By Stephanie Jacob
Much of AirAsia Bhd’s complaints against Malaysia Airports Holdings Bhd has been well documented – so why the letter of demand and possible court action? Perhaps AirAsia is trying to highlight the impact on them being forced into an airport (klia2) not suited for low-cost carriers, in order to avoid having to move into another one against their will (Terminal 1, KKIA).
If you believe Malaysia Airports Holdings Bhd, then the decision by its largest airline customer AirAsia Bhd to file a RM409 million letter of demand (LOD) against it came as a big surprise. Their question is why after all these years of using MAHB facilities has AirAsia decided to do this now?
In an initial response to the LOD, MAHB managing director Badlisham Ghazali told Bernama: “We are surprised by some of these assertions about klia2 and the low-cost carrier terminal (LCCT). AirAsia has benefited from the facilities provided by Malaysia Airports since 2001 and grown to be the largest LCC in Asia.”
AirAsia’s response is simple – we have tried and tried to work with you and have now had enough. Its management has said that it felt it had no other choice than to escalate the issue by taking this step.
Aireen Omar
“AirAsia has better things to do and it (issuing the letter of demand) shows how desperate we have become… if they do not respond then we will have to escalate it to a court case. We are very serious about this, we have tried our best to discuss this with them. But meetings after meetings with them have not resulted in decisions. We cannot work like this, this is not how a business should operate. Unfortunately, we have to do this,” said Malaysia AirAsia chief executive officer Aireen Omar.
But perhaps it is more than just AirAsia’s frustrations with the old LCCT and klia2 which have boiled over. It is worth noting that being strategically clever has been integral to AirAsia’s development and expansion. Could AirAsia have another reason for taking a drastic step over issues which appear to not be new?
After it was hustled into klia2, AirAsia has also been told to move from Terminal 2 of the Kota Kinabalu International Airport (KKIA) to Terminal 1. MAHB’s reasons are that Terminal 1 has the capacity to handle the growing passenger numbers and the terminal comes with the necessary facilities which will enhance the travel experience of these passengers.
AirAsia agrees that Terminal 2 is in bad shape, but is still adamant they are not moving to Terminal 1. The airline’s founder and group CEO Tony Fernandes recently said “they let us down in moving us to klia2, we are saying if you move us to KKIA Terminal 1 (from Terminal 2) it will be crowded and there will be traffic jams and Sabah will lose tourists.”
“Please listen to us this time, we know what we are doing. Why would we not want to move to a better airport if it was going to make our job better? This is our business. We are in a substandard airport (in KKIA Terminal 2), because MAHB is refusing to modernise the airport. They are bullying us, it is as simple as that.” AirAsia declined to comment or offer their alternative solutions to moving to Terminal 1.
Perhaps the letter of demand and what actions might follow are more than just being about klia2. Could they also be to win support for its stance on KKIA too?
To be fair to the airline, they often are the ones who are blamed for an uncomfortable airport experience as many travellers do not discern that MAHB is in charge of the airport. They blame the MAHB for not working with them to find a win-win situation.
One of AirAsia’s biggest gripes is that working out of an airport not customised to LCCTs can cause significant cost increases. And although technically it is the passengers who will feel the increase because AirAsia can pass on much of the cost, it will cause the airline to lose some traffic.
MAHB has said that the passenger service charge for example will be paid entirely by the passenger and that once he or she has decided to travel an increase of RM30 or so is not going to change that. Therefore the increases will likely have little to no impact on AirAsia’s bottomline.
This statement however suggests a lack of understanding of the low-cost model and its target passenger.
AirAsia’s success is built on the fact that people who previously could not fly now get the opportunity to do so at a much reduced cost. So a low-cost passenger is highly sensitive to cost increases and only flies because it is cheap to do so and they can control their cost.
For example, many AirAsia passengers do not check in luggage nor do they order meals on board, all to keep their fares as low as possible. So AirAsia’s belief that a higher PSC will turn passengers away seems a reasonable deduction.
Furthermore AirAsia’s model only makes money when its costs are as low as possible. AirAsia has always had among the lowest if not the lowest cost in the sector and this has contributed to its success significantly.
Take the instance of aerobridges, MAHB believes that AirAsia is being unreasonable in not wanting to use them. The operator said that it only cost RM85 to use the bridge for one disembarkation and one embarkation. That cost divided over two planeloads of passengers translates into just a few sen – and what is a few sen to Asia’s largest LCC?
In the airline business, it is a significant amount. Remember that airlines calculate cost and revenue in sen – so even an increase of a few sen makes a difference to an airline’s bottom line.
AirAsia believes that MAHB does not have a plan to cater to its LCC clients. From all evidence this is a fair observation. This does not mean that MAHB does not run airports well; it means that it does not know how to, or does not want to, cater to LCCs.
But given that the largest LCC in Asia comes from Malaysia, it is this impasse that needs to be fixed. Until then the spat between MAHB and AirAsia as Asia’s largest low-cost airline will probably continue, unfortunately – to the detriment of both.
GRRRRR!!!
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