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Malaysia diesel price hike squeezes Singapore tour operators
"The entire industry will increase (prices). Nobody has that kind of profit ... if the cost is a significant increase, everyone will have to pass it to the consumer," says one travel agency.
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Ang Hwee Min
15 Jun 2024 06:00AM (Updated: 15 Jun 2024 07:17AM)
"The entire industry will increase (prices). Nobody has that kind of profit ... if the cost is a significant increase, everyone will have to pass it to the consumer," says one travel agency.
This audio is generated by an AI tool.
15 Jun 2024 06:00AM (Updated: 15 Jun 2024 07:17AM)
SINGAPORE: With the increase in Malaysia's diesel prices, coach passengers and tour agency customers travelling across the border can expect prices to increase soon.
On Monday (Jun 10), the Malaysian government cut most of its diesel subsidies, which it said was costing the country RM4 billion (US$853 million) annually. Prime Minister Anwar Ibrahim has said the savings will be redirected to lower-income groups.
The retail price of diesel in Peninsular Malaysia has been set at RM3.35 a litre, an increase of more than 50 per cent from the previous subsidised price of RM2.15 for commercial and private vehicles.
PASSING ON COSTS
Singapore Cab Booking, which offers transportation services between the two countries, said its bus services will be hit by the diesel price increase."We have the Singapore-KL overland transfer. With the 50 per cent increase in diesel prices, the price is almost equal to Singapore's diesel price," said CEO Farid Khan, adding that the company also has to pay toll charges.
He has 12 45-seater coaches in his fleet and other smaller buses that also use diesel. He also works with some Malaysian vendors, and they have already requested to increase their prices.
"With this increase in the price of diesel, when we want to increase our prices to our customers, that's a problem. They will make noise, not happy the price is going up," said Mr Khan.
Many agreements, especially for customers travelling in big groups, were signed and prices fixed months in advance, said Mr Khan, who added that he would make a loss in some cases.
The overall increase in costs will cut into his profit margins by about 20 to 30 per cent. He is currently in negotiations with his vendors about their higher asking prices.
He intends to increase his prices by at least 20 per cent over the next few months for new packages or agreements. For example, he currently charges S$550 (US$406) for a one-way coach trip to Legoland in Malaysia. But with higher diesel prices and the newly implemented vehicle entry permit system, he plans to increase this to about S$650.
"Corporate customers ... they plan their holidays and book way before. Especially school holidays, two to three weeks before they already make their booking because they know last-minute booking is going to be very expensive," he said.
"So when this thing happened, bam! It's like they dropped a bombshell. Headache."
Vehicle entry permits will be mandatory for Singapore vehicles entering Malaysia from Oct 1. Vehicles will be fitted with a radio frequency identification tag that costs RM10.
EU Holidays said its Malaysia tour packages, which make up about 10 per cent of its business, will likely increase in price.
Director Ong Han Jie told CNA the tour agency has not decided how much the increase will be. The operators they work with in Malaysia also have not confirmed how much their prices will increase.
"I feel that it's going to come in soon, but maybe not immediately, because we still have confirmed services to be rendered at the moment, so those that have already committed on the pricing will be delivered as per the pricing," said Mr Ong.
The rise in diesel prices translates to a 40 per cent increase in the cost of running the coaches in their tours, he said.
"For us, there is an increase in cost, but because the ringgit has depreciated against the Singapore dollar, in Singapore's context, personally I didn't feel that it's a very big problem."
Another tour agency which plans to increase the prices of its Malaysia packages is WTS Travel.
The company organises coach tours to multiple destinations in Malaysia and also provides charter services. It has its own fleet of coaches but sometimes relies on subcontractors when its vehicles are fully booked.
Senior business development manager Michael Gan said its subcontractors have already requested to increase their coach chartering prices.
The company is still working out the amount of increase for its tour packages and coach charter services, he said.
Likewise, Singatour director Philip Gan said he is still waiting for coach charter contractors to confirm how much they will increase their prices.
Tours to Malaysia make up about 50 per cent of his business, with many of them needing coach charter services across the border or within Malaysia.
Transport, including the cost of diesel, makes up 20 to 30 per cent of Singatour’s operational costs, he added.
“We’ll look at the margins, if the difference is not much of an increase and if it’s manageable, we probably have to absorb it because the market is so competitive.
“Let’s say if it increases by a few hundred dollars, then we really can’t take it, then we have to pass it on,” he said, adding that he may pass on a percentage of the increased costs to customers.
THIN PROFIT MARGINS
Both EU Holidays' Mr Ong and Singapore Cab Booking's Mr Khan do not think that raising tour prices would have much impact on their business, as other companies are similarly affected.The profit margin for tours and transport to Malaysia is slim. For example, the profit per customer for tours to Malaysia can sometimes be as low as S$3, said Mr Ong.
"The entire industry will increase (prices). Nobody has that kind of profit ... if the cost is a significant increase, everyone will have to pass it to the consumer."
Peninsular Tour Bus Operators Association president Steven Chong told The Star newspaper in Malaysia that operational costs will increase by up to 30 per cent with the diesel price hike.
Operators also fear losing customers, who are mainly from overseas tour agencies, as the packages were quoted based on the subsidised diesel rates.
“With this new rate, it will surely be more expensive, and we are afraid that the agents will not take up our offers,” he said, adding that a memorandum on the matter has been submitted to Malaysia’s Tourism, Arts and Culture Minister.
Malaysia's Communications Minister Fahmi Fadzil said on Wednesday that the government was aware of tour bus operators' concerns about higher fuel prices, and that it would explore ways to help them following the removal of the subsidies.
"The government intends to look at a mechanism in which we can assist this particular group because the announcement (of subsidy removal) came at a time when they had made certain arrangements,” he said.
FARMERS AND FRESH FOOD IMPORTS
The higher price of diesel may also hit food importers. A poultry association in Singapore told CNA that Malaysian suppliers have yet to confirm whether they still qualify for diesel subsidies.If they do not qualify, local poultry businesses may have to raise prices depending on the supply and demand, said Mr Ma Chin Chew, secretary of Singapore's Poultry Merchants' Association and CEO of Hup Heng Poultry Industries.
The higher costs will impact how competitive the price of Malaysian eggs can be compared to other sources like Ukraine, Turkey or Thailand, he said.
Malaysia’s second minister for finance Amir Hamzah said that diesel for low-income groups, including fishermen and farmers, as well as for the use of school buses and ambulances, will continue to be subsidised.
According to local media, about 68,000 farmers, 8,000 breeders and 34,000 small-scale agricultural workers are eligible for the BUDI agri-commodity subsidy scheme. About 300,000 diesel vehicle owners are eligible for the scheme targeted at individuals.
As of Jun 6, more than 30,000 applications across both categories have been approved.
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