Saturday, May 1, 2010

Give us Sydney, not Pyongyang, says AirAsia X

28 April 2010

KUALA LUMPUR, April 28 — The government’s efforts to protect Malaysia Airlines is hurting the country’s economy as it is discouraging more connectivity, says AirAsia X which is involved in a tussle over rights to fly to Sydney and other key cities.

In an interview with The Malaysian Insider, AirAsia X CEO Azran Osman Rani said that he was told not to “disturb” Malaysia Airlines and consider flying to 34 cities not served by the incumbent including North Korea’s capital Pyongyang, Peshawar in Pakistan, Dili in East Timor, Almaty in Kazakhstan, Mahe in the Seychelles and Darwin, Australia.

Azran said that such thinking is bad for the country as Malaysia’s connectivity to key cities such as Beijing, Tokyo and Sydney is being compromised which will impact tourism, the second highest source of foreign exchange, as well as business as corporations take connectivity into account when deciding where to locate regional headquarters.

'They just can’t replicate the sambal taste of Malaysian caterers.' - Picture by Choo Choy May

“You are spending so much money on Malaysia Truly Asia (tourism campaign) and does she (the minister of tourism) want the plane to fly to Pyongyang or Seoul?” said Azran. “Does she want the plane to fly to Sydney or Darwin? Does she want the planes to fly to key markets or small peripheral markets that we can’t even spell?”

He said that competition was good as it would grow the overall market and said that since AirAsia X started flying to Perth and Melbourne, traffic increased by 66 per cent and 48 per cent respectively while on the Kuala Lumpur and Sydney route, which it does not have rights to, traffic dropped by 27 per cent.

“The funny thing, the absolute irony is, the absolute irony – do you know where Malaysia Airlines is strongest?” said Azran. “It is domestic and Asean where they have the most competition from AirAsia. Look at their financial results. They are most profitable in domestic and Asean.”

“We seem to be paralysed, not being able to make what should be a very clear decision on how we are going to catch up to our regional rivals and yet we wrestle with what seems to be ‘Oh we have to protect national interest,” said Azran.

“Malaysia Airlines is not national interest. National interest is the Malaysian economy. But we still can’t make that distinction.”

He also said that some 110,000 Malaysians were flying to London indirectly via other cities while some 80,000 Malaysians were flying to Sydney indirect.

“The number of Malaysians going to Sydney via Singapore is growing phenomenally, more than 15 per cent per year,” said Azran adding that flights from Kuala Lumpur to Sydney via Singapore were cheaper than flying from Singapore to Sydney.

“Go to the Singapore Airlines website. What they quote KL-Sydney via Singapore is cheaper than what they quote for buying a ticket from Singapore to Sydney alone. Why do Malaysians take that option? It is cheaper, they have a choice of three flights a day, they fly the A380. It hurts our country because we are being hollowed out,” he said.

“Passengers flying to London are now being hubbed out of the middle east because the middle east carriers realise Malaysia has untapped demand. The number of Malaysians travelling indirectly to London is bigger than the direct flights to London.”

He suggested that the government look at Singapore which stressed connectivity and choice which ultimately benefitted Singapore Airlines.

“For all of Singapore Airlines successes, just about every flight that Singapore Airlines flies out of Singapore, there are alternative choices, there are other airlines that fly those routes,” said Azran.

“Despite all the innovations and service quality that Singapore Airlines is known for, it is one of the most cost efficient airlines and it is 15 per cent more efficient in terms of unit cost than regional peers. So it has a cost advantage and it has a quality advantage which is a winning proposition. If Singapore Airlines were to fly to Australia, it has to compete head to head with Qantas, British Airways and Emirates, with Qatar. If it goes to Europe it has to compete with Lufthansa, British Airways, Air France.”

“In contrast, Malaysia, you have an airline that flies a lot of routes that doesn’t have direct competition. It’s no surprise that Singapore Airlines has learned to innovate its business model. What the Singapore government has said is that what is important is the connectivity that Singapore as country is depending on, not ‘oh, we have to protect Singapore Airlines.’”

Touching on other matters, Azran said that AirAsia X would not be able to mount more flights to Europe or fly to the US until the new A350 jets are ready starting 2015.

Asked about whether long-haul budget airline is going to start flights to Paris after reportedly being given the rights by the French government, Azran said that he has yet to receive confirmation of the rights.

“It has yet to land on my desk,” he said. “Until it does, we cannot initiate detailed plans.”

Asked about complaints on airline review websites about AirAsia X food by Australian customers, Azran said that it was because the food on flights coming from Australia came from Australian caterers who were unable to replicate certain tastes.

'But the problem we have and one of the issues we have in this country is the dichotomy of government as policy maker vs government as shareholder (in MAS).' - Picture by Choo Choy May

“No matter how hard they try, they just can’t replicate the sambal taste of Malaysian caterers,” he said.

He also said that the AirAsia website will also be overhauled for a better customer experience and to enhance revenue and that he is looking at introducing new innovations to the AirAsia X menu but declined to elaborate.

Excerpts of the interview:

Q: What is our national policy?

A: That’s the problem. The national policy framework and the decision making framework isn’t clear. It should have been crystal clear, which is — what is in it for the country? But the problem we have and one of the issues we have in this country is the dichotomy of government as policy maker vs government as shareholder. Because therein lies the conflict. Am I interested in the economy and interested in consumers or, ‘I am a shareholder of a GLC so I am looking out for the interest of the GLC’ at the expense at the expense of consumers?

That is the fundamental problem. Today, if you still have policy makers, i.e. senior civil servants on the boards of these companies, you can see why there is a conflict. Then if you are on the board of the company, you want to see it succeed. The easiest way to be successful — protect lah. You can raise high fares, you don’t have to change and transform yourself, you can generate profits. But those are artificial profits, if you don’t go through the rigours of being more efficient.

Q: What have you proposed to the government?

A: The proposal is very simple. You have to allow airlines routes. You have to allow competition. The funny thing, the absolute irony is, the absolute irony – do you know where Malaysia Airlines is strongest? It is domestic and Asean where they have the most competition from AirAsia. Look at their financial results. They are most profitable in domestic and Asean. When you look at their latest results, domestic is a lot more profitable. Remember in the days before AirAsia? MAS was losing money on domestic routes. They needed hundreds in millions in subsidies.

Now because of AirAsia and lower prices, suddenly domestic is profitable. Why? Because you have to be a lot more efficient. And guess where they want to expand. If you look at their expansion plans — where are they adding flights? Perth! Where are they cutting back flights? Sydney! It (KL-Sydney) used to be 14 times now it’s 12 times a week! Perth they are adding flights! How do you explain that when we come in, more competition and they decide to add flights? Because when there is competition, the market grows. We grew the Perth total market in 2009 by 66 per cent. If you look at Malaysia Airports data, 2009 vs 2008, last year was 166 per cent that of 2008. Sydney — it was minus 27 per cent! So what gives? Melbourne is up by 48 per cent.

Q: You’ve suggested allowing competition on routes? What have they said?

A: You can even say (that we should be given) routes where we are far behind Singapore and Bangkok. Doesn’t that make sense? So that’s basically what we’re saying is allow us to address segments where Malaysia is strategically behind Singapore and Bangkok. That should make sense. The response has been frankly muted because they can’t

'Most of Singapore routes are flown by another carrier. They don’t complain.' - Picture by Choo Choy May

seem to reconcile what is good for the country and the need to protect Malaysia Airlines. And we really need to address Malaysia Airlines and say – what is so problematic that you can’t accept competition? And the only argument that they raise is that when AirAsia X was first raised, it was meant to be complementary to Malaysia Airlines and not competition. Does that mean you don’t want competition? Does Singapore Airlines say ‘eh – I don’t want Qantas flying, I don’t want BA flying, not at all.’

Most of Singapore routes are flown by another carrier. They don’t complain. They get better. Just ask Malaysia Airlines, if competition is so bad, how come you are better now in Asean and domestic where competition with AirAsia is really intense? It used to be KL to Kota Kinabalu, someone would have to pay RM800 and maybe about six to seven flights a day. Now between AirAsia and Malaysia Airlines, they have 18 flights per day. It has tripled the number of flights, fares have come down, and Malaysia Airlines is profitable. So isn’t that a win-win-win? Good for the customer, trade and airlines.

Q: A lot of the public would tend to agree with you but what is going on with the decision makers?

A: The decision makers are struggling because number one, it’s unfortunate that you have senior members of the cabinet who have experience in the aviation sector who have opted to take a stance that competition between Malaysia Airlines and AirAsia is not good. We’ve had the opportunity to present to the economic council members and cabinet and to be fair, a lot of them see the clear rationale. But don’t listen to AirAsia X, ask the minister of tourism (Datuk Seri Dr Ng Yen Yen). She has to deliver on her KPIs. She has growth targets to meet. Where does she want her planes to fly? You need planes because you can spend RM100 million on campaigns but you will get zero extra tourists if you don’t have flights. So you are spending so much money on Malaysia Truly Asia and does she want the plane to fly to Pyongyang or Seoul? Does she want the plane to fly to Sydney or Darwin? Does she want the planes to fly to key markets or small peripheral markets that we can’t even spell?

It was positioned to us that AirAsia X does not bring tourists, we only bring transit passengers. Complete nonsense. Go to Tourism Malaysia websites, look at their 2009 numbers, inbound traffic. They look at bona fide tourists. Where are the biggest growth countries? Australia grew by 25 per cent. Now, Malaysia Airlines reduced their flights (to Australia) in 2009. So how did we get 25 per cent growth in inbound Australia tourists if it was not AirAsia X as no other airlines flies there? China grew, Taipei grew, UK grew, basically where AirAsia X flies. Korea — minus 15 per cent, Japan minus 7 per cent. So where we don’t fly, the market shrank.

Does competition really hurt Malaysia Airlines? If competition is really bad, and we just taking away passengers away from them, why are they adding flights to Perth? Why are they now having direct flights to Brisbane?

Q: One of the arguments is that Malaysia Airlines has to shoulder the burden of flying to unprofitable domestic destinations in the interior.

A: That is separate. That is under MAS Wings. That is completely sheltered. There is a specific programme for that. Their choice of international travel has nothing to do with that. The sad thing is that we look at a narrow view – that it is Malaysia Airlines and it is national interest. We need to look at the big picture and say we are falling further and further behind Singapore and Bangkok.

Korea — 64 flights a week from Seoul to Bangkok. Six airlines compete. Guess how many flights a week from Seoul to KL? 12! Where do you think Korean golfers want to spend their weekend? They will go to Bangkok because it is easy and flights are cheaper. And now there is opportunity because Thailand is struggling because of political instability so let’s grab the opportunity.

Q: Is that why they finally allowed you to fly to Seoul?

A: I think so and also because we told them that 2010 is a critical year because it is the 50th anniversary of diplomatic relations, the president of the republic of Korea is going to visit Malaysia. That helps but this is a decision that was more than a year… to decide on something that is very obvious in terms of benefit to the country.

Q: Do you think that this signals a change, that they will now give you Sydney?

A: I am optimistic. Number one, we are very confident that when we start flying to Seoul, people will see the benefits very clearly on both sides. We should see a reversal of the trend of negative growth in 2009 to a positive growth in 2011. And that should pave the way. Because the facts are overwhelming, it is just a matter of time. If you are trying to protect Malaysia Airlines, you are going to run out of excuses very soon.

Q: I do get comments from visitors to KL that they only see Malaysia Airline planes on the tarmac and none from other countries.

A: Why? That is a very good question. You know, we used to have British Airways flying here. We used to have Virgin Atlantic. We used to have Air France. We used to have All Nippon Airways. We used to have Northwest. Why? Because, they have all been lured by Singapore and we have sat down and instead of saying ‘this is a national crisis [bangs table] and we need to be better at marketing and more aggressive’, we thought ‘oh good — less competition for Malaysia Airlines.’

Q: Do you really think it is a crisis situation?

A: I think it is a crisis situation, absolutely. Because the stakes are so high now. We can’t afford for the tourism sector to falter. We can’t afford for trade..Malaysia is one of the few countries where trade is bigger than GDP. We need international trade. How are we going to get international trade if we don’t have connectivity. Indirectly, the number of flights also affect decisions about where businesses should locate. That’s why most people locate in Singapore rather than KL. Because it is more convenient. A lot of economic activity comes when you have connectivity. When Khazanah National did a study, they identified that the aviation sector has a 12 times multiplier effect on the economy. For every one ringgit of revenue that an airline generates, there is twelve ringgit of impact to the economy because travellers have to use ground transportation, catering and maintenance.

Q: Do you have a breakdown of how many transit passengers you carry?

A: It’s not numbers we carry directly but we have numbers from government statistics that we carry anywhere from 35 to 40 per cent transit passengers on long haul flights, especially Australia. What’s interesting is that the Malaysia Airlines number is higher which is not surprising as from here they have flights going to India, to Rome, Frankfurt, Amsterdam. Malaysia Airlines numbers are closer to 45 to 50 per cent. Frankly transit also helps the economy. They still buy stuff, they still fill up the plane. Changi’s transit is more than 50 per cent. Dubai’s transit number is 80 per cent.

Q: What other innovations are you looking at for AirAsia X?

A: Without going into specifics, one of the new things for AirAsia as a group that is huge this year is a migration to a next generation booking engine. When that gets done, we’ll be able to introduce a whole range of new things that we are currently constrained from doing because of IT.

Q: Are you happy with the progress of the new LCCT?

A: I haven’t seen progress. I think it is important that a commitment was made by Malaysia Airports to get it ready by 2011 and that is about as tight as we can possibly manage. Originally it was mid-2011 and now it is end-2011. Anything beyond that will be painful. Already we are struggling with parking space.

The wide body AirAsia X planes, sometimes we have to park them way on the other side of the airport and tow the plane here which takes up a lot of time and cost. As we add more planes, that exacerbates the problem.

Q: What other European cities are you eyeing?

A: It all depends on the planes. If we were to use existing planes, that means we have to make one stop in the Middle East. If we do one stop in the Middle East, for that same plane we can go three flights a week to Zurich or Manchester as opposed to seven flights a week to Sydney. That means you can carry 40,000 passengers a year or 110,000 passengers a year. You fly double the distance but not double the revenue. We lose out if we are told to fly to European countries until we get the A350. We’ve done our part. More than 50 per cent of AirAsia X flights are to new airports — Gold Coast, Hangzhou, Tianjin, Chengdu. We’ve pioneered a lot of routes.

Q: Do you plan to take up any of the 34 cities that have been offered to you?

A: No plans to take it up. It makes no economic sense. Does Maybank tell Hong Leong bank to go to South America so there is less competition?

By Lee Wei Lian

Malaysian Insider

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