Will passengers get lower fares due to competition among Firefly, MAS and AirAsia?

[Naim 6]

Thursday January 6, 2011

 

Will passengers get lower fares due to competition among Firefly, MAS and AirAsia?

By B.K. SIDHU

bksidhu@thestar.com.my

 

PETALING JAYA: Firefly's expansion into the domestic market using jets would no doubt give travellers another travel option but analysts say the entry will put pressure on both AirAsia and Malaysia Airlines (MAS) as all three are after the same market.

 

They expect Firefly to cannibalise on MAS routes while AirAsia will feel the heat from a new competitor in the low cost segment.

 

But the airline bosses of AirAsia and MAS are refuting the analysts' claims.

 

“How will they steal market share? They have only two planes and we have 100. Three flights to Kota Kinabalu (KK) is insignificant and it does not affect our fares. We are on our way to having 24 flights to KK and Kuching,” AirAsia group CEO Datuk Seri Tony Fernandes said.

 

“But we welcome competition and we have no issue with Firefly. Competition only makes it better and more efficient and we are where we are because we competed, in many instances, against unfair competition. But the Government has to be fair and open up routes for AirAsia X now that MAS has been allowed into the low cost fare market with Firefly,'' he added.

 

Firefly is a wholly-owned unit of MAS and it would begin mounting flights from KL International Airport to Kuching and KK using the B737-800 jets on Jan 15. It will operate on a low cost model and still maintain its turboprop operations at Subang.

 

AirAsia currently flies 10 and 11 times daily on the KL-KK and KL-Kuching routes respectively and MAS flies 8-10 and 8 times respectively.

 

“We may fly the same destinations but we (cater) for different market segments. For us, Firefly is actually complementing us rather than cannibalising us. It is an enhancement of the MAS products,'' MAS managing director Tengku Datuk Azmil Zahruddin said.

 

He does not expect full service passengers to migrate to low cost if cost is not their major consideration.

 

“What percentage of passengers considers price a factor? If it is 90%, then there will be a danger of cannibalising. But I do not think many passengers will decide to migrate,'' Azmil added.

 

He felt that MAS, with Firefly, had a full suite of products to offer every market segment, be it for full service or low cost. The entry of Firefly “gives more flexibility to consumers to travel.”

 

“Both Firefly and MAS are catering to the (group's) growth and it would be naive to say that the full service segment will not grow (because of us),'' added Firefly managing director Datuk Eddy Leong.

 

The real fight for passengers intensifies when a third player enters the market and the first domestic sector with a third player are the KL-KK and KL-Kuching routes. A clear example of how competition brought fares down was when the KL-Singapore sector was liberalised from a two-player environment to five. This forced fares to drop and today one-way fares are as low as RM2.

 

In the short term, analysts believe the “fight in the domestic market will not be intense'' since the market is big enough for three players.

 

“Inevitably some routes will experience more pressure than others when Firefly gets more aircraft, say six or 10. There will definitely be a fundamental drop in average fare pricing at some point in time but it will still be profitable albeit lower margins,'' said an analyst from Maybank Investment.

 

He added that new airlines were instinctively attracted to the “low hanging fruit” to launch routes and Firefly's target would be routes where AirAsia had the largest number of flights. Kuching and KK are clear examples of that.

 

A check on the respective airline website revealed that Firefly is offering an all-in-one-way-fare of RM59 to either Kuching or KK from KL. AirAsia has also reduced its fares for the sector and its one-way fares are as low as RM66.40, while MAS' offer is RM238 for one-way to KK.

 

http://biz.thestar.com.my/news/story.asp?file=/2011/1/6/business/7743406&sec=business

[BC Tam 2]

“How will they steal market share? They have only two planes and we have 100. Three flights to Kota Kinabalu (KK) is insignificant and it does not affect our fares .....” AirAsia group CEO Datuk Seri Tony Fernandes said.

That is very sadly evidence of Dato's growing arrogance nowadays

Come now sir, what and how did you start up with back in those not very many years ago ?

[Mushrif A 3]

That is very sadly evidence of Dato's growing arrogance nowadays

Come now sir, what and how did you start up with back in those not very many years ago ?

 

Yup, well-spotted. The same line could have been used by an MH CEO, when talking about TF's start-up Airasia back then with2 crappy hand-me-downs 733s.

[Naim 6]

Hehehe, yup, nothing lasts forever, not even the mighty US of A.

[c.lee 0]

“But we welcome competition and we have no issue with Firefly. Competition only makes it better and more efficient...

I guess he had conveniently forgotten what he said regarding Thai Tiger Airways.

[Cheng Long 0]

I guess he had conveniently forgotten what he said regarding Thai Tiger Airways.

 

TF is usually very vocal and likes to pour cold water onto his rivals. I'm bit surprised he is quite gentle with Firefly.

[flee 5]

The airline bosses are just drawing a line in the sand and stake their positions only lah. I think that the analysts are more likely to be correct. It all depends on how FY competes and also how quickly it can get a good sized fleet. We now know that they will start with 2 B738s for the KUL-BKI and KUL-KCH routes. When the next leased B738 is delivered later this year, they will increase their flights to East Malaysia.

 

They also have another leased B734 but I am not sure where they plan to deploy this aircraft. Perhaps it will be deployed on shorter sectors like KUL-KBR?

 

AK had a good effect on MH fares. I am sure that FY will start to limit AK's fare increases, but it will depend on how fast they get up to speed. MH is using FY to limit AK's impact on their own business.

[Radzi 2]

They have only two planes and we have 100.

 

Flashback to 2002 / 2003.

 

Who got 100 planes and who got only 2 B737-300?

 

Anyway, competition is good. Up to a certain level. Just read up on the state of our express bus service today and put it on your long term memory. Just remember to recall it in 20 to 30 years.

 

I should have retire by then.

Edited January 6, 2011 by Radzi

[BC Tam 2]

Hehehe, yup, nothing lasts forever, not even the mighty US of A.

Yikes Doc, can you share ?!

[Riza 0]

Just bring on the healthy competition & let customers decide.

 

All start with humble beginning.

 

Good to see more tail scheme at KUL & other stations.

 

It's the end that matters.

[Walter Sim 1]

If anyone's interested, Datuk Eddy Leong will be on BFM's Breakfast Grille today 7th January 8am.

Edited January 6, 2011 by Walter Sim

[Robert 0]

If anyone's interested, Datuk Eddy Leong will be on BFM's Breakfast Grille today 7th January 8am.

 

 

Postcast is available here: http://www.bfm.my/breakfast-grille-070111-eddy-leong.html

[Muhammad Othman 0]

Nice. I'm listening to it right now

[flee 5]

D7 CEO, Azran, driving his point home on Twitter:

 

MAS n Firefly telling the world that they won't cannibalize each other. Yet, MAS fearmongers saying AAX will cannibalize them on same routes

[Ikman Ikreza 0]

D7 CEO, Azran, driving his point home on Twitter:

 

I love FY muffins rather than nothing from AK and D7.

[Mohd Suhaimi Fariz 2]

D7 CEO, Azran, driving his point home on Twitter:

 

Obviously FY won't cannibalise MH because FY's job is to steal AK's passengers!

[Robert 0]

Obviously FY won't cannibalise MH because FY's job is to steal AK's passengers!

 

And if the only way to do that is to expand and increase the freq then it will hit MH.

[flee 5]

Obviously FY won't cannibalise MH because FY's job is to steal AK's passengers!

I think Azran's point is that if an extra player on the route does not cannibalise existing airlines' businesses, then D7 should be allowed to fly to Sydney and Jeddah. They also won't cannibalise MH's business!

 

And if the only way to do that is to expand and increase the freq then it will hit MH.

It is quite obvious why MH wants FY on these routes - they want to win back some of the business that MH has lost to AK and is not able to regain. With a new brand, people are more willing to try something "new" even though the first two FY aircraft are recycled from MH.

Edited January 11, 2011 by flee