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AirAsia helps Sabah’s connectivity

3rd August, 2017

TRAVEL within Sabah is greatly enhanced and made affordable by air travels where its city and major towns are connected by air. Much time is saved compared to travelling by road plus the comfort during the journey and reaching its destination unruffled. With low cost airline such as AirAsia it will help making decision to fly even easier by air. Air travel is now available using Malaysia Airlines and or MasWings within Sabah and with AirAsia in the fray, travellers have now the luxury of more flights and choice of service providers.

AirAsia’s phenomenal growth continues with its cheap air travel in Asia being already ASEAN largest budget airline by fleet size after having leveraged its hub-and-spoke model to connect numerous cities. Now with the growth of the region’s middle class, the airline is eyeing new routes and markets, especially China.

AirAsia Bhd has launched three new international routes from Kota Kinabalu, Langkawi and Penang. It has also launched direct flights from Kota Kinabalu to Wuhan, Langkawi- Guangzhou and Penang-Ho Chi Minh.

“We saw ASEAN before ASEAN saw us,” quipped Tony Fernandes, the airline group’s chief executive. AirAsia’s modest start with just two aircraft in 2002 coincided with the region’s economic integration under the ASEAN Free Trade Agreement. AirAsia immediately saw the huge potential in an area with a population of over 600 million, with growing economies but poor connectivity.

AirAsia has associate companies in Asia Aviation Capital, an aircraft leasing company, which is 100 per cent owned, AirAsia Japan at 49 per cent, Thai AirAsia at 45 per cent, Indonesia AirAsia at 49 per cent, Phillipines AirAsia held 49 per cent stake through its associate company. It also owned long distance carriers in AirAsia X in Malaysia, Thai AirAsia X and Indonesia AirAsia Extra

Tan Sri Tony Fernandes noted that the timing was great, reckoning that the airline would not have taken off much earlier. Luck played a big part, but they took advantage of it. Marketing the airline under the banner “Now everyone can fly,” AirAsia enhanced air travel with its short-haul, no-frills service, charging for everything from baggage to meals in return for low fares. The theme reflects their focus on making travel available and affordable to everyone.

As demand for budget air travel increased, Fernandes expanded into Indonesia, the Philippines and Thailand, setting up affiliate airlines as a way to go around the countries’ strict regulations that prohibit full foreign ownership of companies. This arrangement has worked well, allowing each airline to grow using local talent.

Thai AirAsia the group’s largest affiliate by fleet size is led by Tassapon Bijleveld, who built a career in the music industry like Fernandes. If you can manage international artists like Madonna, you can manage anyone, said Tassapon, when asked how he could run an airline without prior experience.

The Thai affiliate flies to over 52 destinations from six hubs, serving three key markets in Indochina, China and India. Tassapon said he will focus on building more routes to Indochina and India after successfully opening up routes to China on a bilateral, open skies policy. To boost ancillary income, the airline is planning to launch pre-departure duty-free sales online next year, capitalizing on the strength of its major shareholder, King Power, Thailand’s leading travel retailer.

Indonesia AirAsia is headed by Dendy Kurniawan, a Fulbright scholar with experience in the public and private sectors. After cutting capacity drastically the past two years as the company struggled, Kurniawan wants to develop the existing hub in Medan to complement the Jakarta, Bali and Surabaya hubs.

“It is the time to start our growth story again this year,” says Kurniawan, noting that there is an over emphasis on Bali as a tourist destination. There were about 12 million foreign visitors in Indonesia last year, of whom five million went to Bali. The government hopes to attract 20 million visitors in 2019, and Kurniawan says AirAsia can play a significant role through its domestic hubs that already connect to over 100 destinations in nearly 20 countries.

In a recent move, The Ministry of Tourism Indonesia had officially unveiled collaboration plan with AirAsia in promoting the wonders of Indonesia to Malaysian. This is no surprise it has a vast connectivity network across the country and to Malaysia. AirAsia connects to Malaysia through more than 350 flights a week covering 15 cities.

Launching of direct flights from Kuching to Pontianak had recently taken place to meet growing demand. Their well established routes within Asia are set to boost connectivity further and boost arrivals of tourist from other countries as well. As for Sabah we hope this effort by the republics tourism ministry will cover Sabah and at the same time the Tourism Board in Sabah must also push for locals to visit Indonesia. We need the Jakarta, Bandung and Bali connectivity as these are the places where Sabahans normally go.

Similarly, Philippines AirAsia is also stepping up efforts to create new tourist destinations in the country. Its latest route will link Kuala Lumpur to the southern Philippine city of Davao.

Low cost carrier, AirAsia, is here to stay in Sabah, stated Fernandes. Earlier on, a claim that AirAsia would cease operations in Sabah should the airline be forced to move to Terminal 1 of the Kota Kinabalu International Airport was proven wrong as the Airline made its appearance at Terminal 1 of KKIA. He reiterated that he never intended to threaten to pull out AirAsia routes to Sabah. He clarified that it was never the case, and it is not his style. He further stated that he was always been very committed to developing Sabah as a hub.

AirAsia have a very strong relationship with Sabah tourism, are constantly engaging with Sabah Chief Minister, the Tourism, Culture and Environment Minister and Sabah Tourism Board to further explore growth opportunities for Sabah. Sabah remains key to AirAsia and also a very important hub for AirAsia.

To him the issue at stake then was that it was critical for AirAsia to remain in Terminal 2 where the passenger service charge (PSC) was RM32 and at Terminal 1 where the PSC is significantly higher at RM65, it would affect its ability to offer low fares and in turn cause diminishing demand from the public, lowering passenger traffic into the state. RM30 makes a huge difference in their decision to fly or not. A large number of our passengers travel as families, so paying the higher passenger service charge would be a burden to them he said.

Fernandes added that if demand drops due to the increase, it will make the routes unprofitable which will result in the possibility of route suspensions. This was the reason why he was pushing Malaysia Airports, the Sabah Government, and the Federal Government to either make Terminal 2 an LCC terminal or build a new low cost terminal at that point in time. Sabah is one of the reasons AirAsia exists and it will never abandon Sabah. But he maintained that the harsh reality is, no one will want to fly with rising costs. People who know me know that I have zero arrogance and I am very open for discussions.

According to Fernandes, AirAsia has great plans for Sabah and the airline had invested greatly in developing new routes out of the state and adding more flight frequencies for the benefit of tourism in Sabah. The presentation demonstrated how the LCCT and LCC business model would benefit the economy and spur growth in the aviation industry, adding that outbound and inbound travel in Sabah and Sarawak was increasing and would be a big market for AirAsia. AirAsia operates 504 weekly flights to and from the Kota Kinabalu International Airport (KKIA).

The LCC business model allows AirAsia to grow at a fast rate because all that is required is a simple terminal and simple airport facilities. All these would translate into low operating cost and low charges. This will allow AirAsia to offer low fares and stimulate demand, and generate more revenue for airports. The catalytic impact would be higher contribution to the country’s economy. It does not mean however that safety and basic comfort is not factored in. The laws do provide the safety of airline operations.

AirAsia has been successful in reducing operational cost through service savings (no-frills cabin service), outsourcing and electronic tickets. The carrier is able to offer fares that are 40 to 60 per cent lower than its full-service competitors cost advantages arising from the nature of its operation include higher seating density and higher daily aircraft utilisation flying out of secondary airports.

The formula for low cost is to increase the affordability of air travel. By doing that, budget airlines will be able to attract more people, which will increase the load factor. This, in turn, gives the airlines more money, which they could use for expansion, increasing frequencies and developing more routes. All these would create more growth for the country. However, if travel becomes unaffordable and the load factor decreases, the airlines will suffer and cut back on expansion. As growth level declines, there will also be loss of revenue for the government.

Perhaps, as recently announced by Fernandes, a new operator should be allowed to operate our Malaysian airports instead of just Malaysia Airports Holding Berhad. It has been seen that MAHB is not keen at all to operate a low cost carrier terminal, LCCT. The writer is in agreement with Fernandes that the economics of operations of commercial airlines must take precedence over the policies as embedded in MAHB.

To prosper, all assistance must be handed over to LCC operators as they are the ones that have opened up the door for air travel markets, as they proposed lower fares maybe as much as 60percent lower than a scheduled commercial airline. Comparing with the maritime sector, even in Port Kelang there are two different operators in North Port and Westport.

Such competition is healthy and brings about value for money for clients. It is the same with airport operators, why should we be saddled by one operator in MAHB? If MAHB is open to trends in air travel then they must see that low cost travel is the order of the day. The same principle is applied to passenger travel on the road where Uber and GrabCar e-hailing operation has been allowed in addition to the standard taxi operation because this is the trend.

This is how the market wants it. But sadly for air travel MAHB is holding on to monopolised this sector of the industry and do not see the market and its impact created by low cost airlines. This is not a healthy sign as this is against the current trend. Current trends are creations of the market and should not be overlooked.

AirAsia Berhad, which is the largest contributor to the AirAsia Group, displayed impressive operating numbers in the third quarter of this year, with demand growth of 11 per cent year-on-year, outpacing capacity growth of two per cent.

MIDF transport and logistics analyst Tay Yow Ken said this had led to a higher load factor of 89 per cent, increasing the probability that the fourth quarter load factor could breach the elusive 90 per cent milestone. In addition, more rational pricing strategies by competitors have eased pressure on average fares, lending support for AirAsia’s yields to improve.

Ramliamir is with the Chartered Institute of Logistics & Transport Malaysia. He can be contacted at ramliamir@cilt-m.com.my

“Now everyone can fly”

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