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AirAsia-MAS deal unfair to Sabah, Sarawak

 | August 18, 2011

Until AirAsia came along, a return trip to Kuala Lumpur from Kota Kinabalu was RM800 on MAS. If booked ahead it was RM100 on AirAsia.

KOTA KINABALU: Residents in Sabah and Sarawak are likely to end up paying more in airfares following the recent tie-up between competitors AirAsia and national carrier Malaysia Airlines.

Under a share swap deal between the Khazanah Nasional Bhd and Tune Air Sdn Bhd, the holding company of AirAsia, the budget airline will own a 20.2% stake in MAS, while the government will have a 10% stake in AirAsia.

Opposition Sabah Progressive Party (SAPP) is concerned with the move as it has created a monopoly in the air travel industry in the country.

Senior SAPP official Carrie Fong said the deal has eliminated competition and she fears travellers from Sabah and Sarawak making trips to and from the peninsula would no longer get the best bargains that came from the open battle for customers between the two airlines in the past.

She sees prices of goods spiralling due to the deal.

“Many goods are also transported by air and higher air fares will drive up the cost of living for us in Sabah.”

Many observers say the collaboration with AirAsia is supposed to help MAS, but doubt it will, if its business culture does not change.

They also say the share swap deal is aimed chiefly at eliminating the threat posed by the other low-cost airline, Firefly.

“(AirAsia CEO) Tony Fernandes has admitted that one of the reasons Tune Air agreed to this deal is Firefly. Firefly was stealing its domestic market share.

“Out of every three Firefly passengers, two were from AirAsia and one from MAS. Some 60% of AirAsia’s revenue comes from the domestic market, so Firefly was a threat,” Fong said.

Boon to Sabah, Sarawak

With the AirAsia-MAS collaboration, there is no more competition, which essentially means the days of bargain rates for domestic travellers are over.

“We Sabahans and most likely Sarawakians as well are going to be on the losing end again. Competition is always healthy as market forces should determine prices,” Fong said.

At present, the government investment arm owns 69% of MAS, but this will be diluted to 49% after the share swap.

The deal is said to have come about when Azman Mokhtar, managing director of Khazanah Nasional, and Fernandes had a long chat on a flight to the US a few months ago.

When AirAsia commenced operation at the end of 1996, it had introduced spectacularly low fares that allowed more Sabahans and Sarawakians to fly.

Up to then, MAS was charging around RM800 for a return ticket to Kuala Lumpur.

AirAsia, however, turned this on its head when it charged less than RM100 if passengers booked early.

This boosted domestic travel and forced MAS to lower its prices for the domestic sector in order to compete with AirAsia.

Initially, many were sceptical AirAsia would survive with such low prices, but they were proved wrong and the company expanded while MAS’ fortunes dived.

Tourist appeal

AirAsia not only provided cheaper airfares for locals, but also brought in tourists from other countries.

“This showed that domestic flights were not a loss-making sector which was inferred for many years. In fact, AirAsia saw so much potential in Kota Kinabalu that the airline turned KK into a secondary hub,” Fong said.

“Government-linked companies (GLC) are supposed to help the people by providing services and improving their lives.

“However, the national carrier posted a net loss of RM243.3 million in the first three months of this year and analysts expect this to continue into the second quarter, with losses of more than RM400 million.

“We saw the tourism sector flourishing, particularly at the lower-end backpacker group. Lodging houses sprouted all over town, with many shophouses on Gaya Street turned into budget hotels.

“In fact, the town, particularly around Gaya and Beach streets, has been revived.”

The success of AirAsia in the domestic travel market has put an unfavorable spotlight on MAS and its management and raised questions about their efficiency despite having all the advantages that come with being a GLC.


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