By Kisho Kumari Sucedaram
KUALA LUMPUR: The airline industry is no stranger to suspension or even bankruptcy. Some airlines have managed to survive through mergers but some, unfortunately, have to close shop for good.
This situation happens particularly for low-cost airlines, which want to provide the most affordable price or the people.
Hence, the good news is that travelling is becoming more popular and easier these days because it does not have to be associated with exorbitant costs. Demand has been always there, yet, why do low-cost airlines bleed most of the time in Malaysia?
Airlines need thorough knowledge
According to Universiti Kuala Lumpur Malaysian Institute of Aviation Technology economist (aviation and aerospace) Assoc Prof Major Dr. Mohd Harridon Mohamed Suffian, the aviation industry has always been intricate and complex, and it requires thorough knowledge and expertise to manoeuvre the obstacles and hindrances that are inherent in the aviation field.
In the context of the sudden closure of MYAirline, the fledgling low-cost airline in Malaysia, he said it was a contextual example of an organisation that aspired to be a prominent player in the transportation ealm.
“So it’s unfortunate that the gist and philosophy of operating a low-cost airline is implicitly complicated with burgeoning overheads, including flight and maintenance crew, fuel prices, spare parts, operational costs, and maintenance works,” he told Bernama recently. Putting aside the alleged case of MYAirline founder Goh Hwan Hua, who was arrested on Tuesday night pertaining to the founding of the low-cost airline and his business background, the operation side of low-cost carriers has always been struggling financially, be it MYAirline or AirAsia in general.
Mohd Harridon pointed out that ticket prices offered by low-cost airlines normally put a strain on the financial standing of an organisation as the monetary or financial gains from the ticket sales were seen to be low and it takes considerable sales volume to attain substantial return on investment and profits.
But then, looking at the feedback received from many Malaysians who travelled with MYAirline, the impression was that the airline was performing well, especially in maintaining its on-time performance which exceeded more than 90 per cent most of the time.
Furthermore, an exclusive interview by Bernama with MYAirline earlier this year also found that the carrier had various plans in the pipeline to expand routes and lease aircraft to cater to the growing demand, ahead of its aim to seek a listing on Bursa Malaysia within three years.
Last week, MYAirline issued a statement saying that it had to take an “extremely painful decision” due to financial pressures that made it necessary to suspend its operations pending shareholder restructuring and recapitalisation of the airline.
Imperative to have numerous funding options
Elaborating further, Mohd Harridon said sales volume is somehow translated into frequency of flights where low-cost airlines would increase the frequency of flights to accommodate the increase in sales.
“This is favourable to (bolster) the financial standing of the organisation but an increase in flight frequencies would increase aircraft utilisation and, glaringly, the wear and tear of designated components of the airplane would increase significantly.
“This would exponentially escalate the maintenance cost of the airplanes and cause enormous pressure on the financial creed of the organisation,” he said. To offset this, he noted that it is imperative for low-cost carriers (LCCs) to possess or retain numerous funding options in order to reach the inflection point of balance, that is, to balance expenditure and profit.
Even Air Asia X has its predicaments even though the airline company displayed notable profits in the third and fourth quarter of 2022 as well as the first and second quarter of 2023. “The predicaments had led to Air Asia X proposing a regularisation plan and debt restructuring approach to keep it afloat,” said Mohd Harridon.
On Thursday, AirAsia X Bhd suffered a setback when Bursa Malaysia Securities Bhd rejected its attempt to get the airline uplifted from its proposed relief and Practice Note 17 (PN17) status.
Instead, the airline was given until Jan 17, 2024 to submit its regularisation plan.
Air Asia X is an affiliate of Capital A, which had secured a credit facility and this would aid the group’s aviation ventures. Within this context, it evidently shows that obtaining various financial resources is rucial in navigating through the dynamics and perplexities of the aviation industry.
Currency depreciation, higher fuel price, escalating political unrest biggest challenges. According to a news report, the ringgit has recently fallen to its lowest level in 25 years,hovering at 4.7635 against the US dollar, marking the weakest level since the Asian financial crisis in 1998.
As for fuel price, the oil market is seen to be on edge as geopolitical tensions escalate in the Middle East, specifically between Israel and Hamas.
“It is noteworthy to stipulate that fuel prices are constantly surging and political unrests in other countries led to encumbrances in the logistical supply chain of spare parts of airplanes and these circumstances usually lower the profit margin of low-cost airlines,” said Mohd Harridon.
Meanwhile, Endau Analytics founder and aviation analyst Shukor Yusof said the current ringgit weakening is one of the major challenges for the airline industry, leading to no room for survival in such an environment, especially for new airlines.
“I believe all airlines are struggling at the moment, not just LCCs. This situation is exacerbated by the lack of regulatory oversight, inexperienced management and flawed business model,” he said.
Government must come up with a smart framework
Shukor further said that the government needs to quickly come up with a smart framework and policy to safeguard the interests of the national airline, airport operator, and most importantly the people.
Likewise, Mohd Harridon said there should be an enhancement to the policies set by the aviation authorities in terms of financial projections of LCCs.
“It is viable to impose an addendum to the current policy where this requires the LCCs to devise and present their financial models with attachments of possible constraints in order for the authority to evaluate if these financial models are robust,” he said.
This, he added, would ensure that the consumers are safeguarded against any unintended malicious approaches by the airlines.
Previously, Malaysia Airports Holdings Bhd had also supported low-cost travel growth through a series of incentive programmes for 12 years since 2002.
The incentive programmes included the Infancy Support Programme from 2002 to 2007 and Enhanced Incentive Programme from 2007 to 2009, which were given exclusively to AirAsia.– BERNAMA
