Airline consolidation will resolve overcapacity issues in aviation

MAB and Malindo could be merged as both airlines have a very similar target market and customer base


AN OVERSUPPLIED market will see local airlines cannibalising each other’s revenues while the government is still finding ways to resolve Malaysia Airlines Bhd’s (MAB) financial woes.

“The fundamental way to resolve the problem is either through consolidation,” the analyst said, “or somebody has to ‘die’ as a rough way of saying it,” an analyst told The Malaysian Reserve (TMR).

The analyst who requested anonymity said the “oversupplied market” is making every airline getting weaker by days.

“There is overcapacity in Malaysia and a high degree of overlap or rather, mirrors images of the same products and flights. They may get the people, but the airlines tend to kill each other as the competition causes ticket prices to be too low which could not be sustainable,” he said.

In a Public Accounts Committee’s report released yesterday, Khazanah Nasional Bhd MD Datuk Shahril Ridza Ridzuan was quoted as saying that MAB has continued making a loss due to oversupply in the industry.

Shahril Ridza said Malaysia has four airlines — MAB, AirAsia Group Bhd, AirAsia X Bhd (AAX) and Malindo Airways Sdn Bhd — for a 30 million-people market.

He said this translates to about 1.7 seats per true passenger.

Khazanah, the sole shareholder of Malaysian Aviation Group Bhd (MAG), registered a RM7.3 billion impairments last year, up from RM2.3 billion in 2017, after incurring a RM3.1 billion loss in investment value in the MAG.

“The problem with MAB today is not so much on cost, as it is on revenue. And it is the same problem for all the airlines in Malaysia,” he said, adding that MAB was supposed to break even by 2018 and return to profitability in the 2019 listing.

On the consolidation option, the analyst said MAB and Malindo could be merged as both airlines have a very similar target market and customer base.

The analyst, however, said such proposal may not be well-received due to the perception that Malindo is not a “Malaysian” carrier, stemming from its affiliation with an Indonesian principal.

For the proposed MAB-AAX merger, the analyst said the plan could keep the two loss-making airlines alive in the long run, although some may view it less than ideal because one airline is in full-fledged business while the other is a low-cost carrier.

“A marriage is still better than having the two airlines dying under the current situation,” the analyst said.

Meanwhile, Accenture Malaysia country MD Azwan Baharuddin said MAB should be given priority by the stakeholders, but it does not necessarily mean having restricted measures to other airlines.

“We should give priority to MAB for anything that the airline needs to keep it afloat. If there was a campaign, it should be ‘fly Malaysia Airlines first’. But I think that there should be no restriction to other airlines,” Azwan told TMR.

Azwan said consolidation would help reduce the competition but it may change the pricing point of tickets which would, in turn, affect consumers.

He said the challenge for MAB is on the utilisation of its aircraft while having the responsibility to serve certain locations in the country for accessibility.

Azwan added the locations may be served on a social basis and not purely on commercial.


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