Sunday, May 9, 2010

AirAsia X backs a clear national aviation policy

06 May 2010

CEO: We also welcome competition on a level playing field

WE welcome the assertion by Tengku Datuk Azmil Zaharuddin, the MD/CEO of MAS, that “Malaysia needs a clear aviation policy – one that offers real choices to consumers and that benefits the country.” (StarBizWeek, May 1 2010, headlined: “To compete and collaborate”.

It is good to know that MAS is willing to join hands with us to work with the Government on delineating such a policy and ensuring free and fair competition on a level playing field (which Tengku Datuk Azmil says MAS welcomes).

The whole idea, of course, is that consumers should gain and Malaysia can benefit from increased tourist arrivals.

Tourism is listed as one of the National Key Economic Areas. And according to a study commissioned by Khazanah Nasional, the Malaysian aviation sector has a multiplier effect of 12 on the national economy.

Hence, a clear aviation policy, overseen by an independent regulator, provides strategic benefits to a nation’s economy as a whole.

It is in this context that we would like to respond to the article by Tengku Datuk Azmil.

There are several specific points he raised that we take issue with and whose accuracy we question, but we will limit our response to the broader issues.

First and foremost, let’s be clear that MAS and AirAsia X (AAX) serve very different market segments.

We are a low-cost carrier (LCC); MAS is a legacy carrier.

Thus, whether the routes we are allowed to operate overlap with those of MAS should not even be an issue.

We serve the underserved; legacy carriers serve the elite (those wanting premium lounges, unlimited servings of food and drinks, etc).

A four-member Malaysian family whose monthly household income is less than RM 3,000 will find it difficult, if not impossible, to travel to, say, Sydney on a legacy carrier at present.

Neither is an Australian family with a similar sort of income going to be able to visit Malaysia.

AirAsia X’s Airbus A330

But those families may be able to do so if they are given the choice of flying on an LCC.

In short, AAX grows the market.

Here are the facts:

1. Markets have grown significantly wherever AirAsia X has been allowed to fly, even when in parallel to MAS.

In 2009, annual passenger volume grew significantly on routes that AirAsia X operates in parallel with MAS: Perth (66%), Melbourne (41%), London (31%) and Taipei (57% - since July 2009).

This contrasts starkly with long-haul routes where we did not fly: Sydney (-20%), Seoul (-13%), New Delhi (-20%), Tokyo (-10%), Osaka (-16%), and Paris (-15%).

Clearly, we have been able to tap new segments and made it possible for new passengers to travel on the routes we operate.

Interestingly, even when Jetstar was allowed to compete with MAS on the KL-Sydney route, passenger volume grew by 22% during the one year they operated, compared to the previous year.

Beyond passenger volumes, inbound tourists have also grown from markets which AirAsia X operates.

Tourism Malaysia data records the following growth in 2009: Australia (+25%), United Kingdom (+17%), China (+7%), and Taiwan (+4%).

In contrast, markets where we have not operated shrank: South Korea (-15%), Japan (-9%).

It is unfortunate that MAS tried to assert that AirAsia X carries mainly transit passengers that do not contribute to Malaysia’s tourism.

They wrongly referred to a statistic that does not measure transit passengers, but passengers that have another flight up to 14 days later.

Many of our passengers who take AirAsia flights to Penang, Pulau Langkawi and Kota Kinabalu are bona fide tourists, as are those that stay in KL for 2-14 days before taking another flight, as part of the growing multi-destination trend brought about by AirAsia’s low regional fares.

In fact, a more robust analysis using like-for-like data sources such as Australia’s passenger arrival data or the PaxIS data quoted by MAS will show that MAS carries a much higher share of transit passengers that arrive from their Australian flights and connect straight to Europe or India – e.g., MAS transit passengers from Melbourne are 67%, Perth 61% and Sydney 59%, compared to AirAsia X carrying 28%-33% transit passengers.

2. The biggest market growth opportunity for Malaysia is from key trunk routes, and not 34 peripheral cities.

With limited valuable aircraft capacity, Malaysia needs to smartly deploy it to the markets with the biggest unserved demand.

Where does Changi have the biggest gains in passenger volumes compared to KLIA?

There are more than double the flights to and from there from cities like Tokyo, Shanghai, Sydney, Beijing and Seoul which results in over 3.2 million more passengers from 5 cities.

In contrast, there is only a net gap of 224,000 from the 34 peripheral cities MAS is suggesting.

Would Malaysians want more flights to Sydney or Jeddah, or would they want Almaty, Tashkent, Ashgabat, Sana’a, Peshawar, Mahe, Port Moresby, Darwin, Pyongyang, Dili, Changsha?

Where is Malaysia realistically going to get the most economic benefit?

MAS itself has withdrawn from several of the cities that it is now suggesting AirAsia X should operate.

Singapore succeeds because it allows competition to thrive.

It is misleading to say Tiger Airways and SIA do not compete, citing a 17% overlap based on SIA’s route network.

Please check Tiger Airways’ IPO prospectus report dated Jan 13, 2010.

They fly to 20 destinations, and compete head-to-head with SIA/SilkAir on 75% of the routes.

They explicitly mention on page 19 that they regard SIA as a significant competitor and neither coordinate routes nor have any commercial cooperation agreements with SIA.

They don’t fly long-haul because they choose not to do so, not because of any policy to discourage overlapping.

Countries like Australia, New Zealand, UK, Taiwan and South Korea all encourage significant route overlaps among all their local airlines.

When we add more flights to Melbourne, more people do indeed choose to fly from KL instead of Singapore or Bangkok.

Here are the 2009 annual passenger growth rates from Australian Immigration data: Melbourne: +47% from KL vs 0% from Singapore and -2% from Bangkok; Perth: +67% from KL, vs -2% from Singapore and -8% from Bangkok.

In contrast, Sydney: -19% from KL, vs -3% from Singapore and -5% from Bangkok.

How many people flew from Malaysia to Sydney in 2008 that did not use MAS? 86,612 according to the authoritative Australian Passenger Arrival card data.

3. We should not be distracted by irrelevant assertions.

MAS makes a big hue and cry about AirAsia X cancelling a service to Abu Dhabi and not flying on some routes where we were granted approvals.

How does MAS itself justify cutting many more routes and not flying to many more cities for which it has approval?

Let’s name just a few: New York, Stockholm, Manchester, Vienna, Zurich, Fukuoka, Nagoya, Cairo, Ahmadebad, Darwin, Xian, Chengdu.

AirAsia X has also invested in starting new routes, including Gold Coast, Tianjin, Hangzhou, and restarted Chengdu.

These are big cities and destinations in their own right.

MAS is being disingenuous in portraying these new routes as the same as flying to Brisbane, Beijing or Shanghai (each of which is at least 100 kilometres away from the above-mentioned airports).

But if MAS insists on claiming they are the same, perhaps MAS would be willing to swap slots and allow us to fly to Brisbane, Beijing or Shanghai instead?

Other factual inaccuracies that need to be corrected: AirAsia X does fly to Tianjin.

We received formal approval for 7x weekly services to Seoul from the Ministry of Transport on April 14, 2010.

We have not received approval for Paris-Orly. We never applied for Male, Maldives.

That was AirAsia Bhd.

Finally, the issue of Rural Air Services is also irrelevant.

The operations by Fly Asian Xpress were fully audited by the National Audit Department and no anomalies or irregularities were found.

FAX did not make any gain as all government funds were used to cover expenses, which incidentally were higher because of (a) higher global fuel prices, (b) higher service charges by MAS engineering services and pilots, and (c) higher aircraft lease rates charged by Penerbangan Malaysia Bhd, MAS’ parent company.

To be utterly frank: Indonesia allows Lion Air to compete with Garuda to fly to Jeddah to give more options for people to perform the haj and umrah; Singapore allows multiple airlines to fly the same routes and achieves success; and Malaysia has no issue with foreign-owned airlines such as Jetstar and Emirates operating the same routes as MAS to Australia.

So, why is MAS creating a furore over a Malaysian-owned airline, AirAsia X, flying to Sydney?

Yes, AirAsia X is aggressive and outspoken.

That’s because we are deeply passionate about what we do: growing the travel and tourism industry, innovating and breaking down barriers to make it more affordable for everyone to fly.

The data and evidence conclusively prove the benefits to the Malaysian economy and to consumers of allowing competition – not just in aviation but in any industry.

Yes, we will become a “co-pilot” and fly to Sydney and Jeddah together with MAS. And together we will help boost the Malaysian economy.

The writer is the chief executive officer of AirAsia X.

The Star

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