2020 was supposed to provide Malaysian carriers a boost, with the “Visit Malaysia 2020” tourism campaign targeting 30 million visitor arrivals.
Instead, the coronavirus pandemic has pushed the airlines to rejig plans and focus on survival, just weeks after some of them reported improvements in 2019’s operating performance.
Bo Lingam, then AirAsia Group’s acting chief executive, said in February that the carrier “had a challenging start to 2020” and has to manage capacity and conserve cash by controlling costs, despite recording an operating profit in 2019.
Long-haul sister carrier AirAsia X Group, which managed to reduce its 2019 operating loss, said changes to its business plan for 2020 include delaying new aircraft delivery and adopting a dual-fleet strategy of Airbus A321neos and A330 aircraft, where the smaller narrowbody would be used on routes with lower demand while the A330s will fly routes longer than six hours.
Malaysia AirAsia X’s chief executive, Benyamin Ismail, was of the opinion that the pandemic will lead to pressures on its airfare “for the coming months,” as the market will have to be stimulated to counter the pandemic’s impact.
Malaysia Airlines, which has been struggling to meet breakeven and profitability targets, also saw an improvement in its performance in 2019. Last year, it secured approval to launch a joint venture partnership with fellow Oneworld alliance member Japan Airlines and expanded its relationship with Singapore Airlines to include revenue sharing and grow its codeshare.
As the coronavirus outbreak persisted, the airline reduced capacity by 7.1% in the first quarter of 2020, halving flights to China and making double-digit cuts to North Asia.
By the end of March, AirAsia Group and AirAsia X Group announced that they will ground their fleets for the month of April, while Malindo Air transferred half of its jet-powered fleet to its Indonesian sister carrier, Batik Air.
LIMITED GOVERNMENT SUPPORT
The Malaysian Aviation Commission (MAVCOM), in its role as an economic and commercial affairs regulator on the civil aviation industry, said in a report released on 27 March that industry operators “must exhaust other options first”, which includes seeking assistance from their shareholders.
It added that Kuala Lumpur “should only act as a lender of last resort for the industry”, bearing in mind “pressures on the government of Malaysia’s fiscal resources”.
Furthermore, MAVCOM says that any assistance rendered this time may not yield positive returns as help extended to Malaysia Airlines through government-owned investment companies in the last 20 years achieved limited success.
“There may be little appetite to further do so for Malaysian carriers in general,” it says, but adds that allowing local airlines to collapse will result in a loss of jobs, reduced international connectivity to key markets, and a disrupted supply chain.
Among Malaysia’s carriers, AirAsia has a track record of profitability, as well as the ability to sell or sell and lease back aircraft assets. Malindo Air has the backing of 49% shareholder Lion Air Group.
On the other hand, Malaysia Airlines is owned by sovereign wealth fund Khazanah Nasional.
Khazanah’s managing director, Shahril Ridza Ridzuan, told a Malaysian parliamentary committee in April 2019 that an annual injection of MYR1 billion ($230 million) is needed to keep Malaysia Airlines alive, assuming there is no industry consolidation in the country. Growing its revenue base would require a larger investment as it involves improving the service product and expanding its route network.
In October 2019, the government shortlisted four entities to be a strategic partner for the flag carrier, but there has been little progress since then, partly due to a change of government this March.
In the same report, MAVCOM proposes giving airlines more targeted assistance. This includes government subsidies for the cost of disinfecting an aircraft and the necessary equipment, providing subsidies and incentives for retaining employees, temporarily waiving government-imposed charges, facilitating loans with subsidised interest rates, as well as targeted tax exemptions and subsidies for services transporting essential goods and people.
To address the liquidity issues faced by some airlines, it recommends the government adopt a liberalised ownership policy for the aviation industry, and to pair it with “effective regulatory oversight”. It cites Australia and India as examples, where foreign owners can own up to 100% of domestic operators.
MAVCOM also believes the coronavirus pandemic may give airlines an additional reason to merge with other players, but expressed concern that the reduced competition will have a negative impact on Malaysian consumers.
“A merger between two domestic airlines will foreseeably result in a high concentration of the Malaysian domestic aviation market. The merged entity will likely hold a monopoly status in many domestic routes,” it says.
MAVCOM concluded its report by calling on Kuala Lumpur to consider its options before extending any help, while acknowledging the challenges airlines face.
“MAVCOM recognises that aviation industry players are facing unprecedented challenges arising from the Covid-19 crisis. MAVCOM urges the government of Malaysia to carefully consider its options in assisting the aviation industry to minimise or avoid undesirable side-effects on the long-term health of the aviation services market.”