How airlines are diddling customers of billions

How airlines are diddling customers of billions

P Gunasegaram


COMMENT | Airlines from Malaysia are diddling customers of billions of ringgit, refusing point-blank to refund customers while the Malaysian Aviation Commission, or Mavcom, simply looks the other way, ignoring repeated customer complaints over refunds and closing cases arbitrarily.

The airlines in question include AirAsia X, its sister company AirAsia, Malaysia Airlines and Malindo Air (now known as Batik Air). All of them are blatantly trampling consumer rights in the absence of any serious action by regulator Mavcom.

Mavcom’s inaction is puzzling in light of the following directive issued in February 2021 regarding flight cancellations due to the Covid-19 pandemic.

Let’s take each of the airlines in turn.

AirAsia X - profit of RM33.6b

This airline takes the cake for dubious moves. It recently made a ridiculously high profit of RM33.6 billion, yes billion, because of a writeback of a similar amount following the completion of its restructuring!

How is that even possible? Because it classified huge aircraft orders cancelled as defaults when the default should be the cancellation charge. Therefore, it could claim that creditors settled for just a 0.5% settlement under a court-sanctioned restructuring scheme where creditors voted according to the amounts “owed”.

It took it one step further when it classified customers’ payments as creditors for the restructuring scheme late last year, when Mavcom specifically prohibited it. They are advances for services to be rendered - customer payments, and not debt at all.

This was the wrong thing to do because customer advances are different from debt and customers receive no payment of interest, as I explained here - the advances should be held in trust and returned if services were not provided.

Advance payments totalled RM500 million at the time of the restructuring late last year but AirAsia X’s obligations were a mere RM2.5 million - and the airline is still operating! What a travesty of justice.

Meantime, customers are complaining and accusing Mavcom of not doing enough as reflected in this letter to Malaysiakini recently.

By doing this, AirAsia X denied customers the right to refunds and was obliged to pay only a mere 0.5% of the outstanding sum, diddling customers hundreds of millions of ringgit.

Given that advance payments at the time totalled RM500 million, and AirAsia X’s obligations a maximum of a mere RM2.5 million post-restructuring, as much as RM497.5 million of customer money disappeared overnight, even as AirAsia X actually had the money to pay customers back.

The table further down indicates that at the relevant time, AirAsia X had cash and near-cash items of RM2,373 million, way above advance payment obligations.

At the time, as I explained here, along with the flawed restructuring, Mavcom said customer advances should not be classified as debt and added it would take action if AirAsiaX did not comply.

AirAsia - complicated refund system

Things are not as bad at sister company AirAsia, but the puzzling thing is that although both have the ability to pay based on their balance sheets and because they got cash advances, Mavcom does not require them to do so even when they are able. That’s unexplainable.

Look at the table below extracted during a time when there were numerous cancellations. AirAsia had advance sales of RM895 million but cash of RM400 million, current assets of RM2,065 million and receivables and prepayments of over RM4 billion. Thus, repayment to those who want it won’t be a problem.

While AirAsia’s official position is that repayment is made when customers want it, the situation on the ground is quite different with all kinds of impediments placed such as complicated forms and, would you believe it, a statutory declaration from a commissioner of oaths!

All these and more are designed to discourage customers from asking for refunds.

Malindo Air - refusal to refund

For Malindo Air, the complaints website is replete with stories that refunds were not honoured, even when they said they would make the refunds. Our own experience is that new bookings would cost a lot higher than before for the same flights.

But there is still no question of refunds.

Malaysia Airlines - cancellation without compensation

Potential visitors from Australia told us about arbitrary cancellations with no compensation or refunds with the only offer being vouchers for future flights.

It looks like all the airlines operating from Malaysia are in the game. The underlying problem is that Mavcom is not playing its role. All it has to do is automatically refund customers if a flight is cancelled into the bank of your choice. The refunds should be immediate and upon cancellation, as are payments at the time of booking.

Customers can then have the option of either booking another flight with the airline or make their own plans. After all, many cannot reschedule their holiday plans once they are cancelled and must be given refunds.

This is serious. AirAsia X and AirAsia cases alone may amount to RM1.4 billion. Figures for other airlines are not available but a rough estimate for all cases could be between RM1.5 billion and RM2 billion.

The legal position is quite clear as explained in this article by a former law faculty dean - under Mavcom’s own protection code, if a flight is cancelled, a refund has to be made within 30 days no matter what the situation.

Further, the passenger also enjoys the protection of Section 2 (1) of the Consumer Protection Act 1999 (CPA) which states that it shall apply in respect of all services that are offered or supplied to consumers in trade, including any trade transaction conducted through electronic means.

It would seem therefore that even if Mavcom fails to perform its duty, there may be the possibility of legal redress through a class action suit or suits, naming airlines and Mavcom.

According to a column by a former federal prosecutor: “Under Malaysian law, class action suits are known as 'representative action' suits, and the rules are set out under Order 15, Rule 12 of the Rules of Court 2012.

“Rule 12 states "(1) Where numerous persons have the same interest in any proceedings…, the proceedings may be begun and… continued by… any one or more of them as representing all or as representing all except one or more of them."

It could prove to be quite profitable for legal firms and customers alike. Any takers?

P GUNASEGARAM, a former editor at online and print news publications, and head of equity research, is an independent writer and analyst.