Tuesday, May 4, 2010

MAS and AirAsia X

Comment

By Tengku Datuk Azmil Zahruddin

AirAsia X has been lobbying its cause aggressively in the media locally and abroad to fly to destinations operated by Malaysia Airlines (MAS).

Its allegations appear to logic on surface: Open up Sydney, Seoul, etc., as that is best for the country.

There are two sides to any argument and I would like to take this opportunity to put forward the MAS point of view.

A bit of history: Under the domestic rationalisation exercise in March 2006, MAS was asked to give up the operations of the rural areas in Sabah/Sarawak and hand them over to AirAsia Bhd.

MAS was awarded 19 trunk routes to operate and AirAsia was granted both the trunk and non-trunk routes (about 96 routes). AirAsia subcontracted non-trunk routes to its wholly-owned subsidiary, Fly Asian Xpress Sdn Bhd (FAX).

FAX operated the service from September 2006 to September 2007. There were countless complaints about the unreliability of its services which severely and negatively impacted communities, tourism and businesses in Sabah and Sarawak.

The Government asked MAS to take back the rural air services and MAS’s wholly-owned subsdiary, MASwings, took over on Oct 1, 2007. During that one year of FAX’s operation, it was paid more than double what MASwings received for the same scope of services over the past two years.

FAX was subsequently renamed AirAsia X.

In just some three years of operations after dumping the rural air services, AirAsia X has obtained rights for nine routes: London, Melbourne, Perth, Brisbane, Mumbai, New Delhi, Taipei, Beijing and Shanghai.

The MAS-AirAsia X rivalry can be addressed by having a clear aviation policy that offers real choices to consumers and ensures that all local airlines are given equal treatment.

Flight rights and hubs
Recently, AirAsia X announced it has been given rights to fly to Seoul. But to date, there has been no Government announcement. AirAsia X was recently also granted the rights to fly to Male and the rights were transferred to AirAsia.

Excluding the rights to fly to Seoul and Male – assuming this is official – 90% of AirAsia X’s routes overlap with those operated by MAS. On the other hand, only 17% of Tiger, Singapore Airlines (SIA) and SilkAir’s routes overlap

We will stand up and be counted. Yes, MAS lobbies the Government. So do AirAsia and AirAsia X. As an airline, we have transformed and we are fighting for our rights, as are AirAsia and AirAsia X.

Let me outline our viewpoints and why we stand behind the facts – not blind accusations – that we presented to the Government:
What makes Suvarnabhumi and Changi great hubs is that these airports provide customers with many destination choices.

Some 93 airlines operate out of Suvarnabhumi to over 187 cities in 71 countries. About 85 carriers operate from Changi to more than 200 cities in 60 countries.

On the other hand, some 50 airlines operate from KL International Airport (KLIA) to 100 cities in 44 countries.

What makes Changi a good hub is the number of destinations it offers. This gives consumers greater choice. For example, someone who wants to fly to Moscow has to go via Changi as there are no airlines flying to Moscow directly from KLIA.

If someone from Melbourne wants to fly to Moscow, he is likely to go via, say Changi, and not KLIA. AirAsia X can fly 10 times a day to Melbourne and this passenger is still more likely to use Changi.

If AirAsia X is serious about providing customers “with choices”, it should fly to new destinations. There are 34 or more new destinations that currently do not have direct flights from KL. All these destinations are within the range of AirAsia X’s A330-300s.

AirAsia X has been lobbying the Malaysian Government saying that it deserves to get the rights to fly to any destination because it has bought so many aircraft.

Yet, it is not willing to consider any of these 34 cities because it claims that these cities do not make economic sense.

Amongst the 34 are Fukuoka and Nagoya in Japan, and Chongqing in China. All these routes are operated by both SIA and Cathay Pacific. SIA also operates to Ahmadabad in India and Cairo in Egypt.

One of the destinations which the Transport Ministry lists as being granted to AirAsia X is Paris/Orly. Interestingly, AirAsia X CEO Azran Osman-Rani told MalaysianInsider in an interview dated April 28, 2010: “It (the rights) has yet to land on my desk. Until it does, we cannot initiate detailed plans”.

If AirAsia X’s argument is that it does not have planes or the correct aircraft, note that it has two A340s, each of which has a 12-hour flying range. It can also operate the A330s with one stop in the Middle East.
In addition, AirAsia X has applied for and been granted the rights to fly to many cities which it is not exercising. These cities include Amritsar, Cheongju, Pusan, Tianjin, Xian, Bahrain, Sharjah, Berlin, Manchester, Dublin, Vienna and Moscow.

AirAsia X is not keen to operate to these new destinations as it is well aware that it takes years of investment to make a route profitable.

Case in point is Abu Dhabi. SIA flies to Abu Dhabi. Yet, AirAsia X pulled out from Abu Dhabi after just three months in operation, citing that the route is not profitable.

When MAS flies to a new route, we are likely to incur losses in the first year up to the first five years as we spend money to develop awareness in the new destination and expand the market. This is an investment we are prepared to make, as short-term losses can result in long-term profits. In the long run, it is good for the country and gives consumers more choice.

For example, for the past 20 years, we invested tens of millions (of ringgit). Even today, we invest some RM100mil annually in marketing costs alone in Australia.

If AirAsia X is really serious about “choices for the people”, it will fly to destinations where it has the rights to. But the reality is that AirAsia X is only interested in MAS’ routes. Is this then in the best interest of the country?

For the record, we have been competing with various global, full service carriers for the past 60 years and competition is not new to MAS. We welcome competition as it means that we have to constantly transform ourselves – which is what we have been doing intensely in the past four years.

Passenger numbers
Let us also set the record straight on the information that AirAsia X has been providing to the media to support its claim to fly to Sydney and Seoul.

Azran claimed in the same interview that “some 80,000 Malaysians were flying to Sydney indirect.”

PaxIS (passenger intelligence services) data (collated by the International Air Transport Association), which captures all full service airline transactions, shows that in 2009, only 2,848 passengers travelled from KL to Sydney via Singapore. In 2010, the number is reduced to only 2,359. It would be good if AirAsia X can substantiate its allegations.

For Seoul, Azran claimed: “We should see a reversal of the trend of negative growth in 2009 to a positive growth in 2011” on the assumption that AirAsia X were to fly to Seoul.

For the first three months of 2010, tourist arrivals from South Korea grew by 26% compared with the same period in 2009. MAS’ passenger growth was up 48%. The trend is already strongly positive.

Both MAS and AirAsia X bring in tourists to the country. Tourism studies indicate that there is a 12 times multiplier effect to the country.

This year, we expect to fly in 5.5 million passengers. We expect this to generate some RM12.7bil of tourism dollars for the country.

However, most of AirAsia X’s passengers are in transit. For example, AirAsia X has said that 80% of its Australian passengers on AirAsia X self-connect to other destinations after arriving in KL.

In other words, while AirAsia X increases traffic into the country, most of their passengers transit in KL to other destinations. Although this makes the arrivals figures look higher, these passengers may not spend much money in Malaysia. This means less economic value to the country.

However, if AirAsia X operates to new destinations and invests in promoting Malaysia, it will go a long way to attract tourists from different countries and boost tourism in Malaysia.

In July 2008, when we met the Transport Minister, we proposed a clear framework for the aviation sector.

This framework will involve airlines, airports as well as a range of services to airlines and airports, MRO (maintenance, repair and operation) and catering. The sector contributes about 4% to Malaysia’s gross domestic product. Beyond its direct contributions to the economy, the aviation sector is a key enabler of tourism and commerce.

It is never too late to start. Malaysia needs a clear aviation policy – one that offers real choices to consumers and that benefits the country. It must be a long-term, comprehensive and impartial policy that will ensure that the country and rakyat takes precedence.

One that will ensure that KLIA becomes a regional hub, on par with Changi and Suvarnabhumi and that all local airlines – MAS, Firefly, AirAsia and AirAsia X – are given equal treatment, with consideration given to what is best for the country.

At the time we made the proposal, AirAsia was not advocating this. I am glad that it now thinks that this is a good idea.

The winner should not be the one who shouts the loudest in the media. Nor lobby the hardest. We need to learn to compete and collaborate, and work with the Government to achieve the nation’s aspirations.

● Tengku Datuk Azmil Zahruddin is managing director/CEO of MAS.