Merger of airlines won’t let everyone fly

Any talk on merging airlines would be against the policy of the liberalisation of air services for the domestic market in Malaysia and Asean.

It is this policy that gave birth to a few low-cost airlines, competing for a slice of the domestic and regional markets.

The federal aviation regulator has also allowed Malaysian-based low-cost airlines to fly the Malaysian flag, in the spirit of cooperation among Asean air services.

This was done so that they can enjoy economic benefits of the healthy competition, and move towards a more liberal aviation policy that would eventually replace the bilateral air services agreement (ASA).

The government at the time understood the need to set up low-cost airlines, alongside the established full-service airlines in the market.

Low-cost airlines were meant to serve a different segment of passengers that had not been captured before.

These are the two distinct market segments of the passenger air market which have now been recognised worldwide, including by the International Civil Aviation Organization (ICAO).

Such a policy instrument was first tested in Europe and it was found that passengers greatly benefited from it. Eventually, it became a popular aviation framework emulated by other regions, including Malaysia and Asean.

In other words, Malaysia did not invent low-cost airlines; we copied them from Europe.

The national carriers of the respective countries in Asean never objected to this policy shift and had, in fact, welcomed the new competition which had acted as an impetus to the regional market growth.

Now, it is viewed differently. The international trade minister said a merger between a low-cost airline and a full-service airline is an option to “save” them.

This is not what the market wants and definitely not what the country needs at this moment.

Any hasty decision will have a negative impact on the Malaysian aviation sector and services. Among them, a merger will eliminate competition and a single airline operator will become an unwanted private monopoly. This doesn’t sound right.

In the United Kingdom and Europe, the government’s role is to set up a level playing field in every segment of the aviation market. Airlines with sufficient capital could come in and operate in a healthy market competition by offering a choice of departure airports, service capacity, departure times and, obviously, low fare structure.

Passengers are given the freedom of choice and protected not only by consumer laws but also by anti-competition, anti-merger and anti-monopoly legislation. Operators are also not allowed to collude among themselves.

If there is no competition within each market segment, it becomes the regulator’s responsibility to create one so that it could be more conducive to the
competing operators.

A regulator will not allow for a merger or takeover of each other. Healthy competition is encouraged so that passengers will have different choices.

In Malaysia, healthy competition among airlines within each of the market segments should actually be enhanced and encouraged by the airline regulator as competition will continue to push fares down and increase the service levels among the competing airlines.

It is not the role of the regulator to stifle competition and allow airlines to operate as a monopoly. Such airlines would bring no financial benefits to passengers, airline staff, the market and the government.

In summary, the idea of taking over or merging two airlines will lead to the following negative results:

• elimination of competition;
• reduction in the airline capacity;
• reduction in airlines service levels with reduced departure times;
• reduction in the overall frequencies between a given pair of destinations;
• reduction of staff and workers, resulting in retrenchment of airline staff;
• airport operator losing from reduced aircraft number, passenger volume and income;
• smaller airports with low passenger volume taken off schedules; and
• rural air services in Sabah and Sarawak being the first to be cut off.

Only the operator will benefit financially from this elimination of competition and the creation of a monopolistic airline.

The country needs both airlines to co-exist and serve their respective market segments, possibly in a more healthy and regulated market environment where passenger interests are protected and not deprived.

Without that policy remaining intact, no one could fly. -FMT