Tag Archives: Tony Fernandes

KLIA2 and AirAsia….. Again

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I would like to respond to some comments made by my beloved readers in regards to AirAsia and KLIA2.

IN DEFENSE OF TONY FERNANDES AND AIRASIA

1) There are some unwarranted comments made towards Tony. I find it disgusting. My criticism is based on KLIA2’s issues. Why should some people racialise it?

2) There are many successful Indian businessman that deserve to be respected. Take for example Tan Sri Gnalingam (WestPort) and Tan Sri AK Nathan (Eversendal). They are our success story.

3) I may have gone overboard by saying Tony needs Malaysia more than Malaysia needs him. Truth is, both need each other and won’t succeed without one another.

4) We must remember that whatever bad things Tony did; his biggest contribution is creating jobs wherever AirAsia go – and of course in particular in Malaysia. To be fair to him, he has appointed two Malay CEOs Azran and Aireen for his companies; no other non-bumi companies would do so other than as puppet proxies.

5) Yes, MAHB supported him. Yes, the government supported him. The government also supported so many other companies but how many has actually ‘paid back’ generally in the terms that AirAsia did i.e. creating full value chain of livelihood for cab/bus drivers, stall owners, hotel operators, travel agents, etc just by relying on AirAsia’s spill-over effects.

6) For the pittance of rip-offs and subsidies that Tony and AirAsia ‘robbed’ from MAHB, government and Malaysians – perhaps a few hundred millions, would it be comparable to billions of tourist dollars and job-holding people circulating in our economy?

7) Nevertheless, as far as KLIA2 is concerned, I stand for what I’ve wrote in my previous article. In fact there are some questions I would like to answer.


WHY NOT AIRASIA’s LCCT?

8) A new LCC terminal can be constructed by Sime Darby. It also can be operated by AirAsia. But it is not suitable to build in Labu because of the possibility of crash.

9) We can build a new basic and truly low cost terminal sits somewhere 30-40km radius from KLIA. But rather than to acquire a new land for the terminal, it would make more sense to utilise the land bank surrounding KLIA. After all, KLIA was designed to have 4 satellite terminals. Currently it has one. Therefore KLIA2’s purpose is not solely for AirAsia’s new home but to accommodate KLIA’s growth and vision.

10) How does KLIA2 fit into KLIA’s vision? The terminal has an integrated international concourse that will enable seamless transfer to domestic flights and vice-versa. In other words, it will provide more traffic to KLIA.

11) Not only that, due to limited runway capacity faced by Changi Airport, Soekarno Jakarta Airport and Bangkok Suvarnabhurmi Airport, ours KLIA is set to be a regional hub in Southeast Asia. The completion of KLIA2 will bring the airport’s total capacity to 85 million. But more importantly, the additional runway from KLIA2 will reduce congestion.

WHY DON’T WE UTILISE KLIA?

12) Many people complained that KLIA is so quiet. They assumed it is underutilised. Actually it is not. In fact it needs another terminal soon to support its growth. The present terminal handled 47m passengers last year- 7m more than its capacity. This has caused flight delays to spike; on average, 19% flights were delayed with an average delay time of 32 minutes in 2013. Obviously we can’t add 25 million passengers to already congested terminal. 

13) The reason why it feels so quiet because KLIA’s simple design disperses human traffic efficiently between the Main Terminal Building and Satellite Terminal via an automated three-car Aerotrain. Remember, this is world’s second best airport.

WHY DO WE NEED A BIGGER TERMINAL?

14) The original cost of the ‘fancy’ KLIA2 was RM1.9billion- not much different from the ‘basic’ RM1.8 billion LCCT proposed by AirAsia/SimeDarby. Therefore the original price tag of the new LCCT wasn’t an issue. It has become an issue when the cost of KLIA2 has been doubled due to revision to increase 71% of its original capacity. Is RM3.9 billion justified?

15) Admittedly RM3.9 billion is a lot of money. But if we proceed with the original size of KLIA2, we might have to build another LCC airport in the next 10-15 years. To build such airport at that time will cost us double or triple. Just look at the Electrified Double-Track Project. The original railway project from Johor Baru to Padang Besar was going to cost RM14bil. It was canceled because the Government want to save money. Later, it was re-introduced at a cost of RM12 bil for very much shorter tracks. So much of cent wise, ringgit foolish.

16) Do we want to repeat the same mistake again? Certainly not. Then it would be wise to build such infrastructure to meet the country’s needs for the next 50-100 years.

17) Another point is, KLIA2 is designed to be a retail airport. The large terminal is due to the large space for retail. Airport operator now realise that more revenue must come from this source. The reason is many middle income people from Southeast Asia choose to fly with Low Cost Carrier and they expect much more amenities once they land. When you consider there are 550 million people in ASEAN and only around 4% are currently flying, you can see the potential in retail. .

WHY NOT A TRULY LOW COST TERMINAL?

18) Why build a modern and fancy airport? Why not. If bus passengers can benefit from the state-of-the-art Terminal Bersepadu Selatanin BTS, why can’t low-cost air-travelers benefit from a full house level of convenience with aerobridges, walkalators, public transport hub with a direct train to Kuala Lumpur, an airside transit hotel and a public mall? In addition of that, airlines can reduce their operating cost from facilities such as self-check-in kiosk, self-check-in baggage, and dedicated aerobridge for aircraft boarding that will reduce headcount requirement without any sacrifice in overall level of service.

19) Remember, Malaysians have higher expectation when it comes to public services regardless of the amount they pay. Bagi free pun bising, inikan pula low-cost.

20) People are afraid the cost of travelling with LCC will be higher due to a lavish KLIA2. Eventually, airport charges will rise. MAHB is entitled to impose increase in three charges namely landing charge, aircraft parking charge and passenger services charge (PSC).

21) It will be absurd to think that MAHB will increase PSC to the same level with KLIA’s rate. Even if they do, we are talking about extra RM32 and RM3. To illustrate further, a return promotional AirAsia’s fare from KL to Sydney is RM750. As an international traveller, you will now have to pay RM782. As for domestic route, A return fare for KL-Langkawi is RM32. Add extra RM3, the amount will be RM35. Is it too much to asked for? Remember, this is the extreme possible scenario. After all, our PSC’s rate is among the lowest in the region.

22) How about landing and parking charge that will burden the airline? The increased rate will be offset by cost savings from the  efficiency gains, higher asset utilization and productivity gains from the sophisticated technologies. 

23) Considering cost benefits analysis, a hybrid terminal like KLIA2 will bring more value rather than a low cost terminal.

MatRodi

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What’s Your Problem, Tony?

No, I’m not referring to Tony Stark- the narcissist billionaire who literally fly with his iron suit.

Rather, I’m talking about our homegrown billionaire-  Tony Fernandes who enabled more people to fly.

KLIA2

KLIA2

WHEN IT STARTED

For those who still remember, in 2009 Sime Darby and AirAsia proposed a RM1.8 billion LCCT project in Labu. The reason? AirAsia- the fastest growing and largest low-cost airline in Asia needs a permanent home. But why they refuse to locate their home in KLIA when Klia has 25,000 acres, bigger than Putrajaya is still a mystery. Maybe there is still not enough space for the 25 million Air Asia passengers.

Another reason is, AirAsia should operate their own airport because according to them, MAHB is not an efficient airport operator. MAHB has purchased the wrong radar, MAHB can’t use KLIA’s sophisticated conveyor belt really well, MAHB fails to upgrade KLIA’s security, MAHB this and MAHB that. Therefore AirAsia should step in and become the airport operator.

Never mind if MAHB operates second world’s best airport in the world and consistently paid the concession fees and taxes to the Government, issued dividends to shareholders, paid incentives to airlines and remained profitable for the past 15 years.  For AirAsia, it still not good enough.

But the biggest argument against Labu Airport is its nearness to KLIA. No city in the world that built two different airports with two different operators and two uncoordinated control towers in just 10km radius. With 70 air crafts movement and stacking before landing for each airport per hour, the possibility of crashes is very real. Presumably this is the main reason why the project later canceled and replaced with a KLIA2- located 1.5km away from KLIA with a new control tower to better manage all three runways including KLIA and of course with MAHB as the airport operator.

ROUND 1: COST AND DELAY

A respected billionaire like Tony Fernandes should not mislead the public by making a statement like- ‘it hard to believe that an airport that has delayed a terminal by three years and cost increase from (RM) 2 billion to 4 billion has so much credibility.’

Truth is, the cost of KLIA2 has been doubled due to revision to increase 71% of its original capacity. What started as a 150,000sqm terminal with 50 semi-contact gates and 2.5km runway to cater 30 million passengers per year has now become a 257,000 sqm terminal with 68 gates fully aerobridges and 3.9km runway for 45 million passengers per year.

Guess where the revised plan is based from? AirAsia’s growth projection. Even in 2013, AirAsia has flown more than 21.85 million passengers in LCCT. With 3% growth annually, the original KLIA2 will be crowded in 10 years’ time. So do we built a new airport only to last for 10 years?

Comparison- original and revised

Comparison- original and revised

And guess who benefits the most from the construction of a larger KLIA2? AirAsia and its passenger. Even with 71% larger than the original KLIA2, AirAsia will occupy 80% of spaces in the new airport.

As far as KLIA2 cost is concerned, it is hardly “cost overrun”. The extra money was spent to get more facilities rather than spending more to get the same.

Now as for the delay issue. Admittedly some of the main contractors have failed to meet their self-imposed dateline. The contractors have blamed poor soil conditions for the delay. However, AirAsia has equally to be blamed on this matter.

First, they had requested the semi-automated baggage handling system (BHS) that was first planned be changed to a fully automated BHS, which MAHB acceded to. At this juncture, 40% of the project had been completed as per October 2012 deadline and AirAsia late request has resulted 6 months delay to the project

Second, MAHB has agreed to make the distance between the present runway 2 and the new runway 3 to be 2.5km. This is to provide more space to AirAsia  for maintenance, repair and overhaul activities.

Third, AirAsia also had its way when it asked the length of runway 3 to be extended to 4km from 2.2 km.

No wonder MAHB has said they have given almost everything AirAsia asked for at KLIA2. Only spa and museum can’t be granted.

So Tony, why do you still need to stir a cauldron of hatred towards MAHB-the gracious airport operator who bowed down to every single demand you have made?

Or maybe the refusal to move in has something to do with…. airport tax?

ROUND 2: AIRPORT TAX

AirAsia is already telling the public to brace any airport tax increase. If their assumption that the airport tax at KLIA2 is going to be the same with KLIA is true, international traveller will have to pay extra RM33 and domestic traveller is extra RM3.

But this increase should be taken into perspective that  KLIA2 is unlike any low-cost terminal aka ‘cargo warehouse’. It is not a low-cost terminal, but the airlines that utilise it are low-cost. It means the extra RM33 and RM3 will go for the vast retail space, a fully automated Baggage Handling System (BHS), aerobridges and smooth connectivity to the KLIA main terminal building and KL Sentral by ERL.

Strangely, Tony Fernandes wants all these facilities come cheap. He wants the airport tax remains the same or possibly lower. What make his demand ludicrous is that, it comes from someone who charge his customer for everything extra service they needed.

If you pay peanuts, you get monkeys or AirAsia. That is what Tony’s low cost business is all about.

Who charge less for more? Even AirAsia has to charge RM6 per credit-card transaction. So why can’t MAHB do the AirAsia way?

Anyway, three things Tony should know on airport tax.

First, airport tax at KLIA2 has yet to be decided. Even if Tony wants to jump the gun, why direct it to MAHB when airport tax is determined solely by the Government as enshrined in the Civil Aviation Act 1969.

Second, the airport tax in Malaysia is not linked with the construction cost of the terminal. When operations were moved from Sultan Abdul Aziz Shah Airport in Subang to KLIA in 1998, the airport tax remained the same in spite of the cost of the brand new airport. In fact in some cases, airport tax was reduced as was the case with the new terminal in Melaka where the tax was reduced from RM51 to RM25.

It means, there are possibility the airport tax in KLIA2 may be the same or lower. But even if the airport tax is higher, it is justified because of the facilities provided.

Third, airport tax is paid by passengers. Airlines only take the tax from passengers on behalf of the airport operator. So, if the airport tax is to be increased, there is little impact on airlines’ cost structure. Unless AirAsia’s business model is to subsidise airport tax just to ensure lower fare to the customers. But as far as AirAsia is capable of, not only they collect airport tax from passengers, they make payment to the airport operator until the government agreed to give them discount.

So what’s next? Aaaahh, safety and security issue.

ROUND 3: SAFETY AND SECURITY

Now Tony in his own words said ‘the main point is we wanted a safe and secure terminal. Ask MAHB how long operational readiness (Orat) takes? MAHB has not even received the CCC. How can we test the operational readiness of the airport?”

Tony speaks like the current LCCT is the safest terminal in the region and equipped with top notch security features.

The fact is, unlike present LCCT, KLIA2 has an inbuilt segregation of arriving and departing international passengers and this segregation is to strengthen safety and address the human trafficking and drug issue.

KLIA2 also is more secured than the current LCCT as it would implement a commonly-used passenger processing system by SITA —  the world’s leading service-provider of integrated IT business solutions.

The fact is- AirAsia refused to use the SITA system as it was insisting on using the manual check-in system. If you look at the current LCCT, it is a totally manual airport, where airport management is done in a traditional manner. What security then Tony?

As for the cracks found on the runway, it was not structural cracks as KLIA2 sits on land that consists mainly former oil palm plantations and mangroves with at least 40m depth of soft clay. Even many other airports in the country experience such superficial cracks.

To ensure that the runway is safe for aircraft landing, proof rolling and compacting the runway surface are conducted using 100-tonne proof roller. Even the big Airbus A380 can land and take off the new runway. Not only that, Malindo Air had undertaken a landing trial at klia2 in October last year to show that the runway is in good condition.

Again, Tony should remember the Department of  Civil Aviation (DCA) is the right authority to certify the runway, and not the airline. The new airport had also received the approval from independent consultant, Ikram Premier Consulting. But I suspect it still not assuring enough for Tony.

How about the CCC? With the last mile of works , which is the sewerage rectification, completed and IWK (Indah Water Konsortium) satisfied, KLIA2 will obtain the CCC between April 15 and 20.

ORAT should not be an issue as, since February Orat has been conducted successfully with 500,000 bags in the test and the system has proven to be stable. No major issues are anticipated.

Generally, ORAT is undertaken over one year but some airport operators do it in six months.

In klia2’s case, MAHB can complete the testing and commissioning within three months because KLIA has a similar system. Therefore comes May, the airport is ready for operation.

To test Tony’s sincerity on safety of passenger, we should ask why AirAsia refuse to use aerobridge when it is extremely useful during bad weather conditions such as heavy rain or sweltering heat especially to those who were physically challenged, senior citizens, and mothers with infants and small children.

Is Tony more concern about the cost 25 sen per passenger he has to absorb?

ROUND 4: AIRASIA SURVIVAL

Without a doubt, AirAsia has enabled more people to fly. To certain extent, Tony may do Malaysia a favour. But Tony’s marketing gimmick and business acumen alone are not enough in propelling AirAsia to where it is now today. The underlying factor has always been- Malaysia’s business friendly environment.

Just look at numerous assistance rendered to AirAsia.

First, the current LCC terminal which cost RM108 million has been completed in 9 months just to support AirAsia’s growth. Previously, AirAsia was operated in Subang and refused to move to KLIA.

Second, airport tax in existing LCCT (where AirAsia starts to grow regionally) was reduced to RM25 from RM35.

Third, exemption from using aerobridge has been granted by MAHB just to support AirAsia’s business model that requires a quick turnaround time.

Fourth, the special airport incentives MAHB gave to AirAsia Bhd over the past 10 years despite not being the biggest contributor to the airports operator’s revenue or passenger traffic.

Fifth, discount or incentive amounting to RM25 million courtesy of the Malaysia’s government to Tony Fernandes’ airline company so that they settle their airport taxes owed to MAHB.

Sixt and ultimately- the new RM4 billion KLIA2 is commissioned to cater AirAsia’s growth, again.

Of course any businessman would hate to contribute their success to the government’s policies and assistance. It will insult their ego.

But considering Air Asia’s success can’t be emulated in any of the other markets where Tony has entered, this only prove that only Malaysia has given Tony the opportunities.

In Japan, the joint-venture with All Nippon Airways has been terminated by partner.

In Indonesia, the purchase of Batavia Air has been scrutinised by regulators.

In India, the deal with Tata has been objected by competitors.

In Malaysia? They started as a monopoly low cost carrier with numerous assistance from the government.

Just look at Malindo Air. The fact that they can operate just within 6 months show how the government is supportive towards low cost airline industry in Malaysia. Malindo Air has flown more than 1 million passengers less than a year. Obviously it has something to do with policies made and carried out by the government.

To Tony Fernandes, you need Malaysia more than Malaysia needs you. Think.

MatRodi

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Restructuring Malaysia Airlines (MAS)

Restructuring MAS in picture.

Restructuring MAS in picture.

To begin with, there aren’t many government-owned national airlines in the world. There is none in U.S. and such entities are becoming rarer in Europe. Sooner or later, that trend will spread to Asia, inevitably to Malaysia. Maybe only in the Gulf countries such airlines can exist. It simply because many government-owned companies (in this case airline) often waste money because it is not too concerned about the profit on its expenditure. Why should they care since it’s not their money.

People especially the taxpayers have plenty of reasons to be mad at the loss-making GLC’s since there is no genuine excuse for their losses. MAS is one of the blue-blooded Malaysia GLC’s that put prestige far above profit.

For the last 7 years, the national carrier has made three cash call exercise for the amount of RM7 billion only to accumulate losses RM4.1 billion in three years’ time.

Should the company file for bankruptcy then operate under a new company and with the same name just what Japan Airlines (JAL) and American Airlines did?

Well, everyone has their own recovery model and certainly bankruptcy is one of the fastest ways to turn it around. But it is not as easy as it sounds. When the JAL filed for bankruptcy, It has shed all its jumbos, slashed its number of routes, reduced staff by a third, persuaded its unionised pilots and staff to take big pay cuts, and slashed its pension payouts by up to half.

Given the current weak government at helm, obviously this is not an option as far as political backlash is concerned. In fact MAS has the glaring disadvantage of having several unions which can hold the company to ransom. Do you expect these unions to be happy if they are being told that the destruction of their jobs will be good for the company in the long term? How do you tell a man being devoured by a tiger that he is really helping to preserve a treasured species?

They can even force the government to rescind the share-swap agreement.

Therefore it is the only right thing for MAS to have a more gradual and sustainable recovery model by harnessing the assets and keeping the people that they have.

Well how do you that? When a business is faced with stiff competition particularly a low-cost airline and its cost reduces its profits, it can either increase prices or reduce cost. However price can only be increased to a certain extent. MAS can’t price itself more than Emirates and SIA because if they do then, no one will fly with them.

In fact MAS has to dump its fare so it will not be out of race. Already their market share in KLIA is slashed by half from 54% to 28%and they are not the No 1 carrier in their home country.

It is far better to reduce cost and minimise the increase in price. All its cost can be examined to determine which are truly necessary, which cost can be reduced, which service can be curtailed or modified etc. etc.

Some might say MAS is overstaffed. MAS with about 100 aircraft has 20,000 employees while AirAsia with 300 planes has only 9,000 staff. Obviously the number of pilots and cabin crew can’t be the same since the work rules are different. It is very clear that AirAsia, Emirates and SIA have no unions.

Some of these airlines outsource their front end services and engineering works but MAS do most of them and that is why the headcount gets big. But essentially, it is about getting maximum output from 20,000 people.

This is the interesting part where we can gauge MAS current management in increasing productivity.

In 2013, the pilots are flying more and the planes are flying 12 hours daily from eight previously. MAS achieved its best ever load numbers (81%), even beating rival SIA. MAS flew additional 4 million passengers last year making the total passengers of 16 million. Etihad Airways flew 19 million passengers in the same year.

So they have added 20% more capacity and passengers whilst using the same number of aircraft and people, and therefore the staff productivity is up by 20%.

People might questioned MAS ‘load active, yield passive’ strategy but again, considering such competitive market for aviation sector last year where the profit margin is only at 1%, MAS has little choice.

But can MAS do more to increase its yield? Or even profit? They can.

First they can consider to expand its revenue by exploring on ancillary income. They can provide services for a fee ranging from seat selection, lounge comfort to wifi on board. Already some of national carriers in Europe derive its income from this services.

Secondly- the most radical yet sensible approach is to split up MAS to two entities. Currently Firefly is not a serious competitor to AirAsia. Unless Firefly is transformed from a mere community operator into a formidable low cost carrier with large fleets and huge connectivity, then MAS can consider splitting itself into a hybrid domestic airline like Malindo Air and a premium regional/international airline.

We should appreciate that Malaysia’s air transport premier market is very small because we are a developing country with a huge middle class income. This explains why the domestic market is very price sensitive. There is no way that MAS can compete against AirAsia. While it may be true AirAsia enable more people to fly but it does at the expense of MAS passengers.

The ‘split-up’ move is necessary because you can’t have two cost structures under one business entity and it is unwise to have different brand proposition in one brand. To some extent splitting up MAS means to splitting up the unions.

Imagine a hybrid low-cost domestic airline that flies within three-hour radius destination together with MAS hospitality and experiences to compete with AirAsia. After all, isn’t what Tony Fernandes asked for? A competition.

And this hybrid airline can become a feeder airline to the premium regional/international airline. Since both airlines are flying from KLIA and soon-to-be KLIA2, the possibility is endless.

Lastly, on the issue of lopsided procurement contracts- obviously referring to the catering contract, well, you should ask (sack) the MAS advisor. Neither personal nor family matter, it just business.

MatRodi

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