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Home » Aviation » AirAsia pushes for LCCT2, Mueller says MAS overpaid & India introduces reforms

AirAsia pushes for LCCT2, Mueller says MAS overpaid & India introduces reforms

21 June 2016

AirAsia maintenance 210616

As we write this, AirAsia’s online system is already offline. It is scheduled for maintenance until 3am (Malaysia time) on 22 June. The LCC recommends its customers come to the airport at least four hours before departure due to longer queues expected.

It’s a rather lengthy maintenance (27 hours) and many observers aren’t sure why the airline chose to do it at mid-week, rather than on a weekend… expect to see lots of unhappy passengers and hear lots of rants on social media.

Many things are happening at the AirAsia Group, not least Group CEO Tony Fernandes given the status of Overseas Citizen of India (OCI) a week ago. He waxes lyrical about India, and in particular Goa – where his father came from – but confessed he only visited the western Indian state fairly recently (12 June 2014), during AirAsia’s inaugural flight from Bengaluru.

But Fernandes is now making headlines in Malaysia by pushing for klia2, the airport next to the main international terminal (KL International Airport or KLIA), to be renamed LCCT2 (Low Cost Carrier Terminal 2). He is demanding Malaysia Airports Holding Bhd (MAHB) change the klia2 name as “it doesn’t mean anything”.

AirAsia @ klia2 copy

An AirAsia plane at the “boring” airport. Pic/Shukor Yusof

What’s in a name, really? “That which we call a rose by any other name would smell as sweet,” according to Shakespeare. It would appear Fernandes feels LCCT2 would be a sweeter and more palatable brand name despite, as he himself admitted, “the terminal is boring… no energy, no excitement…”  – would a passenger feel any exhilaration if it was called LCCT2?

In an official response, MAHB said klia2 was neither an independent airport nor a hub, and that it is the registered name under the International Air Transport Association (IATA). Read Fernandes’ candid Q&A with the NST here.

The AirAsia boss has always had skirmishes with MAHB for as long as anyone can remember. He’s continuously fighting for lower costs understandably but the airport operator had extended him considerable help when AirAsia first started.

AirAsia will always have the first mover advantage as it was the first to revolutionize discount travel in Southeast Asia. Fernandes and fellow co-founder Kamarudin Meranun – for their guts and vision – deserve all the rewards they’ve got today. But biting the hand that once fed you? Not very nice.

Outgoing Malaysia Airlines CEO speaks

Like Fernandes, Christoph Mueller has given a frank (and damning) assessment of Malaysia Airlines Berhad (MAB), the carrier he headed for just over a year before deciding to quit for personal reasons. His choice of media is Germany’s DW, perhaps because he felt more comfortable speaking Deutsche to another Teutonic brother. Read it here.

One of the startling remarks he made was that MAS (MAB’s predecessor) had overpaid for products (including planes) at up to 25% higher than market value. “Everything from pens to USD200 million aircraft were purchased at these rates”.

This isn’t news to us as we have done in-depth studies of the airline’s financials over the past few years and discovered this (and more) when Mueller was still in Dublin with Aer Lingus. For instance, the airline grossly overpaid for many of the aircraft it had leased and is thought to have paid significantly more for the hard-to-sell six Airbus A380 aircraft when almost every other airline had bought it at a hefty discount.

And it would seem MAB, in its desire to lure “turnaround specialist” Mueller, continues to overpay if unconfirmed reports about the CEO’s remuneration (EUR3 million to EUR5 million annually) is anything to go by (click here)… so people who live in glass houses shouldn’t be throwing stones.

The question is still: where is the accountability and who should be held responsible, especially when the airline was then a listed entity? In any case, we wish Herr Mueller well and we are at least glad that he leaves Malaysia and MAB having savoured a brief but nevertheless delightful taste of Malaysian Hospitality…

India’s 5/20 ruling

Narendra Modi’s government has continued to introduce more reforms in its aviation sector. Following the easing of the 5/20 rule last week, Delhi yesterday (20 June) allowed 100% foreign ownership of India-based airlines, up from 49% previously.

The government is also allowing more than 74% foreign investment in brownfield airports, subject to approval. Aviation isn’t the only benefactor; Apple and Ikea are expected to benefit, too.

The 5/20 rule is one that stipulates India-based carriers could fly overseas routes only after they have run domestic flights for 5 years and with a minimum of 20 planes, hence “5/20”. The latest move removed the 5-year component but airlines still need to retain at least 20 aircraft domestically.

India’s domestic carriers such as Indigo, Jet Aiways, SpiceJet have tried hard to ensure the ruling stayed, thus preventing Tata-supported and part-financed airlines Vistara (with Singapore Airlines) and AirAsia India from expanding.

Indeed, Ratan Tata, the much-respected boss of Tata, described the 5/20 rule as being “reminiscent of the protectionist and monopolistic pressures” practised by vested interests in other sectors. Read his comments  here.

While Vistara (currently with 11 aircraft) and AirAsia India (6) stand to benefit from this easing of the policy, it doesn’t quite go far enough to liberalise the sector, which is one of the world’s fastest growing. It would seem India remains keen to protect its local carriers. That is understandable but for Indian aviation to fully exploit the many benefits of the industry, it just comes up a bit short.

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