Airports of Thailand
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Short-term price pressure ahead BUY
Airports of Thailand Plc (AOT)
News: Transport Minister ACM Prajin Juntong has assigned the advisor to the Minister
of Transportation the task of studying halving the passenger service charge (PSC) for
international passengers to Bt350/passenger (from Bt700) for AOT’s six international
airports (Suvarnabhumi, Don Mueang, Phuket, Chiang Mai, Hat Yai and Chiang Rai), in
an effort to attract more international tourists. At the same time, he said that if they
do implement this measure, they would take into consideration the impact on AOT’s
operations. (Source: Post Today, October 7, 2014)
Comment:
This is not good news for AOT, as revenues of PSC from international passengers
account for ~40% of its total revenues. We note that prior to this, reducing PSC
has never been considered as a measure to boost Thai tourism.
According to Thailand Air Navigation Act B.E. 2497 (1954), section 15, the Civil
Aviation Board has the authority to set rates and conditions for service charges,
tariffs or other monetary remuneration at licensed airports (under section 56).
This includes the departure passenger service charge or PSC.
However, setting the PSC is done with consideration of operating costs. As
outlined in Section 60/37, departure passenger service charges are collected to
fund safety and maintenance of airports and passenger facilities as well as for
environmental preservation and reduction of pollution caused by airports.
A cut in PSC will be detrimental to AOT’s operations, as we estimate PSC revenues
align with operating costs. According to company guidance, at this time the PSC
on international passengers is Bt700/passenger against cost of ~Bt500/passenger
and on domestic passengers is Bt100/passenger against cost of ~Bt336/passenger.
Our preliminary estimates suggest a net margin of ~1% from PSC revenues, with
gains from international services offsetting the loss from domestic.
We expect a reduction in PSC would be short-term measure, if implemented. In
our view, reducing PSC would not help raise tourist numbers much as this is not
generally a significant portion of their travel spending (Bt350 vs. Bt45,000 average
spending per tourist in Thailand). We believe what would be much more effective
is generating greater tourist confidence in Thailand’s political environment -
several countries still have travel alerts for their citizens coming to Thailand.
Assuming a one-year life of this measure in FY2015 (Oct 2014 – Sep 2015), the
downside to AOT’s earnings in FY2015 is substantial at ~35-40%.
We maintain our earnings projection pending a decision by the Civil Aviation Board
– which we expect this month. We currently rate BUY on AOT as, for the longerterm
when all the dust settles, it is set to be a prime beneficiary of growing Thai
tourism. At the same time, in the near term, this is going to put AOT’s share price
under pressure.
