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AirAsia and KLIA


a new dawn for airasia? pic/shukor yusof

We received several requests for comments from the media over the past few days on reports that AirAsia could move from its base at klia2 to the main Kuala Lumpur International Airport (KLIA) come January 2017.

The Malaysian Aviation Commission (Mavcom) in late October introduced a new passenger service charge (PSC) tier intended for travel to countries within the Association of Southeast Asian Nations (ASEAN) region. There are 10 countries in ASEAN.

The new charges as stipulated by Mavcom can be found here. The revised rates will start on January 1, 2017 and will apply to tickets sold on that day onwards.

The new rate for ASEAN creates a new category – for travel within the 10-nation bloc – is now slated at MYR35 per departing passenger, down from MYR65 at KLIA and up from MYR32 at klia2.

Domestically the PSC is fixed at MYR11 at all airports in Malaysia (up from MYR9 at KLIA and MYR6 at klia2). International destinations excluding ASEAN countries will see rates increase to MYR73 for KLIA and other airports while PSC for klia2 will be MYR50.

Currently, the rates for KLIA, klia2 and other airports are MYR65, MYR32 and MYR65, respectively.


International departures at klia2. pic/shukor yusof

From the look of it, Mavcom has crafted the new charges with a view of giving flag carrier Malaysia Airlines Bhd (MAB) a bit of a hand, in our view. The new PSC sees a decline of 46% for ASEAN flights at KLIA versus a hike of 9% at klia2. Now we all know that MAB’s new strategy is to focus regionally and ASEAN will be a plank in that strategy.

But will AirAsia move to KLIA because of these changes, does it make sense? It’s entirely AirAsia’s prerogative if it wants to migrate to KLIA from klia2 if it feels it’s been given the short end of the stick.

Will AirAsia decide to move again in future if Mavcom formulates a new pricing band that benefits klia2?

The reality is AirAsia hasn’t made up its mind; there is no firm decision yet. The discount carrier is just saying “we are happy to consider moving operations to KLIA” (read here).

We doubt AirAsia will do it because there’s just too much hassle to move and the airline remains a lot stronger than MAB and will be able to eke out profits still if it stays put at klia2. AirAsia’s yields are likely to be impacted, but not sufficiently to make a big dent in its bottomline, in our opinion.

As for MAB, it appears apparent the airline is going the low-cost path and focusing on competing more aggressively with AirAsia. The problem is, MAB has a much higher unit cost and a strategy that is not suited to the discount model. Let the battle begin!


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