Air Asia MAS tie-up – ordinary Malaysian consumers will be the losers?

By Teh Chi-Chang | REFSA

Ordinary Malaysians must view the MAS-Air Asia Collaboration announced on 9 August with dismay. When previously fierce competitors such as MAS and Air Asia choose to collaborate instead, consumers tend to be the losers. This arrangement, called the MAS-Air Asia Comprehensive Collaboration Framework might be more appropriately named the MAS-Air Asia Comprehensive Collaboration Framework Against the Rakyat:

REFSA believes at least some of the synergies and savings to be reaped by MAS-Air Asia will be paid for by Malaysians in the form of higher ticket prices, less frequent flights, poorer service levels and reduced job prospects.

The advent of Air Asia and the breaking of MAS’ dominance of Malaysian air travel gave millions of Malaysians the opportunity to fly. The competition introduced by Air Asia resulted in in more connectivity, choice and jobs for Malaysians.

As the airlines competed, Malaysians got the opportunity to fly to more destinations, more frequently and at cheaper prices. In the process, MAS itself introduced yet another new airline – community carrier Firefly, whose turbo-prop planes opened up yet more destinations and more choice at reasonable prices.

It is not just consumers who benefited. Working Malaysians also benefited. Those in the airline industry – whether flight crew, or cabin crew or ground services and other support personnel – now had a choice of employers. And the millions of new passengers flying around also contributed to economic growth across the country as they consumed other goods and services during their travels.

The MAS – Air Asia collaboration will end much of this. What is good business sense for collaborating airlines is bad for the consumer:

1. For a start, low-cost community carrier Firefly is already pigeon-holed and pushed up the cost curve away from Air Asia. From being able to freely compete in whatever way it deemed fit, it is now slated to be a “full-service regional airline”;

2. Flight frequencies will likely be reduced. For example:

•Let’s say Air Asia and MAS both have Kuala Lumpur – Kuching flights; one at 11.00am and the other at 12 noon;
•Each airline on average fills 65% of the plane;
•When Air Asia and Malaysia Airlines were competing, both would run flights to fight for market share;
•Now that they are collaborating, it makes good business sense to just run one flight which will be over-booked all the time;
•All good business sense, but bad for the consumer who now has less choice;

3. Air fares will also likely go up. Where previously both airlines would compete to offer the lowest possible fare, they can now collaborate to raise prices. And they can also help push up prices by reducing frequencies, as mentioned in point 2 above;

4. Airline employees will now have fewer job options, and likely smaller pay hikes. Air Asia, MAS and Firefly competing for talent must have surely been good for employees. Collaboration between them would mean fewer options for employees.

It is ironic that such a potentially rakyat-unfriendly deal is proposed and facilitated by GLCs – government-linked companies. Khazanah Nasional, party to the share swap exercise, is steward of our national resources. CIMB, which is the principal adviser, is nearly half-owned by government agencies (Khazanah 29%; EPF 13%, KWAP 3%, PNB, Valuecap and others 2%).

It might appear that the implications to the rakyat were not completely thought through as the government strived to save MAS, our national carrier.

Surely it cannot be the intention of the government to boost MAS’ profit at the expense of ordinary Malaysians? However, that will almost certainly be the case now that a previously fierce competitor in the form of Tan Sri Tony Fernandez is brought into the fold to ‘collaborate’.

Tan Sri Tony is no doubt a proven entrepreneur in the airline industry. But we suggest that the needs of Malaysians and MAS would be better served if Air Asia and Firefly remained as competitors, and another suitable candidate be hired from the global aviation industry to turn around MAS.

  1. #1 by TheWrathOfGrapes on Monday, 29 August 2011 - 10:44 am

    I thought cartels and all sorts of price-fixing or supply-fixing mechanisms are illegal?

  2. #2 by Cinapek on Monday, 29 August 2011 - 11:20 am

    Typical of many such exercises involving Govt companies or GLCs, scratch the surface a little deeper and you will inevitably find that the whole exercise was conceived to benefit some powerful people from the Govt or connected to them. The modus operandi is to mess up a GLC such as MAS big time and then under the guise of finding a solution, manipulate the “rescue” such that some vested interest will reap huge benefits from the restructuring. If there are economic benefits accruing, that is incidental but never the prime reason.

    The rakyat? They are such suckers and collateral damage.

  3. #3 by sheriff singh on Monday, 29 August 2011 - 11:59 am

    Are there plans afoot at several Ministries to rebrand the airline as 1MalaysiaTrulyAsiaAirline?

  4. #4 by asia on Monday, 29 August 2011 - 12:03 pm

    To have third and fourth budget airlines operators out to maintain competitive market price benefit the customers.

    What was done was done.

    Just move forward.

  5. #5 by asia on Monday, 29 August 2011 - 12:13 pm

    Of course, if they don’t allow third and fourth budget airline operator to maintain competitive benefit to people

    Then the act was corrupted of self-interest selfish act

  6. #6 by asia on Monday, 29 August 2011 - 12:20 pm

    If not some narrow minded people self-interest, selfish act, corrupted

    PROTON may turn into HYUNDAI of Malaysia if it started with open minded without racial selected

    Today, generate billions of income to Malaysia

    Because of some selfish, racial, corrupted Malaysian among Malaysian Malaysia really suffer

  7. #7 by TheWrathOfGrapes on Monday, 29 August 2011 - 1:40 pm

    sheriff singh :
    Are there plans afoot at several Ministries to rebrand the airline as 1MalaysiaTrulyAsiaAirline?

    MAS is more international than just Asia. So, the joint airline should be named:


    MATI for short.

  8. #8 by dagen on Monday, 29 August 2011 - 2:00 pm

    Took a mas airplane to shanghai a couple of months back. Boy it was really really bad. Dirty toilet. In flight mag is old, has dog ears and obviously badly thumbed through already. Food, is worse than bad. Must share a common tv screen with all other passengers (no individual screens). Maybe idris sold all of the these as well in order to turn the company around.

  9. #9 by boh-liao on Tuesday, 30 August 2011 - 11:04 am

    Since when UmnoB/BN ever think of d welfare of ordinary Malaysian consumers?
    2 UmnoB/BN, filling their pockets n bank accounts is top priority
    So, rakyat, U want healthy competition rather than monopoly 4 d benefits of ordinary Malaysian consumers, ban ban tan lor, dream on mah, unless U kick out UmnoB/BN

  10. #10 by tak tahan on Tuesday, 30 August 2011 - 10:31 pm

    Aiseh man..mai khee hong la..ban ban kong lor..wa lang chai eh..bersih3 ai lai liau mah..haai yah..tau si BN hampalang mah chai si lor

  11. #11 by waterfrontcoolie on Wednesday, 31 August 2011 - 12:08 pm

    As far as I can see, good corporate companies at the KLSC can not last, someone in power will yake it for a ride. hence it ws laughable when the columnist at STAR, Errol proposed that MU floated its IPO here instead of at the LITTLE DOT down below. Won’t one thinks MU is flying 1st Class and would have felt insulted for that suggestion. We can continue to bluff ourselves as long as the power that be can cow the majority of the Parliament seats by disproportionate representation, the rest of world is not that stupid to get involve in such self deceiving scheme. MAs was slaughtered by being sold to a private investor with tax money and then bought back again with our cash; now its past history will again be used to catch the Malaysian punters at the KLSC! well trey your luck!

  12. #12 by ShanghaiBund on Wednesday, 31 August 2011 - 2:52 pm

    Well.. the only way for these corps to make a profit is to monopolize the market. They are not competitive outside the controlled business environment in Malaysia.

  13. #13 by Jeffrey on Thursday, 1 September 2011 - 7:44 am

    Rebranding : /// “MAS-AirAsia-Truly-International” – MATI for short///-TheWrathOfGrapes. Hope its not “MATI” for rakyat (metaphorically). As Cinapek said, scratch surface things look good, but beneath? Ex Shell Mr “fix it” man (Idris)’s business turnaround plan concentrated on P&L, divestment of non core assets (HQ in KL included), raised loans (banks happy to give GLC) but then still cannot do well? So SWAP gets TF on board to lend his expertise. AirAsia gets GIC status with Khazanah’s stake in it, and its collateral benefits. But is AirAsia shining? Its Cashflow, Debts versus Reserves. Yes AirAsia’s cash reserves rose six-fold (what from RM300 million to RM1.7 billion) but its debts also skyrocketed from RM1.05 billion in 2006 to RM7.7 billion in 2010, an increase of 700%? Understand this, that in AirAsia’s business model one not sure what’s cash reserves mean, cash does not mean cash but receivables, and on receivables, what’s their quality collectible?

  14. #14 by Jeffrey on Thursday, 1 September 2011 - 7:45 am

    (Contiuning from preceding post currently moderated)-Debts are solid: One has to repay banks, after that main creditors (read govt entities) for AirAsia, its M’sia Airport, managing & operating LCCT, and for MAS, lease payments to Penerbangan Malaysia Berhad (PMB). Ultimately if in spite share swap both budget and premium carrier face cashflow problems, who bails out? Govt entities, M’ysia Airport and PMB stop pressing for rental and lease payments? Now Khazanah owns 10% of AirAsia does it have to pump in money via rights issue??? So its not just consumers risking less competition – its rakyat’s monies via govt entities. Whereas they need to bail out national airline MAS if it runs into trouble, now one more in the stable, AirAsia if anything bad happens! One can blame routes, higher fuel prices, macro-economic conditions, H5N1 but ultimately its management! Ask why the difference that Cathay Pacific & SIA prevail?

  15. #15 by cemerlang on Thursday, 1 September 2011 - 11:58 am

    Hellooooo…MAS, MASwings, Firefly are all under MAS. What is there to compete ? Air Asia is started out by a Malaysian with the blessing from the Barisan Nasional government. What is there to compete also ? If Air Asia is truly private, the government would go all the way out to stop Air Asia from operating. But it exists because the government itself gives the green light for Air Asia to operate with the low cost scheme which is already practised by many other countries. Doing a bit of online research, the very first low cost is South West Airline and that is in USA. Before Air Asia, people seemed to be contented with MAS. Undoubtedly the ticket is rigidly expensive. Did the rakyat complain ? Then Air Asia comes in. Many of you are upper income earners. Why do you choose Air Asia ? The thing is the price. Sedikit sedikit lama lama jadi bukit. Now Datuk Fernandez is able to buy the Queen Park Rangers football club. What does that tell you ? Bottom line, they are helping one another. If more use Air Asia, there will be more profits. These profits can help MAS since it is a premium airline meant for the rich, famous and desire an exclusive lifestyle. Taking the money from the poor to help maintain the rich lifestyle of the rich. Win win solution. The poor can continue to use Air Asia. The rich can continue to use MAS.

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