Aid for ailing airlines?

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TA02961 TA02962KUCHING: The year 2016 has not been kind to airlines in Malaysia with its flurry of management change, abrupt business halts and rise in charges.

A major game changer is the Department of Civil Aviation (DCA) introducing new charges that will see massive hikes are those for the usage of air space, air traffic facilities, pilot’s flight licence and other services related to the air operators certificate (AOC).

One of particular highlight is a hike on the air navigation flight charges (ANFC), amounting to ten times more than its original price.

To note, the ANFC fee is similar to highway tolls, whreby airlines have to pay for each kilometre they travel. The rate is increased based on the size or weight of the aircraft.

DCA, which oversees airline route navigation as well as domestic and international airspace management, derives most of its revenue from ANFC and licensing fees.

The move came as a shock to the country as many were led to believe that ticket prices will be consequently increased by airlines to pass on costs.

However, the proposed hike for the fees, which have not been increased for 40 years, was revised after local airline operators argued that the DCA should have increased the charges on a gradual basis.

The DCA on April 18 introduced a new tier-based fee system on all airlines flying into and out of Malaysia as well as those that fly through local airspace.

DCA director-general Datuk Seri Azharuddin Abdul Rahman said the new system will enable different charges to be implemented as currently, many fees remained the same for all airlines.

“For example, the new system would introduce different charges to airlines that fly to different airports in Malaysia,” he said during the unveiling of the proposal on April 18. “They would also have to pay different rates during peak and non-peak periods.

“The overfly charges will be revised under the proposed system, too.”

 

Hike needed to fund its upgrade

The DCA justified the hike as “necessary to transform the federal agency into a proper authority.” Azharuddin said such reforms would require the department to be self-sufficient, which the increase in fees would make possible.

“DCA has been approved by the government to become the civil aviation authority of Malaysia.

“When you’re the authority, you are expected to be self-sustainable. Able to have the income to do what you want to do,” he earlier told reporters at the DCA headquarters in Putrajaya on April 11.

“DCA spends around RM250 million a year to regulate Malaysian airspace, but only makes RM50 million in revenue, leaving a shortfall of RM200 million that requires it to seek additional funding from Putrajaya.”

He also argued that this was the first review for fees and charges the DCA has made in over 40 years, and was needed for it to satisfy the International Civil Aviation Organisation (ICAO) audit this May.

“If not, they will downgrade us. It has happened to our neighbouring countries, we don’t want that. This will affect our aviation industry,” Azharuddin said.

ANFC charges will rise from the current five sen per nautical mile to 50 sen for light aircraft.

For bigger airplanes, the cost will increase from the present 10 — 25 sen per nautical mile to RM1 — RM2.50, and for A380 aircraft, the fees will be raised from 30 sen to RM3. The minimum charges will be raised from RM5 to RM50 per nautical mile.

For the AOC, a vital document for airlines to fly, the initial approval fees will be increased to RM80,000 yearly from RM400 now for mid-sized aircraft, and yearly renewals will rise from RM400 to RM30,000.

 

‘Passengers  will to pay more to fly’

Malaysia Airlines Bhd said it has been caught offguard following the DCA decision to revise the fees.

The carrier said while prices have remained the same over the past four decades, the airline did not expect such an exponential increase.

“We were caught offguard by this monumental and prohibitive increase in fees after 42 years. Current airspace users cannot be charged fees that are related to previous airspace utilisation,” Malaysia Airlines said in a Malay Mail article on this move.

“We would have welcomed a dialogue or engagement with air space users of this plan and an explanation of the basis of the fees set. The hike will certainly have an impact, not just on us but all airlines and eventually, the passengers.”

Malaysaia Airlines said the significant increase as well as its immediate implementation is unprecedented from a charging regime in international air travel and will make foreign carriers avoid Malaysia.

“This will in turn have a knock on and adverse impact on the industry and international and Malaysian travellers. This is something the newly established Aviation Commission needs to look into.”

 

Birth of the AMAC

Following the plans to revise the fees of several services, a group of seven Malaysian carriers have formed a group—the Association of Malaysian Air Carriers (AMAC) in order to “provide a common platform to discuss issues affecting the industry.”

Included in the proposed new charges is a tenfold hike in air navigation flight charges—including Malaysian airspace usage, pilot flight licensing and air traffic management facilities.

If implemented, this will see fees increase from RM0.05 per nautical mile to RM0.50 for aircraft not exceeding 2,500kg, and from RM0.10 to RM0.25 to RM1 to RM2.50 for medium-haul aircraft such as the Airbus A320/A330 series and Boeing 737/777 series.

The DCA said the proposed carrier fee increase is partly driven by a need to comply with ICAO’s Aviation System Block Upgrades global air traffic management system.

In the meantime, Malaysian carriers have their share of adversities as BizHive Weekly recaps:

Uncertainty over MAS on who will helm the main seat

Uncertainty revolves around the country’s heritage carrier Malaysia Airlines Bhd as it tries to rise back to its former glory. This comes as chief executive officer Christoph Müller left the national carrier for reasons that are “personal and beyond my control.”

The departure amid early signs Mueller’s recovery strategy might work is a major blow for a carrier still coping with 2014’s loss of two Boeing 777s, separate disasters that triggered a RM6 billion state restructuring package.

Though still in the red, the airline has reported improved traffic and on-time-performance. Mueller had even earlier forecasted Malaysia Airlines to see annual profit by 2018.

Malaysia Airlines made no further comment on Mueller’s personal situation, but said it has begun the search for a new chief executive. Mueller intends to remain on the carrier’s board as a non-executive director, it said.

Under Mueller, who worked wonders steering a financial turnaround for Irish airline Aer Lingus, Malaysia Airlines brought in a roster of experienced executives to head operations, commercial and marketing teams.

The challenge now was to seek a qualified leader to fill those big shoes, observers said.

 

Steering MAS in the right direction

New recruit Peter Bellew who joined MAS as its chief operating officer is the airline’s new spokesperson, stating that the management team would be able to fix the company with the current strategy.

“We need to improve our sales, that is part of what we are doing right now, and things are improving quite rapidly,” he told erporters at a recent media briefing held  by French-Italian aircraft manufacturer ATR. “A lot of operational things are coming together quite well and we are getting much better at delivering bags on time.

“Our aircraft are going through massive process of refurbishment, we are also doing a complete overhaul of the Airbus A330s – that’s what we are doing right now.”     Bellew, who has been with Malaysia Airlines for eight months, further expressed his optimism toward the privatised company’s rejuvenation.

He said: “Apart from fixing it, then we have to grow after that, and move forward, and this is a great opportunity to do that. I’m here for eight months, and I have never a moment of doubt about this,” he said.

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F&B boost with new lounge, menu

What’s interesting to note is the group’s efforts to present a new image of itself via new food offerings and new lounge design.

At the end of April, Malaysia Airlines said it has extensively redesigned its Golden Lounges to offer guests an exciting new pre-flight experience.

Chief Commercial Officer Paul Simmons said the new design combines elements that are uniquely Malaysian with modern functionality for a truly enhanced travel experience.

“We want the space to encapsulate the richness of travel with the airline, a luxurious contemporary Malaysian style that our guests will be able to experience when they enter any MAS Golden Lounge around the world.

“We are extremely excited about the project which marks the next phase of an exciting products and services roll-out to provide our customers with an enhanced travel experience,” he said in a statement.

Key features of the new Golden Lounge include a demonstration kitchen concept, allowing guests to interact with chefs, which will be a focal point for an upgraded offering of Malaysian and international gourmet specialties.

Guests will have the option to indulge in a bistro service or have a  quick snack on-the-go, with the additional option of a fine dining experience in the First Class Lounge.

The improvements also entail an upgrade to WiFi services to  enable faster speeds along with the addition of universal power sockets for the convenience of guests. The new features, expected be available in late 2016, will begin with the regional and domestic lounges at KL International Airport (KLIA).

Malaysia Airlines is also revamping its economy class meals on short and long-haul flights in efforts to improve customer service as part of its overall transformation process.

Chief Commercial Officer Paul Simmons said the new menu, which would see an overall improvement in ingredients used, would also see the protein size doubled and bigger portions plus better overall presentation of the meals.

The new menu, scheduled to be served this month on all outbound flights from Kuala Lumpur, is the result of an extensive meal development process based on feedback from customers.

“We have invested an additional 20 per cent into the cost of creating the perfect menu to suit the variety of guests on Malaysia Airlines,” he said in a statement on May 10.Simmons said the new investment in meals would also see the introduction of hot meals on short-haul flights and options tailored to specific routes.

He said more Malaysian dishes would also be served on flights between Kuala Lumpur and Australia, including curry and rendang as part of the airline’s move to provide a truly Malaysian experience.

“Malaysia Airlines is going through a period of rapid transformation as we are rebuilding to become one of the very best airlines in the world, focused on providing the best customer experience,” he said.

 

Brand new image with new uniforms

Another “cosmetic make-up” for Malaysia Airlines’ is in its latest partnership with fashion brand Farah Khan to reenergise the design aesthetic of the national carrier’s iconic kebaya and other uniforms.

Through the partnership, the fashion brand creative director, Datuk Seri Farah Khan will design the full range of uniforms of various departments of the airline, including its flight deck, cabin crew, airport and engineering outfits.

Malaysia Airlines Chief Commercial Officer Paul Simmon said Malaysia Airlines’ uniforms, especially the kebaya, has served as an iconic symbol and a source of great pride for generations.

“With this collaboration, we look forward to taking this a step further, creating a fashionable and functional new collection,” he said in a statement.

The new uniforms will continue to be a point of pride for Malaysians as well as mark a fresh new start of MAB transformation for all customers who fly with the airline.

 

Teething problems for newbie Rayani Air

Members of the public are perhaps most aware of Rayani Air and its pervading issues as employees claim they have not been paid, leading to a strike in April and the airline being suspended from flying – all within the first six months of operations.

Hopes were high for Malaysia’s first syariah-compliant airline – the fourth of its kind in the world – slated to tap into an industry with strong demand but high barriers of entry.

Observers cite its business model as perhaps being the cause of these problems as the company may have mismanaged its funds, leading to the lack of employee payout.

To note, 400 Rayani Air employees have claimed that they have not been paid their salary as well as their Socso and Employees Provident Fund contributions.

Its staff are threatening to take legal action if salary arrears of RM1.5 million due to about 400 of its workers in March are not paid up/

Rayani Air Operations Manager at the Kuala Lumpur International Airport 2 (klia2), Zulkalnain Azdan, who acted as their spokesman, said legal action would be taken against the airline’s chief executive officer Ravi Alagendrran and his wife, Datuk Karthiyani Govindan, who are the owners.

Besides the issue of the salary arrears, he also claimed that the employees’ Employees Provident Fund (EPF) contributions were not in order.

“We tried contacting Ravi, but until now, there is no news from him on how he is going to solve the problems facing his company,” he told a press conference early April.

Rayani Air halted its operations since April. The Department of Civil Aviation (DCA) had provisionally suspended Rayani Air for three months after the airline “suspended” its operation due to a pilot strike earlier this month.

Rayani Air founder Ravi Alagendrran said the decision was made following a strike by the airline’s pilots and “technical” issues.

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‘We’ll be back’

Alagendrran apologised for the difficulties faced by the airline’s customers in recent weeks.

According to a Facebook statement on April 10, the owner and founder said that he has been in a state of despair for the inefficiencies in services by the company.

“As Rayani Air CEO, I humbly apologised to our loyal passengers and causing difficulties directly or indirectly in recent weeks.

“We, at Rayani Air are upset with the poor services and we will try our best to rectify and fix them.

“Rayani Air is a new airline in the country. We have a lot to improve and learn. Please continue in supporting us.

“Hopefully, the airline will remain relevant to all layers of the society without being prejudice to their skin colours for us to soar higher.”

Alagendrran also said that Rayani Air will be back with improved and quality services.

“At Rayani Air, we wish to express our gratitude to the rakyat for flying with us. Thank you too to all Rayani Air employees who had been with us through ups and downs. Rayani Air will be back. Wait!”

The world’s first syariah-compliant airline was established on January 19, 2015 and to date boasts more than 400 employees.

A pilot strike reportedly forced Rayani Air to cancel at least three flights early April from Kuala Lumpur to Langkawi, Kota Kinabalu and Kuching, leaving passengers hanging over travel plans and angered with the lack of solutions.

Since March, Rayani Air passengers have complained on social media about frequently re-timed flights, with some being delayed for up to 13 hours.

The airline had also allegedly cancelled flights without advance notice and without compensating or assisting affected passengers.

 

Founder mulls selling off ownership shares

A total of eight companies have expressed interest to invest in suspended Rayani Air, Alagendrran claimed on April 11.

He added that he is mulling selling off more than half of the ownership shares in what has been touted as Malaysia’s first syariah-compliant airline.

“I am prepared to let go 51 per cent of my share to investors who are really interested to invest (in the company).

“I want the investors to manage Rayani Air better. Even better than how I have been managing it. My dream is to see Rayani Air to continue developing,” he was quoted as saying.

Of the eight companies who have showed interest in investing in Rayani Air, Ravi reportedly said that seven of them are local, adding that three have experience in the aviation industry.

“At the moment, all investors who have voiced their interest are scrutinising all aspects of the company in terms of operation, management, finance and assets,” he was quoted as saying.

Meanwhile, Businesswoman Datuk Seri Hasmiza Othman, known popularly as Datuk Vida after her company Vida Beauty, is reportedly considering buying a stake in Rayani to revive the company.

Vida is said to be meeting up with Rayani Air owner Ravi Alagendrran soon to discuss buying out his majority shares.

 

DCA begins probe on airline

The Department of Civil Aviation’s (DCA) inquiry on the country’s first syariah compliant airline Rayani Air commenced on May 12.

“We will give them an opportunity to provide explanation on all the issues that are concerning them which led to their Air Operator’s Certificate being suspended for three months,” Datuk Azharuddin Abdul Rahman was quoted as saying.

However, Alagendrran failed to show up for an inquiry by the Department of Civil Aviation’s (DCA) earlier this week after he fainted.

His wife Datuk Karthiyani Govindan, attended the session, accompanied by a person believed to be an airline staff, at 10am.

Karthiyani spoke briefly to the media after the inquiry.

She also said she was optimistic over the outcome of the inquiry. “We’ve received good response from the department and there will be another session with them next week,” she said before she left.

Transport Minister Datuk Seri Liow Tiong Lai had also previously warned that Rayani’s AOC will be cancelled permanently if the DCA is not satisfied with the airline’s explanations.

All eyes are now glued on further developments on this saga.

 

AirAsia persevere in fight for more LCCs

AirAsia Bhd (AirAsia) itself has had its share of ups and downs this year, with the closest impacting East Malaysia is the termination of AirAsia Indonesia’s thrice weekly Bali–Kota Kinabalu flight, which will take effect from June 23, 2016 onwards.

The announcement made on May 4 outlined this move as being due to commercial reasons.

In a statement, AirAsia bhd chief executive officer Aireen Omar highlighted that the AirAsia group has time and time again put in great commitment in promoting Kota Kinabalu.

“We worked hard to make the route connecting Kota Kinabalu and Bali a success, offering continuous low fares in addition to substantial marketing and advertising initiatives,” she highlighted, outlining their efforts.

“However, stagnant market growth has unfortunately impacted the operation of this route and revenues are insufficient to offset the costs. Additionally, operational cost have increased quite substantially for our operations at Terminal 1 at the Kota Kinabalu International Airport.”

This falls back to AirAsia’s call for a low cost terminal in Kota Kinabalu, she said.

“The need for a dedicated low-cost carriers’ facility in Kota Kinabalu is inevitable. It is our ambition to make Kota Kinabalu into a regional hub where we can further grow our connectivity and continue to increase our fleet as we forecast 12 million passenger arrivals and departures into Kota Kinabalu per annum by year 2021.

“We can do this successfully with a dedicated LCC Terminal at Kota Kinabalu.”

This comes after Aireen last year affirmed that AirAsia would not move to Kota Kinabalu International Airport (KKIA) Terminal 1, instead choosing to remain at Terminal 2 in an ongoing tussle between the airline and Malaysia Airport Holdings Bhd (MAHB).

“We’ve made a firm decision that we are not moving to Terminal 1, and we have made the necessary appeal to the Minister of Transport who is currently looking into this,” she said in a press briefing in Kota Kinabalu.

Aireen cited various limitations as reasons for the decision, including more than a hundred per cent increment in passenger service charge (PSC) should the move materialise.

MAHB had asked AirAsia to move its operations from KKIA Terminal 2 in Tanjung Aru to the main KKIA Terminal.

On this point, AirAsia founder Tan Sri Tony Fernandes had this to say: “Disappointing to see this. We worked so hard to build Kota Kinabalu as a big hub. We were able to do it due to having a low cost terminal.

“No one seems to understand that AirAsia knows this business better than airports. We built it. We need more low cost terminals.”

 

Short term solutions versus long term plan

AirAsia’s biggest concern, said Aireen, was how the move would impact the company’s long-term plans for the state which are steered in the direction to make Kota Kinabalu the next key international hub in the region after Kuala Lumpur.

She said there were limitations in terms of resources and infrastructures available at Terminal 1 that did not facilitate the operations of low cost carriers well.

“Moving to Terminal 1 means that we have to share facilities with other airlines. And after a few years, we know that once we put more aircraft at Terminal 1, we will exceed the capacity of the terminal. So where do we go from there? There are limitations in terms of the capacity in which we can grow,” she said.

Aireen said the low-cost carrier company had five to ten-year plans to bring in at least 20 aircraft to be based in Kota Kinabalu, which would not be possible if AirAsia was to make the move to Terminal 1.

She described MAHB’s call to move AirAsia to Terminal 1 as merely a short-term plan without proper long-term plans in terms of maintenance and growth.

“They want us to move, because they want to address their short-term problem at Terminal 1. But that’s not a good business decision. It’s not good for long-term development for Sabah, tourism and the aviation industry in general.

“We are running a business; you can’t ask us to be short term in our outlook to just move to Terminal 1 and then after that, what happens? Because our plans run from five years to ten years. Whereas for them, it’s move first and figure it out later.

“It is very important to have the right infrastructure to facilitate the growth that we envision for Sabah. But instead, it’s more of asking us to fit into their short-term plan as opposed to fitting what’s the overall bigger plan that our airline can do to the local economy and to the state of Sabah.

Meanwhile, AirAsia also suspended more international routes, the latest being its three times weekly flights from Kuala Lumpur to Goa effective June 7 this year as part of its route rationalisation initiatives.

Spencer Lee, Head of Commercial for AirAsia Bhd said, “We take very careful considerations for every new route that we introduce. However this suspension is due to our route rationalisation exercise.

“Despite this route adjustment, we remain committed to the Indian market and look forward to return to Goa in the future.”

 

Calling for single ownership of AirAsia’ regional arms

AirAsia Bhd founder Tan Sri Tony Fernandes on Tuesday said he is not ruling out consolidation of the low-cost carrier’s regional airline units into an entity.

“This has always been my plan, to consolidate, but we have to talk to many different authorities to do so. There is no timeframe yet,” he said after the group’s Extraordinary General Meeting earlier this week.

“The response so far has been quite good. It is our goal to create one holding company eventually. The Asean open skies, which had been reported previously, are finally a reality, as Laos was the last to sign. This is an exciting development for us.

“So the dream of having one Asean airline with one holding company owning Malaysia, Thailand, Indonesia and the Philippines is now possible and we must treat Asean as one place,” Fernandes added.

Presently, the AirAsia Group consists of AirAsia Bhd (Malaysia), Thai AirAsia Co Ltd, PT Indonesia AirAsia, Philippines AirAsia Inc, AirAsia X Bhd (Malaysia), Thai AirAsia X Co Ltd  and AirAsia (India) Ltd.

Fernandes also advocated for there to be more low-cost terminals, noting that the key to lower airfares was lower costs.

“This is a volume game. This is the kind of model we are, if costs keep going up, then we are not low-cost anymore,” he said.