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.

Which Asian airlines might be interested to buy into Virgin America?

Photo courtesy Virgin America

Photo courtesy Virgin America

UP for sale, Virgin America has some suitors lining up. It has received takeover bids from JetBlue Airways Corp and Alaska Air Group Inc. In this era of the mega carriers (consider the mergers of United Airlines and Continental Airlines, Delta Air Lines and Northwest Airlines, and American Airlines and USAir), a tie-up with another carrier strengthen Virgin’s competitive ability. And while it is almost certain that the merger would be with another American carrier, with analysts placing bets on JetBlue as the best fit, apparently some unidentified Asian carriers have also expressed interest. Still, be that as a remote possibility, one cannot help but be curious and speculate who the likely candidates might be.

Two big names come to mind immediately because of their successes, networks and financial capability, namely Cathay Pacific Airways and Singapore Airlines. Both airlines are keen on expanding their US market. Cathay flies to Boston, Chicago, Los Angeles, New York and San Francisco while Singapore Airlines (SIA) operates to Houston, Los Angeles, New York and San Francisco. Both airlines have codeshare access to several other destinations. Cathay’s codeshare partners include Alaska Airlines and American Airlines while SIA already codeshares with Virgin and with JetBlue.

So it looks like SIA more than Cathay would be favoured on relationships alone. Since foreign ownership rules governing US airlines require the bid to be submitted jointly with a US partner. It would be convenient for SIA to join hands with JetBlue. Of course, Cathay may partner Alaska Airways, but historically Cathay is not quite interested in equity participation. Although it has a 20.3% stake in Air China and 49% in Air China Cargo, that could be a matter of expedience to secure its market in the growing China mainland market.

SIA on the other hand, limited by a hinterland market, tried in its early years to grow through acquisitions. In 1999, it bought 49% of Virgin Atlantic and subsequently 25% of Air New Zealand. Although both buys subsequently proved to be lemons, resulting in heavy losses, the misstep might be less strategic than circumstantial. Unfortunately that has hurt SIA deeply more psychologically than financially as the airline became more cautious about such moves. In subsequent years it failed in its seemingly reluctant bid for a stake in China Eastern Airlines, and the SIA Group was plagued by the poor decisions of its budget subsidiary Tigerair in joint ventures in Indonesia and the Philippines. In Oct 2012 SIA bought a 10% stake in Virgin Australia, joining tow other foreign partners namely Air New Zealand and Etihad Airways. In much the same way that Cathay needed to secure its market in China partnering with Air China, SIA needed to secure its Australian market against the competition by Qantas. Six months after, SIA increased its stake to 19.9%.

But is SIA even interested in a stake in Virgin when its codeshare partnership with JetBlue already places it in an advantageous position to benefit from a JetBlue takeover of Virgin? Would a bid jointly with an Asian partner jeopardise JetBlue’s chances if the powers that be preferred an all-American merger a la the big three of United, Delta and American?

Besides Cathay and SIA, one should not ignore the voracious appetite of the China carriers in the national trend to acquire foreign assets. And why must it be premised on full-service carriers that are already serving destinations in the US? What about a budget carrier with dreams of new frontiers? Maverick AirAsia chief Tony Fernandes who models himself after Virgin guru Richard Branson and who had been where others were hesitant, even afraid, to go may yet surprise with an expression of interest even if it is no more than just that. He is one of the few airline chiefs who, like Ryanair’s Michael O’Leary and Qantas’ Alan Joyce, understood what an opportune good dose of publicity could do.

All this, of course, is speculative. Asian carriers are likely to be less concerned this time than when the mergers of the American big three took place. Together with Southwest Airlines, the big three control 80% of the American market. Virgin and its alleged interested parties JetBlue and Alaska are all largely domestic carriers. Even if Southwest throws in a bid (but for its size that may not pass the antitrust law as easily), it is still the same scenario. SIA’s connections with JetBlue and Virgin will continue to stand it in good stead, but if it’s Alaska that carries the day, then it is Cathay that stands to benefit from the new, extended connection. Or does it really matter when there are already subset agreements across partnership lines that allow you to fly an airline of one alliance and connect on another in a rival group? That’s how complex today’s aviation has become.

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”.

EU model for Asean?

Courtesy AirAsia

Courtesy AirAsia

Outspoken AirAsia chief Tony Fernandes has called on airlines in Southeast Asia to press for a regional aviation regulator modelled on the European Union (EU)’s centralised administration of matters such as safety standards and carriage obligations of airlines to passengers.

Mr Fernandes said: “If you let the bureaucrats do it, it will never happen. So, all airline must join hands to call for one regulator, adopting the European model for respective national regulators and Asean regulators to exist concurrently.”

It could not have come more timely when the Asean open skies policy scheduled for full implementation this year looks unlikely to be realized. All’s been too quiet on the common front past almost half the year. And while airlines are preparing for the competition, setting up joint ventures to take advantage of the proposed liberalisation, much still depends on the political agreement among the disparate group of ten very different economically assessed nations.

At the same time, it cannot be assumed that while the airlines recognise how liberalisation would open up new opportunities for them, they will find it easier to work together to propose a common framework for adoption. As different as the national political bodies are, so are their home airlines. The single market will see heightened competition within the region with the growth of low-cost carriers, but the real challenge comes when national airlines look beyond the region, competing on the long haul.

Yet if it works in Europe, why not Asean? That’s the poser waiting to be answered.

Malaysia re-strategises: Too little, too late?

Malaysian aviation authorities are implementing new strategies to revive the fortune of the country’s beleaguered national flag carrier and its air hub standing in regional competition. Recent developments include the appointment of a new chief to head Malaysia Airlines (MAS) and the launch of a new airline – flymojo – to be based in Johor Baru in close proximity to Singapore Changi Airport and in Kota Kinabalu, East Malaysia.

Malaysia Airlines

Courtesy GETTY Images

Courtesy GETTY Images

Outgoing Aer Lingus chief executive Christoph Mueller will be taking over the helm of MAS as CEO of a new company to be launched in July. Analysts generally do not deny that it will be an uphill task for him, but to his credit it is also said it is the challenge that he will relish to add another feather in his cap. Some local quarters are not particularly welcoming of his arrival, with former Malaysian Prime Minister Mahatir Mohamad viewing the appointment of a “white man” as an insult to local talent. Mueller is the first foreigner to be appointed to the leadership position.

But Prime Minister Najib Razak said Mueller would help “lay strong foundations for the future success of our national carrier.”

The political aversion should not prejudice any judgment of Mueller’s qualifications to turn round MAS. Indeed, he comes with extensive industry experience. Investment company Khazanah Nasional Bhd, which owns the airline, said the job required “absolutely the best aviation management expertise”. Its managing director Tan Sri Mokhtar was impressed by Mueller’s “strong track record of turning around national flag carriers.”

Courtesy Irish Echo

Courtesy Irish Echo

Mueller has been widely credited with improving the fortunes of Aer Lingus since assuming the top honcho position in 2009. He leaves the airline on a high note in May. The Irish carrier reported one of its strongest performances last summer with operating profits increasing by 19% to €112.9 million (US$128.1 million). Aer Lingus chairman Colm Barrington said: “Under Christoph’s strategic leadership, Aer Lingus has been transformed into a strong, consistently profitable airline with a clear strategic direction, a resilient business model as a value carrier and an improved cost base.” Aer Lingus expanded transatlantic routes and chalked up points for good customer service. Perhaps its most noted battle success during that time was staying a takeover of the airline by budget carrier Ryanair.

Mueller’s appeal to MAS is apparent. But little was said about his failure at turning round Belgium flag carrier Sabena in his earlier years. The airline went bankrupt in 2001. But since that came before his success at Sabena, it is likely irrelevant, even forgivable, considering that he might be operating under circumstances beyond his control. One of his tasks at Sabena was to downsize the workforce, which resulted in bitter industrial action; a major task at MAS is similarly cutting down at least 6,000 workers out of a staff of 20,000, which fortunately for Mueller has already begun to take effect, and quite unlike Europe, industrial strikes are probably less likely to happen to the same extent in this part of the world.

The question remains: Can Mueller succeed? He definitely has the advantage of coming to the job as an outsider without the baggage of the past but with a clean slate to implement new ideas and directions. One wonders if he had not been a “white man” but, say an Asian, would his appointment have ruffled as many feathers locally? He probably would, as the issue looks to be one of an appointment from without rather within the company. Many struggling companies have taken that path to be rid of entrenched old practices and to welcome fresh ideas. New brooms sweep clean. Some companies even think it better to pick someone from outside rather than within the industry, for a fresh perspective and possible transfer of workable solutions that insiders do not, cannot and will not see because of their prejudices and the blinkers they wear that limit their horizon.

Consider how close rival Singapore Airlines (SIA) picked a foreigner to launch budget Tigerair, which in later years as it was struggling with a bad name recruited someone from outside the industry before appointing an internal candidate to the job as the carrier continues to find ways to avert its misfortune. Whether it is a right or wrong move, the decision is best explained as situational. Timing too has everything to do with it. And the best candidate for a salvage job knows, even as he denies it, he needs that little bit of luck too.

It would appear that MAS has waited too long to restructure as it muddles through years of red ink, and that this should come only after two tragic incidents that occurred within four months of each other last year, the first involving a flight carrying 239 people that went missing soon after take-off in March and the second shot down over Ukraine in July killing all 298 people on board. The writings were long on the wall, but until then the efforts to improve performance seemed too sparse, too little, even risking the impression of a smack of complacency, and strangely optimistic that the tides must change at some point. Prime Minister Najib had said the incidents “will change the way MAS operates. We believe our national carrier must be renewed. This means wholesale change… Only through a complete overhaul of the company can we deliver a genuinely strong and sustainable carrier.”

That spells out for Mueller the challenge, which really hinges not on whether he can turn round the airline but how much free hand he has in steering it clear of the red ink the way he thinks it should go. In many ways MAS presents the same context as Aer Lingus, one of which is the competition posed by not only regional giants such as SIA, Cathay Pacific and Qantas, but also homegrown budget carrier AirAsia quite like Ryanair. The biggest challenge will be for Mueller to restore public confidence in the new MAS beyond a change of name and logo if that is on the card, a lesson from Tiger Airways changing its name and livery from Tiger Airways to tigerair that it takes more than that if at all it marks a fresh start. A bit of good news for Mueller is that MAS delivers a reasonable level of customer service, ranked in the top 20 by Skytrax last year.

Mueller’s biggest challenge may be cultural, a nebulous realm without overstretching it, sensitive given that any interference by Khazanah may also be pinned down to it being so, but not insurmountable. This will be his saving grace, but there is no reason to think that he will not be able to steer MAS back to profitability. Sooner is better, but one remains hopeful that it is never too late.

flymojo

Courtesy Bombardier

Courtesy Bombardier

Malaysia’s launch of flymojo appeared to be an afterthought that came lately, perhaps reflecting with a tinge of regret over the sale for one Malaysian ringgit (US$0.27) to Richard Branson wannabe Tony Fernandes a debt-ridden carrier that today by the name of AirAsia has become Asia’s largest budget carrier, and noting the lukewarm development of MAS’s offshoot Firefly. Meantime the region witnesses to today the exponential growth of budget carriers as Asean and nearby neighbours adopt more liberal aviation policies.

The new carrier is scheduled to commence operations in October this year with a fleet of Canadian made Bombardier CS100 aircraft. While its stated aim is to play a key role in improving air travel between Malaysia and other parts of the region, it does not disguise its intention to grow Senai Airport in the southern state of Johor. Deputy minister of transport Aziz Kaprawi said: “As the only airline utilising the southern corridor as its headquarters, flymojo will transform Senai into a key regional aviation and logistic hub.” You cannot help but note its proximity to Changi. For years now, Senai has been trying but with not much success to attract some traffic away from the Singapore hub, even with MAS transferring complementary its passengers by coach from downtown Singapore to the airport. Its best bet is the cargo business, considering its limited passenger facilities and network and the inconvenient location; even then, that is developing not quite fast enough. Changi is unlikely to be fazed by the threat.

Malaysia may have already missed the opportunity to raise the hub status of its capital airport Kuala Lumpur International (KLIA) when in 2011 Qantas decided to launch a new regional Asia-based premium airline that could be based there (Changi being the competitive alternative) but killed the idea soon after. According to the latest Skytrax survey, KLIA ranked second after Seoul Incheon (Korea) as the best airport serving 40-50 million passengers per year, but it would be simplistic to think that any airport with customer appeal alone can achieve hub status.  Yet it is not far-fetched to see how an airport and its home airline can grow in tandem, complementing each other.

As for Senai, the success of flymojo is critical. And for flymojo, while it may be the only airline basing its HQ there, the competition it faces stretches beyond the southern corridor.

The second half of this year will be interesting as observers wait anxiously to see Mueller’s tablet of change for MAS and as flymojo takes to the sky. It cannot be business as usual.

This article was first published in Aspire Aviation.