Anti-competition fines to have 'negligible impact'

Maybank Investment Bank Research analyst Mohshin Aziz said the action by MyCC sent a strong message that any anti-competitive behaviour would not be tolerated, and thinks the commission has succeeded in sending that message. 

“10 million ringgit is an acceptable fine for both companies and we hardly see it as a deterrent to our investment thesis for both companies. 

“Therefore, we hope that both airlines can put this episode behind them as quickly as possible in order to minimise the negative publicity,” he said in a report on Monday. 

Mohshin said it was the first time that MAS had been accused of anti-competitive behaviour, as it had only been charged with cargo-price fixing in the past. “MAS had opted to pay the fine in the past, and there was no material weakness in its share price. Therefore, we are of the view that MAS would likely accept this latest charge, pay the fine and move on.”

Mohshin said both airlines could “swallow the 10-million-ringgit fine without a dent to their operations and balance sheet”.

CIMB Research said the fines were “not material”, accounting for 1 per cent of AirAsia’s 2013 group core net profit and 1 per cent of MAS’s core net loss forecast. 

Nevertheless, CIMB noted that the fines by MyCC were “not helpful when the airlines were already feeling the weight of over-capacity”. Last week, MyCC slapped a fine of 10 million ringgit each on MAS and AirAsia for violating the Competition Act 2010 when both carriers collaborated under a share-swap deal in 2011. MAS said it was reviewing the charges, while AirAsia said it intends to vigorously defend the allegations. 

Meanwhile, MIDF Research expects the penalty to have a “negligible impact” on AirAsia’s earnings, as it translates into merely 0.4 sen per share. Despite the imminent risk of a US attack on Syria, MIDF said spot jet fuel prices remained at manageable levels of circa US$130 (Bt4,180) per barrel as of August 30, lower by 4.4 per cent year-on-year. “However, we view that the weakening of the ringgit and other regional currencies would likely exert higher pressure on the group’s earnings, as it inflates the cost of fuel consumption. 

If the current situation continues to persist, then we would see that AirAsia might have to pass on the additional costs to passengers by increasing the fuel surcharge,” it added. As at June 30, AirAsia had hedged 33 per cent of its second-half 2013 jet fuel demand at an average price of $123.40 per barrel.