AirAsia X welcomes MAS’ invitation to be co-pilot

CEO Azran Osman-Rani says whether the routes AirAsia X is allowed to operate overlap with those of MAS should not even be an issue. AirAsia X serves the underserved; legacy carriers serve the elite

We welcome the assertion by Tengku Datuk Azmil Zaharuddin, the managing director and chief executive officer of Malaysia Airlines (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…MAS and AirAsia X should co-pilot efforts to achieve nation’s aspirations.”).

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 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 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 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 RM3,000 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. But those families may be able to do so if they are given the choice of flying a LCC. In short, AirAsia X 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 per cent), Melbourne (41 per cent), London (31 per cent) and Taipei (57 per cent since July 2009). This contrasts starkly with long-haul routes where we did not fly. Sydney (-20 per cent), Seoul (-13 per cent), New Delhi (-20 per cent), Tokyo (-10 per cent), Osaka (-16 per cent), Paris (-15 per cent). 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 Kuala Lumpur-Sydney route, passenger volume grew by 22 per cent during the one year they operated, compared with 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 per cent), the UK (+17 per cent), China (+7 per cent) and Taiwan (+4 per cent). In contrast, markets that we have not operated shrank: South Korea (-15 per cent) and Japan (-9 per cent).

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 statis-tic 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 two to 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 (passenger intelligence services) data quoted by MAS will show that MAS carries a much higher share of transit passengers that arrive via their Australian flights and connect straight to Europe or India — e.g. MAS transit passengers from Melbourne are 67 per cent, Perth 61 per cent and Sydney 59 per cent, compared with AirAsia X carrying 28-33 per cent 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. Why does Changi have the biggest gains in passenger volumes compared with KLIA? There are more than double the flights flying to and from cities like Tokyo, Shanghai, Sydney, Beijing and Seoul which results in over 3.2 million more passengers. 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 per cent overlap based on SIA’s route network. Please check Tiger Airways’ IPO Prospectus report dated 13 January 2010. They fly to 20 destinations, and compete head-to-head with SIA/SilkAir on 75 per cent 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, the UK, Taiwan and South Korea all encourage significant route overlaps among 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 per cent from KL vs zero per cent from Singapore and -2 per cent from Bangkok; Perth: +67 per cent from KL, vs -2 per cent from Singapore and -8 per cent from Bangkok. In contrast, Sydney: -19 per cent from KL, vs -3 per cent from Singapore and -5 per cent from Bangkok.

How many people flew from Malaysia to Sydney in 2008 that did not use MAS? A total of 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 routes and not flying to many 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 abovementioned 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 seven times 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 in the Maldives. That was AirAsia Bhd.

Finally, the issue of Rural Air Services is also irrelevant. The operations by Fly Asian Xpress (FAX) were fully audited by Jabatan Audit Negara 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.

Azran Osman-Rani is the chief executive officer of AirAsia X Sdn Bhd.