Let Air Asia and Malaysia Airlines Battle It Out

SEEING IT MY WAY www.Malaysiakini.com April 6, 2006

Let Air Asia and MAS Battle It Out

www.Malaysiakini.com April 6, 2006

Our civil servants have done it again! In their wisdom, they have divvied up the air routes between Malaysia Airlines (MAS) and Air Asia. With that, the flying public will now be well served, so those officials believed. Such hubris!

Our civil servants and leaders should disabuse themselves of their “fatal conceit” (Hayek’s phrase) that they could control the marketplace.

Neither MAS nor Air Asia has a right to exist; they have to earn it. Like other businesses, to survive they must provide services or products that the public wants. That is the essence of any enterprise.

Soviet factories were very productive in manufacturing goods. The only problem was, nobody wanted what they produced. Even if you could turn out what the customers wanted, you would not be successful if you could not sell for more than what it would cost to produce it.

Whether MAS or Air Asia “deserves” those routes will be determined ultimately by the flying public. This reality must be acknowledged; those civil servants delude themselves if they think otherwise. They would be better off doing something useful, like running the land office more efficiently. That is what they are being paid for.

More, Not Less, Competition

It would have been much easier, and more efficient, had the authorities simply liberalized the system and let any airline, foreign or domestic, fly any route. Let MAS battle it with Air Asia. Allocating the routes merely reduces competition for the two, but would not spare them from competition by other forms of transportation like trains and buses.

Soon executive jets powered by revolutionary micro engines will appear to provide “air taxi” service at a cost competitive to regular coach price. Already, the first few years of production are sold out, reflecting the demand. Meaning, expect more competition!

The best way to prepare our airlines – and Malaysians generally – for the increasingly competitive world is to expose them to greater, not less, competition. Divvying up air routes is not the way to go; instead, let them battle it out. Whoever serves the public better would survive and thrive. They would then be ready to take on the world. Coddling them would result in never ending subsidies.

Even if the airlines were to have a price war or indulge in predatory pricing (selling tickets cheaply with the intention of driving out the competition), the flying public would still benefit from the resulting cheap fares.

Flying is affordable and preferred mode of travel in America, thanks to deregulation. Legacy airlines like Pan Am have disappeared because they could not control their costs or serve their customers well, but they are being replaced by new players like Jet Blue. No one wants to return to the highly regulated days of yore.

Malaysia should be opening up its skies. Who cares how those tourists arrive or who owns the planes we fly in. We are concerned with safety, and price. This idea that every nation should have its own airline, or currency, is rubbish.

I enjoy MAS superior services; I have also not hesitated choosing other carriers when their price and schedule suited me better. I have no sense of reflected glory when flying MAS. I am grateful to the pilot, be he (or she) a Malaysian or foreigner, when we landed safely.

MAS continues to suffer massive losses despite the many attempts at cleansing its balance sheet. Its recent decision to sell its headquarters building eerily reminds me of the similar move made by Pan Am in the early days of deregulation.

Today the Pan Am building is worth considerably more, but the airline is long gone. Its previously hallowed brand fetched only a few thousand dollars at an auction. The government would do well to remember this; sell the airline but keep the real estate.

Malaysia would be better served if its civil servants were to focus on running the government and let the executives run their companies. As the major owner of MAS, the government has two choices: sell it, or change the management. The government had chosen the second option for now, but if that does not work, exercise the first. Making this explicit would focus the attention of those running the company. That can sometimes do wonders.

Body Languages of Leaders

To celebrate their carving up of the local flying market, the leaders of the two airlines posed for a photograph, flanked by their beautiful stewardesses. Idris Jalla, taking on the style of civil servants and other executives of GLCs, was in his suit and tie. This in hot and humid Malaysia! His Air Asia counterpart, Tony Fernandez, was in his T-shirt and wearing a baseball cap. Idris looked liked he was ready to head back to the comfort of air-conditioned suite; Tony Fernandez on the other hand was ready for some serious work under the blistering Malaysian sun. If I were to invest, I know which company to choose.

To be fair, Idris Jalla recently announced moving his headquarters staff to Sepang, to the factory floor as it were. Apart from reducing the overhead costs, the move would at least remove the distance and hence insulation between the managers and their customers. He has also promised to discontinue money-losing routes.

At least Idris Jalla is aware of the problems and taking steps to remedy them. The question is whether he could convince his civil servant and politician superiors that the solutions to Malaysia Airlines’s problems remain in the marketplace, not in the hallowed halls at Putrajaya. His challenge is to disabuse politicians and civil servants from their delusion that they could control the marketplace.

One Response to “Let Air Asia and Malaysia Airlines Battle It Out”

  1. […] M. Bakri Musa – http://www.bakrimusa.comLet Air Asia and Malaysia Airlines Battle It Out … SEEING IT MY WAY http://www.Malaysiakini.com April 6, 2006 … Our civil servants have done it again! In their wisdom, they have divvied up the air routes between Malaysia Airlines (MAS) and Air Asia. With that, the flying public will now be well served, so those officials believed. […]

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