‘Domestic flyers to feel brunt of GST’
By Yen Ne Foo / The Edge Financial Daily | February 4, 2015 : 10:34 AM MYT
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KUALA LUMPUR: Malaysia’s 6% goods and services tax (GST) is looming but the market could be “grossly underestimating” the impact of the new tax regime on air travel demand and profit margins of aviation-linked firms, warned Maybank IB Research.
“A lot of people would dismiss the impact of GST and say that others have introduced it and have coped with it. But, people forget that in this economic condition, the big-ticket items will be axed first and air travel is one of them,” Maybank IB Research aviation analyst Mohsin Aziz told The Edge Financial Daily.
He said domestic flyers will feel the brunt of the GST compared with international travellers as the consumption tax will be levied on all domestic airfares, fuel and passenger service charges (PSC). In contrast, only PSC on international flights may be subject to GST come April 1. Mohsin estimates that consumers will be forking out around 6.3% more for a domestic flight and approximately 1% extra for an international flight.
The scenario could worsen if the government, who has committed to reviewing the rates for PSC on May 2, decides to raise airport tax this year. If so, domestic travel costs could rise by as much as 7% to 9% this year.
“For domestic air travel in particular, there are always alternatives to air travel. When consumers’ reach a bottom line of how much they are willing to pay for a domestic flight, they will switch to alternatives,” Mohsin said. “It will be a challenge for airlines to fully pass on the GST to consumers as a 6% higher “all-in” ticket price is drastic and will have an impact on demand,” he said.
A lower demand for domestic air travel will inevitably adversely impact air carriers.
http://www.theedgemarkets.com/my/article/%...nt-gst%E2%80%99
Sep 6 2013, 04:49 PM
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