission shall determine the tariffs

pursuant to Act 771.

This section lays out 3 options of structuring the RAB Framework – network, geographical

cluster and geographical cluster with equalised international tier – and the features, pros and

cons, as well as the resulting illustrative tariffs for each option. The illustrative tariffs below are

premised on the assumptions set out earlier in this Consultation Paper. All options assumed

PSC invoicing split by stage of flight.

Feedback from stakeholders on these options are sought, particularly on the preferred option

which the Commission should pursue.

Differentiated charges by level of service and infrastructure

As stated in the Commission’s public pronouncements since 2017, a key objective which the

Commission wishes to fulfil in this present exercise is to depart from the current regime of

uniform airport aeronautical charges in Malaysia which has been in place at least since the

1990s, and instead arrive at a set of tariffs for each airport or group of airports that are

differentiated in accordance to their level of service and infrastructure. The Commission views

this as essential, particularly for the PSC, to ensure that passengers pay for charges that

commensurate to facilities or level of service which they use when at the airport. This approach

has been generally supported by stakeholders throughout the Commission’s consultations to

date. The Commission thus seeks to have in place such differentiated charges regardless of

the option that is eventually adopted.

In order for the Commission to form a view on the tiering of airports operated by MAHB for this

purpose, the Commission has developed a matrix based on the level of facilities at the airports

within the MAHB system, which takes into account, amongst others, terminal designed

capacity, peak hour passengers handled, number of check-in counters, number of immigration

counters, number of aircraft parking bays, number of car parking lots, number of aerobridges,

number of carousels for arriving passengers and operating hours. The matrix is found in

Appendix 2.

Based on this matrix, the Commission has grouped the airports within the MAHB system into

the following 4 groups (excluding STOLports):

a) Tier 1 – KUL (both KUL-T1 and KUL-T2);

b) Tier 2 – PEN, KCH and BKI;

c) Tier 3 – LGK, SZB, SBW, MYY, TWU and KBR; and

d) Tier 4 – IPH, MKZ, KUA, AOR, TGG, BTU, SDK, LBU, LMN, MZV and LDU.

79

Whenever possible, the airports residing in Tier 1 will have the highest charges whilst the

airports residing in Tier 4 will have the lowest charges.

The feasibility and appropriateness of applying this tiering system in the different RAB

Framework options are further discussed below.

Transfer PSC

The Commission proposes to allow for the introduction of transfer PSC (excluding self-

connecting passengers) to be applied for both domestic and international connections under

all scenarios. A domestic and international transfer PSC would apply as follows:

a) domestic transfer PSC - chargeable to passengers who are scheduled to depart from a

domestic destination to another domestic destination (within Malaysia), within a certain

number of hours of arriving at the transfer airport; and

b) international transfer PSC - chargeable to passengers who are scheduled to depart from

any airport in Malaysia to another international destinations (including domestic to

international transfers), within a certain number of hours of arriving at the transfer airport.

In this analysis, the Commission assumes the transfer PSC apply for transfer journeys where

a flight is scheduled to depart within 24 hours of arrival at the transfer airport.

The transfer PSC is typically applied in hub airports regionally and globally. For instance,

Changi Airport charges a transfer PSC of SGD6 per departing passenger. Transfer

passengers here refer to passengers who, as evidenced by a single passenger ticket, is

scheduled to depart from Singapore within 24 hours of his scheduled time of arrival, and on

an aircraft with a different flight number, for a destination in another country other than the

country from which he embarked on the aircraft by which he arrived in Singapore14.

The benefits of allowing for the introduction of a transfer PSC in airports in Malaysia include:

a) to assist in absorbing the regulated revenue per departing passenger over more revenue

items and therefore reduce the burden on PSC, landing fees and aircraft parking fees;

and

b) to reduce the loss in revenues which was and is currently not captured for transit and

transfer passengers.

14 https://www.changiairport.com/content/dam/cacorp/documents/changiairportgroup/List%20of%20Fees%20and%20Charges.pdf

https://www.changiairport.com/content/dam/cacorp/documents/changiairportgroup/List%20of%20Fees%20and%20Charges.pdf

https://www.changiairport.com/content/dam/cacorp/documents/changiairportgroup/List%20of%20Fees%20and%20Charges.pdf

80

Landing & parking fees

The illustrated PSC figures for all 3 options below assume the total regulated landing and

parking revenues to increase by 5% per annum in each year throughout RP1, and the landing

and parking fees do not change. This is in line with MAHB’s passenger growth forecast of

approximately 5% per annum throughout RP1.

If the landing and parking fees were assumed to increase, the PSC would correspondingly

decrease. However, an increase in landing and parking tariffs per aircraft will increase the

operating costs of airlines directly. This cost may potentially be passed to the end users.

Option #1 – Single network

For Option #1 – Network, the entire MAHB network would be approached by the Commission

as a single RAB Framework. The primary objective of structuring the RAB in this manner

therefore would be to ensure the economic feasibility of MAHB’s airports as a single network.

Illustrative resultant PSC for the different airports within the MAHB system would be as follows:

Table 27 – Illustrative tariffs: Option #1


The primary benefit of applying this single network approach is that it generates rates that

commensurate with the level of service and infrastructure of an airport. In addition, passengers

at all airports in Malaysia aside from KUL could potentially enjoy lower PSC during RP1 in

comparison to the current level of charges.

The drawbacks to applying option #1 are as follows:

a) the 4 individual geographical clusters envisioned by the currently negotiated new set of

OAs will register uneven returns, with the KUL and Sabah OA clusters likely to enjoy

excessive implied returns, while the Peninsular and Sarawak OA clusters would record

low implied returns or possibly, losses;

Domestic International

Tier 1 12.00 40.00 82.00

Tier 2 10.00 32.00 70.00

Tier 3 9.00 30.00 65.00

Tier 4 8.00 25.00 50.00

Grouping

PSC (RM)

5.00 20.00

TransferBeyond

ASEANASEANDomestic

MKZ, KUA, AOR,

TGG, IPH, LDU, LBU,

BTU, MZV, LMN

Airport network

PEN, BKI, KCH

LGK, SZB, KBR,

TWU, SDK, SBW,

MYY

KUL

81

b) continued cross subsidisation of loss-making airports by the profitable airports within

MAHB’s network; and

c) potentially reduces significantly any incentive, rationale or option for MAHB to introduce

third party investors at OA level and therefore reinforces the monopoly airport industry

structure in Malaysia.

Option #2 – Geographical clusters

For Option #2 – Geographical cluster, the RAB Framework would be approached by the

Commission as 4 clusters, which are KUL, Peninsular, Sabah and Sarawak. The key objective

of having differentiated RAB Framework by cluster would be to align closer to user-pay

principle and move away from the cross-subsidisation across airport network.

Illustrative resultant PSC for the different airports within the MAHB system would be as follows:



The benefit of applying the geographical clusters is that it will enable each cluster to be

financially viable on a standalone basis and potentially attract third party investors at the cluster

level. In addition, this approach would confine any cross-subsidisation to be within each

individual cluster.

The key drawback to applying option #2 is that tariffs for some airports at the lower tiers will

be higher than airports in higher tiers, in order to ensure that each individual cluster is


Tier 1 KUL 12.50 37.90 80.00

KCH 16.00 60.00 105.00

PEN 15.00 48.00 100.00

BKI 7.00 26.00 38.00

SBW, MYY 12.00 45.00 90.00

LGK, SZB,

KBR 10.50 34.00 70.00

TWU, SDK 6.50 23.00 33.00

BTU, MZV,

LMN 11.00 35.00 80.00

MKZ, KUA,

AOR, TGG,

IPH

9.00 29.00 60.00

LDU, LBU 6.00 20.00 30.00

Tier 3

Tier 4

Sabah Sarawak DomesticGrouping

Tier 2

5.00 20.00

Cluster PSC (RM)

ASEANBeyond

ASEAN

TransferKUL Peninsular

82

financially viable on a standalone basis. For instance, PSC at KCH, SBW and MYY will be

higher than at KUL should the charges be set by clusters. This is mainly resulting from those

lower tier airports having a lower number of international passengers.

Option #3 – Geographical clusters, with equalised International PSC

Option #3 is similar to Option #2 with the exception that the ASEAN PSC is equalised to the

Beyond ASEAN PSC. The illustrative PSC would be as follows:

* International include ASEAN and Beyond ASEAN



With the exception of PEN and KCH, the illustrative tariffs do follow the PSC based on the

level of facilities. Nevertheless, Sarawak cluster continues to reflect a higher PSC as compared

to the Peninsular and Sabah clusters with similar level of facilities as tabulated above.


Tier 1 KUL 11.00 60.00

KCH 16.00 77.00

PEN 11.00 65.00

BKI 7.00 36.00

SBW, MYY 11.00 50.00

LGK, SZB,

KBR 10.00 38.00

TWU, SDK 6.50 26.00

BTU, MZV,

LMN 9.00 45.00

MKZ, KUA,

AOR, TGG,

IPH

9.00 34.00

LDU, LBU 6.00 23.00

Tier 2

Tier 3

Tier 4

Transfer International*DomesticSarawakSabah

Grouping

5.00 20.00

Cluster PSC (RM)

Peninsular KUL

83

MAHB’s tariff proposal per June 2019 submission

As part of its June 2019 submission, MAHB had also submitted proposed tariffs. This is

discussed further in Section 8.0.


84

MAHB’S JUNE 2019 SUBMISSION

MAHB had submitted updates to its BP and CIP to the Commission on 3 June 2019, whereby

revised projections and 3 tariff scenarios were proposed. It should be noted that this

submission was not reviewed by the Commission as the submission was made just before the

publication of this Consultation Paper.

In terms of capex, in its June 2019 submission MAHB had proposed a capex of approximately

RM6.2 billion for the 2019 to 2022 period (RM5.2 billion for RP1). This is significantly lower

than the November 2018 submission as MAHB had deferred a large number of projects.

Nevertheless, it is still higher than the Commission’s revised base case of RM5.0 billion and

the Commission has been informed that MAHB is currently reviewing its traffic projections and

plans to submit a revised forecast as part of its written feedback to this Consultation Paper.

MAHB had stated that the projections submitted are illustrative and are pending further

diligence, whereby final numbers may vary by -/+ 30% from the projections.

Despite the lower capex programme, MAHB is forecasting a higher depreciation amount which

was attributed to a revision in the UOP depreciation method, where MAHB now applies a

passenger volume cap of 130%. The previous UOP was based on an unconstrained method.

It should also be noted that MAHB apportions the operating cost of HQ and STOLports across

all airports in its network, instead of allocating these costs by their respective regional clusters.

The lower capex programme is as tabulated below.

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)

June 2019 capex details

KUL 6,300 2,900 Detailed in the tables that follow

PEN 750 1,150 Detailed in the tables that follow

SZB 150 150 Detailed in the tables that follow

TWU 100 100 Detailed in the tables that follow

LGK 350 350 Detailed in the tables that follow

BKI 500 100 Includes master planning and schematic &

design work with maintenance capex and asset

optimization

KCH 450 100 Includes master planning and schematic &

design work with maintenance capex and asset

optimization

SBW 100 10 Includes master planning and schematic &

design work with maintenance capex

KBR 500 10 Airport development undertaken by GoM,

remainder due to maintenance capex

SDK 100 10 Airport development undertaken by GoM,

remainder due to maintenance capex

85

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)


Others 100 150 Total amount due to maintenance capex (small

fragmented projects) in other airports in the

network

HQ 500 200 Ensure HQ can effectively support airports via

rebranding project, corporate office expansion

and SAP system renewal

Total 9,900 5,230 -

Table 30 – Comparison from MAHB’s November 2018 to June 2019 capex plan

Source: MAHB


86

The lower capex programme for KUL, PEN, LGK, SZB and TWU are as tabulated below.

MAHB has not submitted similar detailed breakdowns for the other airports.

KUL

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)


Development

capex

3,650 300 Includes master planning and schematic design

work for KUL-T1 and KUL-T2

Capacity

debottle-

necking

650 1,100 Replacement of end-of-life equipment and

upgrades to improve efficiency:

- Baggage flow

- Aerotrain replacement

- Airport Management Centre

- Taxiway loop

- Asset optimisation

Infrastructure

refurbishment

750 600 Repairs to outdated and damaged infrastructure:

- Pavement repairs

- Building facility maintenance

Customer

experience

enhancement

300 200 Uplift customer experience:

- Commercial reset

- Terminal ambience

- Big Data analytics

- Customer navigation

Safety and

security

450 400 Replacement of end-of-life equipment and meet

rising compliance standards:

- Security processing

- CCTV

- Fire safety

- Air ground lighting

Others 500 300 Other minor fragmented maintenance capex

items

Total 6,300 2,900 -

Table 31 – Comparison from MAHB’s November 2018 to June 2019 capex plan for KUL

Source: MAHB

PEN

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)


Development

capex

700 1,100 Expansion of capacity to 12 mppa or (12+4)

mppa from 6.5 mppa to alleviate current capacity

constraints.

Key terminal and landside upgrades:

- Expansion of the terminal building to

accommodate new passenger

processing area and contact pier

- New access roads and ramps, drainage

system and other infrastructure works

87

PEN

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)


Key airside upgrades:

- Reconfiguration of the aircraft parking

apron

- Expansion of aircraft parking apron for

new aircraft stands

- New taxiways to expanded aircraft

parking apron area

- New AFRS station

- New Helipad

- New ATC tower and CAAM

administration office

- New meteorological station

Maintenance

capex

50 50 Minor maintenance capex works

Total 750 1,150 -

Table 32 – Comparison from MAHB’s November 2018 to June 2019 capex plan for PEN

Source: MAHB

LGK

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)


Development

capex

330 330 PBB and terminal expansion required to:

- cater to wide-body aircraft by preventing

congestion

- ensure international and domestic

passenger segregation on the tarmac

and baggage reclaim area

- improve customer experience


- Expansion and upgrading of the existing

terminal building including:

1) Upgrading of arrival facilities –

separate baggage reclaims areas for

domestic and international and

immigration (arrival)

2) Minor space reconfiguration at

departure holding lounge and

security screening (departure) – two-

level contact pier with holding lounge


- Installation of aerobridges for contact

stand

- Reconfiguration of existing aircraft

stands

88

LGK

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)


Maintenance

capex


Total 350 350 -

Table 33 – Comparison from MAHB’s November 2018 to June 2019 capex plan for LGK

Source: MAHB

SZB

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)


Development

capex

140 140 Expansion of capacity to 5 mppa from 1.5 mppa


- Expansion and upgrading of the existing

terminal building

- Extension of existing curb side

- Check-in counters with ILHBS


- Expansion of existing aircraft parking

apron to accommodate additional

aircraft parking bays

- New taxiways to expanded apron area

Maintenance

capex


Total 150 150 -

Table 34 – Comparison from MAHB’s November 2018 to June 2019 capex plan for SZB

Source: MAHB

TWU

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)


Development

capex

95 95 Expansion of capacity to 2.5 mppa from 1.5

mppa


- Modernization of terminal building

- Reconfiguration of the terminal building

- Check-in counters with Inline Hold

Baggage Screening System

- Dedicated international and domestic

holding lounge

- Dedicated international and domestic

baggage reclaim carousel


89

TWU

MAHB Nov

2018

submission

(RM million)

MAHB June

2019

submission

(RM million)


- Reconfiguration of existing aircraft

parking apron

- Expansion of aircraft parking apron for

new aircraft stands

- New PBBs and VGDS

Maintenance

capex


Total 100 100 -

Table 35 – Comparison from MAHB’s November 2018 to June 2019 capex plan for TWU

Source: MAHB

In addition, MAHB had assumed a materially lower amount of user fees of RM65 million in

RP1. The user fee quantum is currently being discussed as part of the renegotiation of the OA.

MAHB noted that higher user fees will result in higher regulated revenues and subsequently

higher charges. MAHB has also assumed a WACC of 12.7% which is higher than the 10.88%

adopted by the Commission.

The updated MAHB forecasts for the RAB Framework in both network and clusters scenarios

are as tabulated below.

RM million 2018A 2019F 2020F 2021F 2022F


Net capex (including disposals) 348.5 947.3 1,873.8 1,738.1 1,597.4

Depreciation (342.4) (427.2) (526.0) (616.8) (714.4)


Operating costs 1,911.0 2,140.4 1,859.9 1,922.6 1,974.2

Depreciation 342.4 427.2 526.0 616.8 714.4






Price cap (RM) 41.9 45.6 40.4 40.3 40.8



Table 36 – Overall RAB and price cap for MAHB - all airports (MAHB June 2019)

Source: MAHB June 2019 submission

90

RM million 2018A 2019F 2020F 2021F 2022F


Net capex (including disposals) 240.2 592.6 1,410.3 841.9 768.2

Depreciation (283.1) (345.8) (429.7) (510.7) (587.3)


Operating costs 1,390.1 1,569.6 1,355.2 1,390.5 1,431.3

Depreciation 283.1 345.8 429.7 510.7 587.3

Return on capital (WACC) 928.2 940.5 1,018.4 1,101.7 1,134.3





Price cap (RM) 52.7 59.6 52.2 50.6 49.2



Table 37 – Overall RAB and price cap for MAHB – KUL (MAHB June 2019)


RM million 2018A 2019F 2020F 2021F 2022F

RAB Opening balance 769.5 789.4 943.3 1,179.4 1,864.8

Net capex (including disposals) 59.1 204.0 290.5 743.3 721.4

Depreciation (39.3) (50.5) (54.4) (57.9) (67.2)

RAB Closing balance 789.4 943.3 1,179.4 1,864.8 2,518.9

Operating costs 242.5 262.8 233.6 246.4 250.6

Depreciation 39.3 50.5 54.4 57.9 67.2






Price cap (RM) 31.0 31.9 29.1 33.0 39.9



Table 38 – Overall RAB and price cap for MAHB – Peninsular (MAHB June 2019)


91

RM million 2018A 2019F 2020F 2021F 2022F



Depreciation (9.3) (14.8) (19.3) (22.5) (29.0)


Operating costs 155.8 168.1 145.8 153.6 157.5

Depreciation 9.3 14.8 19.3 22.5 29.0






Price cap (RM) 20.2 20.5 17.9 18.6 19.2



Table 39 – Overall RAB and price cap for MAHB – Sabah (MAHB June 2019)


RM million 2018A 2019F 2020F 2021F 2022F



Depreciation (10.6) (16.1) (22.6) (25.8) (30.9)


Operating costs 122.6 139.9 125.4 132.2 134.8

Depreciation 10.6 16.1 22.6 25.8 30.9






Price cap (RM) 22.4 24.2 22.7 23.1 23.4



Table 40 – Overall RAB and price cap for MAHB – Sarawak (MAHB June 2019)


In addition to the revised projections, MAHB has also submitted 3 options for the proposed

tariffs. For all 3 options, MAHB is proposing for total landing and parking regulated revenues

to increase by 16.0% in 2020.

92

MAHB is also proposing to introduce transfer PSC at RM3 and RM17 for domestic transfer

and international transfer departing passengers respectively (for all transit and transfer

passengers for up to 24 hours). Any transferring passengers departing more than 24 hours

after arrival at the transit airport are to be considered as originating passengers who will be

required to pay the full relevant PSC.

In each of the 3 options provided by MAHB, a WACC of 12.7% was applied at cluster level. In

the future, a different WACC could be applied by cluster. All options assumed PSC invoicing

split by stage of flight.

The details of MAHB’s proposed tariffs are provided below.

MAHB’s proposed tariff – Option #1

In Option #1, MAHB’s approach is by equalising the ASEAN and Beyond ASEAN PSCs, whilst

keeping the Domestic PSC for all airports unchanged at RM11 per departing passenger. The

International PSC for KCH and PEN are higher than KUL. This is illustrated in the following

table:


Table 41 – MAHB’s proposed tariff Option #1

Source: MAHB



KUL 62.00

PEN 67.00

LGK, SZB BKI 59.00

KCH 114.00

MYY, SBW 40.00

35.00

Cluster

TransferInternational*Domestic SarawakSabahPeninsularKUL

PSC (RM)

Others

3.00 17.00 11.00

93


Option #2 also equalises the ASEAN and Beyond ASEAN PSC. However, the Domestic PSC

for all airports is increased to RM14 per departing passenger.





In Option #3, MAHB is keeping the 3-tier PSC rates of Domestic, ASEAN and Beyond ASEAN

PSC. The Domestic PSC at all airports is increased to RM14 per departing passenger while

PEN, BKI and KCH charges ASEAN PSC higher than KUL.



MAHB has stated its preference for Option #2, citing that it is the only option that results in

tariffs for other airports being lower than KUL.


KUL 60.00

PEN 59.00

LGK, SZB BKI KCH 55.00

MYY, SBW 35.00

35.00

Cluster PSC (RM)

KUL Peninsular Sabah Sarawak Domestic Transfer

14.00 3.00 17.00

Others

International*


KUL 38.00 80.00

PEN 56.00 80.00

BKI KCH 53.00 80.00

LGK, SZB 38.00 73.00

MYY, SBW 38.00 38.00

35.00 35.00

14.00 3.00 17.00

Others

Cluster Tariff

KUL Peninsular Sabah Sarawak Domestic ASEANBeyond

ASEAN

Transfer

94

CONSULTATION PROCESS

When implementing the RAB framework, extensive consultation exercises with affected

stakeholders support the decision-making on the level of aeronautical tariffs for the control

period. These include consultations conducted by the airport operator and also consultations

undertaken by the Commission.

In designing the consultation process, the Commission will refer to the available guidelines on

best practices based on the IATA’s ‘Airport Infrastructure Investment – Best Practice

Consultation’ document and ACI’s ‘Recommended Practices on transparency and

consultation’ document.

Consultees will be given the opportunity to comment on the information presented and

decisions made by the Commission. The consultation sessions may consist of one the

following:

a) separate meetings with main proponents (airport operators, airlines and the airline and

airport associations);

b) open forum for industry stakeholders in the same session;

c) open forum for investors and analysts; and

d) papers to be made publicly available for all parties to make written submissions.

The stakeholders will be given 4 weeks up to Thursday 18 July 2019 (5pm) to provide written

responses, notwithstanding any additional follow-up meetings for clarification purposes that

may be held within this period.

The consultation provides stakeholders the opportunity to provide additional information which

may not have been taken into consideration by the Commission. The Commission reserves

the right to reflect upon, and amend its position, subject to new materials, arguments,

information and data being presented. In the longer term, the Commission plans to move to a

fully transparent RAB framework where all stakeholder feedback and BP by the airport

operator will be made public.

The Commission’s final decision on the prices and tariffs for RP1 will be contained in a final

report which will explain the new information presented by stakeholders and how these have

been reflected in any amendments between the draft and final Commission position on specific

issues.

The Commission will announce the final decision by October 2019.

95

NEXT STEPS

Details of the consultation

The Commission is inviting comments within 4 weeks of publication of this consultation paper

(Thursday, 18 July 2019 at 5pm).

All comments on the document must be in writing and are to be delivered via email to

[email protected] or by post to the following address:

Malaysian Aviation Commission

Level 19, Menara 1 Sentrum

201, Jalan Tun Sambanthan

50470 Kuala Lumpur, Malaysia

Attn: Ms. Yusniza Wan Yahya

In conjunction with the feedback period, the Commission will be meeting with industry

stakeholders during the June and July period to obtain further responses and comments from

the industry.


mailto:[email protected]

96

APPENDIX 1: TRAFFIC FORECAST FROM MAHB

As part of the BP and CIP submission, MAHB had submitted its traffic forecast for the period

between 2019 and 2022. The Commission then reviewed the traffic forecast as detailed out

below. The objective is to ascertain the reasonability of the forecast to be inserted into the

RAB model for the eventual target of calculating the regulated revenue per departing

passenger at all MAHB airports.

Historical traffic (2012 to 2018)

MAHB’s passenger traffic forecast model is driven by GDP

MAHB forecasts its passenger traffic using an econometric model with GDP as the

independent variable and passenger traffic as the dependent variable. The company uses the

model to derive the domestic, international, and total passenger traffic for every airport

operated by MAHB (39 out of 42 airports in Malaysia). The model was also subject to relevant

statistical checks such as significance of variance, goodness of fit, and autocorrelation. Other

checks indicate that the correlation between GDP and passenger traffic is 0.98, indicating that

passenger traffic and GDP are strongly related.

Given that the model is purely GDP-driven, adjustments are made to the regression output by

considering the non-GDP demand factors such as, the relaxing of tourist visa policies, currency

fluctuations, and special events such as elections or tourism promotions. The output of the

model was also adjusted for supply-side factors such as, airlines’ schedule and fleet delivery

plans. The adjustments made on supply conditions to the output of the GDP-driven regression

model moderates the passenger traffic growth. The risk of demand-driven models is that it

assumes that growth is unfettered so long as there is demand, and does not consider

infrastructure constraints, among others.

MAHB’s passenger traffic model may be missing other factors that influence passenger traffic

volume. Despite the adjustments made to the output of the model to consider other factors

beyond GDP, MAHB’s forecasted passenger traffic has underpredicted actual figures in 5 of

the last 7 years (see Figure 15). This suggests that there are other factors at play and may

need to be included in the regression model.

97

Figure 15 – Actual vs. forecasted passenger traffic, 2012 - 2018

Source: MAHB. Note: All airports in Malaysia operated by MAHB

MAHB’s forecasted passenger traffic (2019 to 2022)

Passenger traffic to grow at an annual growth rate of 5.7% per year between 2018 and

2022

MAHB initially forecasted that its airports in Malaysia will handle 128.0 million passengers in

2022 before downgrading the number to 122.5mn. In 2018, the company had forecast that its

airports in Malaysia will handle 104.0 million passengers in 2019. This represents a growth of

+4.9% YoY from its 2018 passenger traffic.

However, this is -4.9% lower than MAHB’s initial forecast made in 4Q17 of 109.0 million

passengers. MAHB had lowered its forecast owing to a change in their key assumption of

growth in Malaysia GDP (+4.7% from an initial +5.0%). The company also adjusted their

forecast output to take into account an increase in crude oil prices, from a forecast price of

USD55/bbl to around USD71/bbl, and a lower level of growth in seat capacity from Malaysian

carriers.

Based on these trends, MAHB’s long term forecast has also changed as it is now projecting

an annual growth rate of +5% per annum between 2018 and 2022 instead of its original

forecast +6% per annum (see Figure 16).

65.3

71.9

82.4

85.8

86.0

94.7

103.4

67.2

79.683.3

83.8

89.0

96.699.1

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

2012 2013 2014 2015 2016 2017 2018

Pa

sse

ng

er

Tra

ffic

(m

illio

n)

Projected Actual

98

Figure 16 – Original vs. Revised Passenger Traffic Forecast, 2017 – 2022

Source: MAHB

MAVCOM’s forecasted traffic (2020-2022)

According to the ICAO’s Manual on Air Traffic Forecasting, several methodologies may be

employed to forecast passenger demand. These methodologies include regression analyses,

time series analyses, and market research and industry surveys. Amongst these, regression

analyses are the most common, and are based on establishing a causal relationship between

the dependent variable—in this case, passenger traffic—and a set of independent variables.

99.1

109.0

115.0

121.0

128.0

104.0

110.6

117.2

122.5

90.0

95.0

100.0

105.0

110.0

115.0

120.0

125.0

130.0

2018 2019 2020 2021 2022

Pa

ss

en

ge

r T

raff

ic (

mil

lio

n)

Original Revised

99

Description of MAVCOM’s passenger traffic forecast model

Description of the independent variables

MAVCOM’s passenger demand forecast used annual time series data from 2000 to 2018. The

passenger traffic is divided and forecasted according to 4 clusters of airports proposed

under the RAB framework, which are:

a) KUL

b) Peninsular

c) Sabah

d) Sarawak

The dependent variables for each of the clusters, in this case, was the sum of passenger traffic

in all airports in the cluster, while the independent variables tested consisted of Malaysia’s

GDP (constant), crude oil price, the RM/USD exchange rate, and the percentage of the

sum of the GDP for all states in the cluster to the overall GDP of Malaysia. For Peninsular,

JHB is excluded from the model as the clusters include MAHB-operated airports only. The

variables included in the models, along with their sources, are as stated in the table below.

Variables Source

Sum of passenger traffic according to

clusters MAHB

GDP (Constant) – Malaysia Oxford Economics

Crude oil price Thomson Reuters

RM/USD exchange rate Bloomberg

Percentage of sum of state GDP to

Malaysia’s GDP according to clusters DOSM

Table 44 – Variables used in MAVCOM’s passenger traffic forecast model



100

For the purpose of forecasting the future passenger traffic for Malaysia, a number of

regression analysis were tested using a multiple linear regression model for each

cluster with one period lagged independent variables. The lagged variables function to

address issues on endogeneity. The model that was found to have the best fit was the model

that includes Malaysia’s GDP (constant), crude oil price, exchange rate, and percentage of

state GDP are as tabulated below.

Cluster Model

KUL 𝐿𝑛𝑃𝑎𝑥𝑡 = −3.8212 + 1.7402 𝐿𝑛𝑀𝑎𝑙𝑎𝑦𝑠𝑖𝑎𝐺𝐷𝑃𝑡−1 −

0.3103 𝐿𝑛𝐹𝑜𝑟𝑒𝑥𝑡−1 − 0. +0160 𝐿𝑛𝑂𝑖𝑙𝑡−1

Peninsular 𝐿𝑛𝑃𝑎𝑥𝑡 = −9.1699 + 2.2364 𝐿𝑛𝑀𝑎𝑙𝑎𝑦𝑠𝑖𝑎𝐺𝐷𝑃𝑡−1 − 1.1766 𝐿𝑛𝐹𝑜𝑟𝑒𝑥𝑡−1

− 0.2632 𝐿𝑛𝑂𝑖𝑙𝑡−1 − 0.0183 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒𝑠𝑡𝑎𝑡𝑒𝐺𝐷𝑃𝑡−1

Sabah 𝐿𝑛𝑃𝑎𝑥𝑡 = 1.0457 + 1.1832 𝐿𝑛𝑀𝑎𝑙𝑎𝑦𝑠𝑖𝑎𝐺𝐷𝑃𝑡−1 − 0.0792 𝐿𝑛𝐹𝑜𝑟𝑒𝑥𝑡−1

+ 0.0155 𝐿𝑛𝑂𝑖𝑙𝑡−1 + 1.7609 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒𝑠𝑡𝑎𝑡𝑒𝐺𝐷𝑃𝑡−1

Sarawak 𝐿𝑛𝑃𝑎𝑥𝑡 = 4.2245 + 0.9681 𝐿𝑛𝑀𝑎𝑙𝑎𝑦𝑠𝑖𝑎𝐺𝐷𝑃𝑡−1 − 0.2054 𝐿𝑛𝐹𝑜𝑟𝑒𝑥𝑡−1

+ 0.0659 𝐿𝑛𝑂𝑖𝑙𝑡−1 − 4.0097 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒𝑠𝑡𝑎𝑡𝑒𝐺𝐷𝑃𝑡−1

Table 45 – MAVCOM’s regression model by cluster


Overall, the models showed that higher Malaysia GDP would have a positive impact on

passenger traffic on each of the clusters. At the same time, appreciating RM/USD has a

negative impact on passenger traffic for all of the 4 clusters. Changes in exchange rates

affect consumers’ travelling decisions, while crude oil price typically represents a proxy to cost

of air travel.

For KUL and Peninsular clusters, the rise in crude oil price would result in a lower

passenger traffic whilst the opposite is true for Sabah and Sarawak clusters, in which

an increase in crude oil price would increase its passenger traffic. As mentioned in the previous

section, this could be that the population in Sabah and Sarawak are more income inelastic to

changes in airfare from rising oil prices given the lack of viable alternative transport. Given that

both states also have large oil and gas operations, an increase in oil prices may even increase

passenger traffic as business opportunities and incomes rise.

The percentage of state GDP indicates the economic strength of each cluster. However, this

variable is not included in the KUL regression model as KUL’s passenger traffic is derived from

the strength of Malaysia’s total GDP.


101

Forecast data and parameters

Referring to the model of best fit, passenger traffic was forecasted for the period 2019 to 2022

by employing the data described in Table 45 below.

No. Variables Forecast figures

1 Malaysia GDP (Constant) • 4.5% YoY growth in 2019

• 4.2% CAGR growth between 2019 and 2022

2 Crude Oil Price • 13.7% YoY decrease in crude oil price to

USD61/BBL in 2019

• -0.9% CAGR growth between 2019 and 2022

3 RM/USD Exchange Rates • RM4.13/USD for 2019

• -2.3% CAGR growth between 2019 and 2022

4 Percentage of sum of state GDP

to Malaysia’s GDP according to

clusters

• The percentage of the clusters’ GDP to Malaysia’s

GDP is assumed to be constant from 2019 to 2022

• Peninsular: 49.1%

• Sabah: 7.6%

• Sarawak: 10.5%

Table 46 – Variables employed to forecast passenger traffic, 2019 – 2022


The forecast passenger numbers derived from the model were further adjusted to

account for the annual historical trend for additional passengers. For example, between

2008 and 2018, passenger traffic for Malaysia typically grew by 3.2 million to 8.0 million

passengers per annum. Where the model overestimated or underestimated forecasted

numbers, the numbers were adjusted to reflect the typical historical trend.


102

MAVCOM’s passenger traffic forecast

The forecasted passenger traffic number for each of the 4 clusters will then be added to get

the total forecasted passenger traffic in Malaysia (see Figure 17).

Figure 17 – Air passenger traffic, Malaysia, 2007 – 2022


Based on the forecast, the Malaysia passenger traffic (ex-JHB, Sabah and Sarawak

STOLports) will increase from 99.0 million in 2018 to 115.2 million in 2022, registering a

4-year CAGR of 3.9%. When compared to the forecast made by MAHB, they had forecasted

its passenger traffic higher than the Commissions’ forecast in each year (see Figure 18). The

CAGR growth for MAHB’s forecast from 2018 to 2022 is 5.7%. The higher growth projection

from MAHB may be due to positive adjustments to airline long-term growth plans, new fleet

delivery, and stable fuel prices.


99

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ffic

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n)

103

Figure 18 – MAVCOM vs. MAHB: Malaysia passenger traffic forecast, 2018 – 2022

Source: MAVCOM Analysis, MAHB

In terms of the individual cluster (see Figures 19 – 22), the deviation between the

Commission’s and MAHB’s passenger traffic forecast is largely due to differences in

the KUL, Sabah, and Sarawak clusters, accounting for around 73% of the total variation

between the two sets of forecasts. In particular, the Commission’s model indicates slower

growth in 2019 compared to MAHB’s forecast for Sabah and Sarawak; MAHB forecasts

double-digit growth in 7 of the 11 airports it manages in the two clusters. This is

especially so for BTU, BKI, KCH, SBW, and TWU. As for KUL, MAHB forecasts stronger

growth between 2020 and 2022 than the Commission, driven by growth at KUL-T2.

Figure 19 – MAVCOM vs MAHB: KUL passenger traffic forecast, 2018 – 2022


99

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n)

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MAVCOM MAHB


104

Figure 20 – MAVCOM vs MAHB: Peninsular passenger traffic forecast, 2018 – 2022


Figure 21 – MAVCOM vs MAHB: Sabah passenger traffic forecast, 2018 – 2022


17

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105

Figure 22 – MAVCOM vs MAHB: Sarawak passenger traffic forecast, 2018 – 2022


Advantages and limitations of MAVCOM’s passenger traffic forecast

model

The Commission’s model is robust as it takes into account more variables that affect

passenger traffic. The Commission’s model includes GDP, oil prices, exchange rates, and

the proportionate share of state GDP as independent variables in the forecast of passenger

traffic in Malaysia by clusters. This makes the Commission’s model robust as it also considers

variables that reflect the cost considerations associated with air travel such as oil prices and

exchange rates, which reflects any potential decreases in demand for air travel by price-

sensitive consumers.

In addition, the inclusion of the proportionate share of state GDP introduces cluster-specific

variables that indicate the economic strength of each cluster. This allows each regression

model to be nuanced by cluster, capturing the varying relationship (see Table 46) that each

cluster has with passenger traffic.

However, the Commission’s model is limited in several ways. Firstly, it does not take into

account of limiting factors such as airport constraints and airline schedules. These constraints

may limit the growth of passenger traffic if there are airport limitations or if airlines do not have

aggressive expansion plans. Secondly, the Commission’s model also assumes that the

proportion share of state GDP in each cluster will remain constant in the first RAB cycle (i.e.

between 2019 and 2022), which may not necessarily be the case. Thirdly, the Commission

does not have access to future expansion plans of airlines and airports, which limits the

accuracy of its model, as airline growth plans or airport expansion may have a stronger

influence on the passenger traffic forecast in the short-term.

10

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106

References

Brons, M. et. al. (2002), Price Elasticities of Demand for Passenger Air Travel: A Meta-

Analysis. Journal of Air Transport Management, 8(3), pp. 165-175

Gillen, D., Morrison, W., and Stewart, C. (2008), Air Travel Demand Elasticities:

Concepts, Issues and Measurement. Retrieved April 30 2019 from

https://www.fin.gc.ca/consultresp/airtravel/airtravstdy_-eng.asp

Smyth, M. and Pearce, B. (2008), IATA Economics Briefing No. 9: Air Travel Demand.

Retrieved April 30 2019 from

https://www.iata.org/publications/economic-briefings/air_travel_demand.pdf

(the remainder of this page is intentionally left blank

https://www.fin.gc.ca/consultresp/airtravel/airtravstdy_-eng.asp

https://www.iata.org/publications/economic-briefings/air_travel_demand.pdf

107

APPENDIX 2: AIRPORT FACILITIES DATA

Table 47 – Facilities matrix at MAHB airports

Source: MAVCOM analysis, MAVCOM

Grouping Airports

Terminal

designed

capacity

(mppa)

Passengers

per peak hour

capacity

(ppph)

Number of

check-in

counters

Number of

immigration

counters

Number of

aircraft

parkings

bays

Number of

car parking

lots

Number of

aerobridges

Number of

carousels

Operating 24

Hours

Tier 1 KLIA and klia2 >15 >5,000 >100 >100 >50 >6000 >40 >9 Yes

Tier 2 PEN, KCH, and BKI 5-15 2,000-4,999 35 - 99 20 - 99 20 - 49 800 - 1000 5 - 39 4 - 8 Yes

Tier 3 LGK, SZB, SBW, MYY, TWU, KBR 1.5-4.99 500-1,999 11 - 34 11 - 19 5 - 19 300 - 799 2 - 4 2 - 4 No, except LGK

Tier 4IPH, MKZ, KUA, AOR, TGG, BTU, SDK,

LBU, LMN, MZV, and LDU0.01-1.5 100-499 2 - 10 2-10 2 - 4 10 - 299 1 - 2 1 - 2 No

aeronautical charges framework second consultation paper · mahb’s tariff proposal per june 2019...

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