Jun 6, 2010

Compete and Collaborate

On why choosing a responsible and dignified service provider is important in promoting fairplay and also long-term development of one's country.

Living Malaysian Hospitality : Compete and collaborate to achieve what is best for Malaysia

By: Tengku Dato' Azmil Zaharuddin (Managing Director/ Chief Executive Officer)

AirAsiaX has been lobbying their cause aggressively in the media locally and abroad to fly to destinations operated by MAS. On the surface, their argument appears logical: 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 rationalization exercise in March 2006, MAS was asked to give up the operations of the rural areas in Sabah/ Sarawak and hand these off to AirAsia.

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, FAX.

FAX operated the service from Sept 2006 to Sept 2007. There were countless complaints about the unreliability of their 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’ wholly-owned subsdiary, MASwings, took over on 1 October 2007. During that one year of FAX’s operation, they were paid more than double what MASwings receives today for the same scope of services over the past 2 years.

FAX was subsequently renamed AirAsiaX.

In just some 3 years of operations after dumping the rural air services, AirAsiaX has obtained rights for 9 routes: London, Melbourne, Perth, Brisbane, Mumbai, New Delhi, Taipei, Beijing and Shanghai.

Recently, AirAsiaX announced that they have been given rights to fly to Seoul. But to date, there has been no Government announcement. Recently, again, AirAsiaX was 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 AirAsiaX’s routes overlap with those operated by MAS. On the other hand, only 17% of Tiger, Singapore Airlines and SilkAir’s routes overlap.

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

Let me outline our viewpoints and why we stand behind the facts – not blind accusations - that we presented to the Government:

1. Real choices for Malaysians – New destinations from Kuala Lumpur

What makes Suvarnabhumi and Changi great hubs is that these airports provide customers with many choices in terms of destinations.

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 KLIA to 100 cities in 44 countries.

What makes Changi a good hub is the number of destinations they offer. This gives consumers greater choice. For example, someone who wants to fly to Moscow will have to go via Changi as there are no airlines flying to Moscow directly from KLIA. If someone from Melbourne wants to fly to Moscow, they are likely to go via, say Changi, and not KLIA. AirAsiaX can fly 10 times a day to Melbourne, and this passenger is still more likely to use Changi.

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

AirAsiaX has been lobbying the Malaysia Government saying that they deserve to get the rights to fly to any destination because they have bought so many aircraft.

Yet, they are not willing to consider any of these 34 cities because they claim that these cities do not make economic sense.

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

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

If their argument is that they do not have planes or the correct aircraft, AirAsiaX has 2 A340s which has a 12-hour flying range. They can also operate the A330s with one stop in the Middle East.

In addition, AirAsiaX have applied and been granted the rights to fly to many cities which they are not exercising. These cities include Amritsar, Cheongju, Pusan, Tianjin, Xian, Bahrain, Sharjah, Berlin, Manchester, Dublin, Vienna and Moscow.

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

Case in point is Abu Dhabi. Singapore Airlines flies to Abu Dhabi. Yet, AirAsiaX pulled out from Abu Dhabi after just 3 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. Even today, we invest some RM100 million annually in marketing costs alone in Australia.

If AirAsiaX is really serious about “choices for the people”, they will fly to destinations where they have the rights to. But the reality is that AirAsiaX 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 4 years.

Let us also set the record straight on the information that AirAsiaX has been providing to the media to support their claim to fly to Sydney and Seoul.

Azran claimed in his interview with MalaysianInsider that, “…some 80,000 Malaysians were flying to Sydney indirect.”

Paxis data (collated by the International Air Transport Association) which captures all full service airline transactions show that in 2009, only 2,848 passengers travelled from Kuala Lumpur to Sydney via Singapore. In 2010, the number is reduced to only 2,359. It would be good if AirAsiaX can substantiate their 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 AirAsiaX will fly to Seoul.

For the first 3 months of 2010, tourist arrivals from Korea grew by 26% compared to the same period in 2009. MAS’ passenger growth was up 48%. The trend is already strongly positive.

2. Real benefits to Malaysia – Increasing tourist arrivals & boosting tourism industry

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

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

However, most of AirAsiaX’s passengers are in transit. For example, AirAsiaX have said that 80% of their Australian passengers on AirAsiaX self-connect to other destinations after arriving in Kuala Lumpur.

In other words, while AirAsiaX increases traffic into the country, most of their passengers transit in Kuala Lumpur 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 AirAsiaX 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 Minister of Transport when he first came in as 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 & Operation) and catering. The sector contributes about 4% to Malaysian GDP. 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 AirAsiaX - are given equal treatment, with consideration given in view of what is best for the country. At the time we made the proposal, AirAsia was not advocating this. I am glad that they now think 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.