Air Dogfight Over Malaysia (2)

Continuing from Air Dogfight Over Malaysia (1) …..

The Malaysian Cabinet has moved to remove MAS floor price on its domestic airfares. This means that MAS can slash fares on discounts, and it has signalled it will. Not unexpectedly, AirAsia is pissed off with MAS plans to do so, saying they contradict key elements of the MAS-AirAsia route rationalisation exercise conducted by the government in its two-airline policy.

MAS has basically declared an airfare dogfight with AirAsia.

Much as so-called analysts may allude to the public benefiting from a war on airfares between MAS and AirAsia, which would be true only for the short run, the long term aftermath will see the travelling public pay more, plus all the flow on effect passed on to the general public.

Airfare battles are waged for two reasons. The first seems healthy where there is competition between two airlines offering the public the best deals. But the ultimate objective doesn’t stop there, for the second and the real reason of a war on airfares is to cripple the other, the usually (financially) weaker competition.

In such an air battle, the competitors would offer ridiculously low airfares that even the most undiscerning traveller would know it can’t be logical business sense, but hey, it’s offered, so let’s not look a gift horse in the mouth but grab it and forget about the other airline, unless the other airline drops its fare even more ridiculously lower.

The consequences are brutal, with the competitors slashing prices as if they don’t have a care for profits. One has to have very deep pockets to play this kind of game. Outlast the competitor (financially) is the battle cry, and when airline X has crushed airline Y into virtual bankruptcy or ruin, it will roost the coop alone, albeit much poorer.

But not for long, because it would, then in its monopolist position, begin its recouping operations. And it would want to recoup its temporary losses in a speedy fashion. The public would be the one to cough up real big.

Airline deregulation in the USA has seen the multitude of carriers crushed one by one until a dozen biggies remain, those with very deep pockets. Of course there are more factors involved but the big sharks eating up the little ones would be one of the consequences. In Australia, many newcomers have been emasculated. Some had been foolish enough to start the price war, though it merely expedited their demise.

But the longer term consequences will be the public paying more than ever. So don’t imagine the price war will benefit the travellers – yes, there will be a honeymoon period, but like marriages after the honeymoon, the reality of paying more and more will sink in.

I believe that MAS being subsidised by the public to the tune of 1 billion ringgit has no moral or ethical right to indulge in a price war, which does not benefit the Malaysian public in the long run. It’s immoral and unethical to use public funds to bring about a situation when the public would end up paying more.

It’s little wonder that AirAsia chief executive officer Tony Fernandes said the move contradicted the fundamentals of having the rationalisation, which is to eliminate unhealthy competition between the two airlines. He stated:

"I have nothing against competition and the removal of a floor price, as long as it is done on a level playing field. There are many differences in services and facilities between MAS and AirAsia. It is not a level playing field and it needs to be evened out for true competition to take place."

I wonder whether he means that a no-frill airline like AirAsia would have difficulty competing with a MAS that offers luxurious travelling facilities yet with an even lower airfare regime? But with RM 1 billion of public funds to run AirAsia into extinction or financial ruin?

"We are aware that MAS made a presentation to the Cabinet two weeks ago. The Government has to hear two sides of the story. We have requested to see the minister regarding this issue."

AirAsia deputy chief executive officer Kamarudin Meranun said the floor price was among the agreements stated in the MAS rationalisation plan. He said that other than for pensioners, the handicapped, armed forces personnel and the media, MAS had stated that it did not allow any form of discount. But now, MAS is singing a different tune.

Unfortunately for AirAsia, the government seems to be favouring MAS’ new broom, which seems to be targeting its domestic rival AirAsia as its strategy to revive its sagging fortune.

To paraphrase a Chinese saying, MAS may be adopting the position that in one small piece of sky, there cannot be two dragons.

But one of the unpalatable, in fact, dangerous consequences of such a price war would be safety, as airlines may be tempted into cost cutting which really means cutting corners in various ways, ranging from reduced number of staff to slipshod maintenance to pressure on the pilots for fie tee (chop-chop) operations. One of the last would be the 'commercial pressure' on pilots to always land at the destination no matter how adverse the weather conditions may be.