Can AirAsia save Malaysia Airlines?

Courtesy Reuters

Back in March, AirAsia chief Tony Fernandes said he was not keen on acquiring Malaysia Airlines (MAS).

This came amidst speculation of a likely scenario when Malaysian Prime Minister Mahatir Mohamad mulled over the future of the beleaguered flag carrier, suggesting it might be better off sold if not downsized or expanded as the case may be with a change of management.

Dr Mahatir said: “Although we hired foreign management, MAS still faced losses. Therefore, one of the options is to sell.”

Four turnaround initiatives without success had apparently cost the government MYR250 billion (USD 6.05 billion).

Recent events have led to renewed speculation of AirAsia’s interest. Former AirAsia Group Bhd non-executive chairman Pahamin Rajab is said to have met Dr Mahatir. However, it might well point to Mr Pahamin’s personal interest eyeing the top job at Malaysia Airlines following the resignation of Tan Sri Mohammed Nor Md Yusof as chairman.

But if the acquisition does come about, it would be an interesting case of how a budget carrier came to assimilate a larger national carrier. AirAsia, once itself heavily indebted, had become Asia’s leading budget carrier.

There are clear benefits of such a merger. The two carriers can complement their networks and not compete as rivals on the same routes given AirAsia’s ambition to expand into the long-haul market, unless the products differ substantially in their make-up. This can be modelled after the likes of Singapore Airlines-Scoot and Qantas-Jetstar complement.

The execution is key. The industry has seen one too many examples of assimilation by a legacy carrier of a low-cost operator. For AirAsia, the big question must be one of how its operating culture will mesh with that of MAS, noting in particular that its success lies in the austere budget model although this does not imply it is not inclined to be service-bias.

One can’t help but wonder how and why MAS has failed to change in spite of earlier initiatives at restructuring, so much said about cost-cutting and perhaps not enough focus on the operating culture. So can AirAsia work the magic?

But, of course, only if Mr Fernandes wanted it. He had said: “For low-cost carriers to go full-service… is a mistake.” He had also called Malaysia Airlines “old-fashioned”. For him, the priority is to transform AirAsia into a “travel technology company”. In his words, to be “more than just an airline”.

The real question then is: Is MAS ready for the transformation?

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Scoot raises fares, but Jetstar and AirAsia are not following suit

IT is only a matter of time before more airlines move to raising their fares, purportedly on the ground of rising fuel costs. The question is when is a good time, as they watch for signs of support in the market.

Courtesy Scoot

Budget carrier Scoot took the lead in announcing a 5-per cent hike in its fares from September 1. According to the airline, fuel makes up on average 32 per cent of its total operating costs and has risen by more than 30 per cent.

What is interesting is how other regional carriers are not ready to jump on the bandwagon, not yet. Jetstar said its fares will remain stable at the moment, while AirAsia said: “We have built a lot of resilience into our business by being vert disciplined about non-fuel costs, and we are confident we have sufficient latitude to manage any change in oil price.”

Has Scoot made the move a little too soon when its competitors are not ready to follow suit? History has shown that the market usually takes the cue from the leading airline. With its closest rivals holding out, one can expect the competition to intensify in a market that is driven by price more than service and brand. Higher fares may also soften the market, and this only adds to the competition. Anyway, do not bet on Jetstar and AirAsia to hold their fares steady if jet fuel costs continue to escalate, but they clearly see an advantage in moving a little slower for now.

Interestingly, Singapore Airlines, which owns Scoot, has said it is not raising its fares.

And then there are three

From four to three (if you exclude SIA Cargo which will be absorbed as a division of the parent airline in 2018), Singapore Airlines (SIA) will now have three carriers in its stable as sister budget subsidiaries Scoot and Tigerair announced the completion of their merger come July 25, 2017. SilkAir, defined as a regional carrier, makes up the trio.

Both Scoot and Tigerair will henceforth operate under the Scoot brand. It seems logical, considering the poor reputation of Tigerair and the plans to expand Scoot into the long-haul. Unlike Tigerair, Scoot was launched as a medium-haul budget carrier.

The merger was long anticipated as the operations of the two carriers began to overlap with Scoot operating the short-haul as well. At the same time, loss-making Tigerair’s days were numbered as it struggled through a period of difficult times both financially and operationally, scarred with customer complaints of poor service.

While it certainly makes sense for the two carriers to eliminate intra-competition and pool their resources, it also opens the field for Scoot to expand its network. Already it is trailing behind Malaysian budget carrier AirAsia, whose chief Tony Fernandes is known to be testing new boundaries beyond the four-to-five hour limitation of the budget model. While AirAsia is not always guaranteed success, it has enjoyed headstart advantages.

Courtesy AirAsia

Scoot has announced a service to Honolulu by the end of the year, six months after AirAsia launches its service from Kuala Lumpur. Both carriers will operate via Osaka. It will be interesting to see how the competition plays out.

Scoot may be advantaged by its hub connections at Changi Airport while AirAsia will rely on its wide regional network to take advantage of Kuala Lumpur International Airport’s lower costs in a price-sensitive leisure market.

Scoot will benefit from the reputation of the SIA brand association, but somehow that has not rubbed off on the beleaguered Tigerair.

The competition is set to redefine the budget game as Scoot and AirAsia battle it out to be the region’s leading carrier not only for the short-haul but also beyond.

AirAsia completes Asian conquest

Courtesy AirAsia

AirAsia founder Tony Fernandes said the latest agreement to set up a joint venture in China with Everbright Group “closes the loop” in the region. He added that AirAsia China “represents the final piece of the AirAsia puzzle.”

The Chinese joint venture came on the heels of the agreement with Gumin Company Limited, businessman Tran Trong Kien and Hai Au Aviation Joint Stock Company to set up AirAsia Vietnam, which is expected to commence operations in the first half of 2018.

These two ventures add to an impressive list that already includes Thai AirAsia, Indonesia AirAsia, Philippines AirAsia and AirAsia India, giving the Malaysian budget carrier a base in almost every major country in the region from India and across Southeast Asia to China. The exception is Japan when an earlier joint venture with All Nippon Airways – AirAsia Japan – was disbanded just over a year after it commenced operations in August 2012.

Notwithstanding that, AirAsia’s ambition to be the region’s main player remains unthwarted, capitalising on Asia’s growing middle class and its propensity for air travel, particularly in populous China, India and Indonesia. Headquartered in Kulala Lumpur, it is now larger than flag carrier Malaysia Airlines and is Asia’ largest budget carrier.

But Mr Fernandes enjoys wrestling with the big boys. AirAsia’s strategy is not confined to the domestic market, which will place it in good stead to compete beyond the borders in time. Not content to be just Asia’s largest budget carrier, AirAsia is once again trying to prove sceptics wrong about the viability of the long haul as it launches flights from Kuala Lumpur to Honolulu in June – this, despite its failure to sustain services to Paris and London five years ago. If success seemed elusive in the past – the same fate that had dealt similar blows to others such as Hong Kong’s Oasis Airlines who dare go where others fear to tread – Mr Fernandes deserves credit at least for trying.

AirAsia to launch Honolulu services: Revisiting the sustainability of budget long haul

Courtesy AirAsia

Courtesy AirAsia

Malaysian carrier AirAsia will be introducing four weekly services from Kuala Lumpur to Honolulu in June, becoming the first budget airline approved for operations between the United States and Asia. Flight time is anything from 16 to 18 hours.

This is yet another attempt by founder Tony Fernandes to launch a budget long haul, despite the failure to sustain earlier operations under the AirAsia X banner to London in 2009 and Paris in 2011, which were suspended in 2012. However, Mr Fernandes said operations to London will resume in 2018 when the airline receives its new more economical long-range Airbus A330-900neo jets.

Although sceptics continue to doubt the viability of budget long hauls and there have been many who tried and failed, the entrepreneurial spirit to push the boundary is still very much alive. The current slate includes Norwegian Air Shuttle which commenced services from Oslo to New York and to Bangkok in 2013, and Lufthansa’s Eurowings which and operates nonstop from Cologne and Bonn to US destinations such as Seattle, Orlando, Miami and Las Vegas. Budget doyen Ryanair is also looking at crossing the Atlantic. Singapore Airlines’ budget offshoot Scoot has announced plans to connect Singapore and Athens in June.

A number of factors have contributed to the trend.Bu dget carriers are beginning to eye distant destinations dominated by legacy airlines as they expand, and this is now made possible by technologically advanced and more fuel efficient aircraft. The budget model is changing, and the line between budget and full-service carriers is increasingly blurring as the former upgrades customer service and facilities and the latter adopting some of the practices such as product unbundling and charging for add-ons. Legacy airlines no longer view budget carriers as operating in their own niche markets but a real threat. (See Ultra-long flights: The competition heats up, Feb 7, 2017)

Whether Mr Fernandes’ Honolulu venture is sustainable or not in the long run, he has earned his feather. As a stand-alone, it will be a challenge for AirAsia, which will have to tap feeds from its regional connections – as will Scoot when it commences services to Athens. It will be a test, considering the nature of the leisure traffic and the competition posed by several airlines in the region that are already plying the route direct form their home bases or in code-share arrangements.

AirAsia woes

Photo: Mohd Rasfan/AFP

Photo: Mohd Rasfan/AFP

On Dec 28 last year, AirAsia suffered the loss of an Airbus A320-200 jet which crashed after taking off from Surabaya in Indonesia for Singapore, killing 162 people on board. Then there was talk about the weather being a factor and allegations about the lack of adequate measures governing flying permits.

A report by Indonesia’s National Transportation Safety Committee (KNKT) now points a finger at “the maintenance regime of AirAsia, as well as the actions of the pilots at the controls of Flight QZ8501 when it crashed.” The KNKT found inadequacies in the plane’s maintenance system, which may have overlooked the worrying trend of a recurring technical fault with the Rudder Travel Limiter, an inflight system that helps pilots control the aircraft rudder. Apparently the ill-fated aircraft showed a fault in the system 23 times in 12 months. And the recovered flight data recorder showed that the fault occurred four times within 40 minutes of take-off.

According to KNKT, the pilots managed to deal with all but the last warning alert, after which they apparently tried to reboot the system manually against protocol, causing a power trip that disengaged the autopilot and sending the aircraft into a violent roll or “upset condition”.

In response, AirAsia said its line maintenance crew had “rectified the fault messages at the time of occurrence in accordance with the Airbus maintenance manual and troubleshooting manual, which is why it never qualified as a repetitive fault.” But the KNTK said the carrier’s maintenance systems “did not optimise the post-flight reports.”

There is a second issue – the suspicion that the pilots of Flight QZ8501 might not have been trained to handle the A320-300 in “upset conditions”, such training that might even be considered not required because of the unlikely event of it happening. But Mr Jean-Paul Troadec, former director of France’s aviation authority BEA, said AirAsia had not followed the agency’s rules on training.

The KNKT report has opened the floodgates for potential legal suits by families of the victims. Already 11 families – and others are expected to join them – have filed a collective lawsuit against Airbus. US-based aviation lawyer Floyd Wisner who is representing them told The Straits Times: “We believe the recent report by the Indonesian authorities confirms our position that this tragic crash was caused, at least in part, by a mechanical defect in the aircraft and certain of its components.” The claims alleged that aircraft concerned was “defectively and unreasonably dangerous” in part because Airbus had “negligently breached its duty of care” in the design, manufacturing and assembling of the plane.

Mr Wisner is expected to make hay of the fact that Airbus was aware of the recurring problem, yet took no action to check the trend despite its many reported incidents.

AirAsia too may not be spared. Mr Wisner has lampooned AirAsia for “not handling the claims of its passengers pursuant to international standards.” He added, “Despite the promises of AirAsia’s owner, Tony Fernandes, that the victims’ families would be treated fairly, AirAsia is proving that it is a low fare, low compensation airline.”

Any air disaster of this magnitude is bad news for the carrier concerned. For as long as the memory stays fresh in the mind of would-be travellers, demand for seats to fly that same carrier is likely to suffer. It takes time to heal as the airline repairs its image. Between the time of Flight QZ8501’s fatal accident and the KNKT report, AirAsia might have regained some ground with Mr Fernandes himself spearheading the road to recovery. At the time of the incident, Mr Fernandes was quick to offer his sympathies and assistance to families of the victims. He was personally present to take charge of the situation and manage the media publicity. One year later responding to the KNKT report, Mr Fernandes graciously thanked the KNKT for its “very thorough investigations” and reiterated that his thoughts were with the families and crew of the ill-fated flight. He tweeted: “These are scars that are left on me forever but I remain committed to make Airasia the very best.”

However, as much as Mr Fernandes understands the business, the KNKT report is reopening the wounds of the fatal accident and setting the recovery back a few steps. At the time that the KNKT report was released, AirAsia experienced several flight delays out of Kuala Lumpur International Airport (budget terminal) that left hundreds of passengers stranded and angry. Call it a coincidence. Eleven pilots (some reports had the number as 13) called in sick and while there was speculation that this looked like a revolt by pilots unhappy with working hours and conditions, Mr Fernandes dismissed it as a “freak day” when a new rostering system was introduced. Echoing him, an AirAsia spokesman said: “We have over a thousand pilots. 13 is a small number.”

Sure, a small number per se but not in the context of what happened. If that response was not uttered in jest, it smacked of arrogance. Right now, AirAsia can do with a little less disruption but a little more positive reinforcement. Even in small doses.

This article was first published in Aspire Aviation, titled “Air Asia loses altitude”.

AirAsia India set to trigger price war

Courtesy AFP

Courtesy AFP

INDIA’s first carrier with foreign investment – AirAsia India – commences operations today. Owned by Malaysia-based AirAsia and India’s TATA Group, the new budget airline is likely to trigger a price war among the domestic operators.

But AirAsia is confident that it has the discipline to keep its fares low and its costs “razor-thin”, so said chief executive Mittu Chandilya. The airline has promised the lowest fare, flying between Bangalore and Goa for as low as US$17 which is cheaper than a second-class train fare

Anything goes, it seems, in India. Many carriers have come and gone, and many of the existing operators continue to incur losses. Yet the huge potential of a growing market continues to lure new investors hoping to make it big in the arena.

For now, AirAsia chairman Tony Fernandes is probably pleased that AirAsia India has beaten Singapore Airlines (SIA) to the starting line in launching AirAsia India, which is 49-per-cent owned by AirAsia. In an almost similar arrangement, SIA has also partnered TATA Group to establish TATA SIA Airlines to be launched in October. Any apparent competition between the two upstarts can only benefit TATA whichever way it swings, and, of course, the consumer as the plethora of operators undercut each other.