REFSA Says: Khazanah accelerating Firefly’s demise?

In our Selected Exhortations category, we republish interesting stuff such as must-read articles and essays not originally written exclusively for the blawg, and which have come to our attention. Please feel free to email [email protected] if you would like to reproduce your writing, but first follow our Writer’s Guide here.

Here, we bring you another edition of REFSA Rojak, a weekly take on the goings-on in Malaysia by Research for Social Advancement. They “trawl the newsflow, cut to the core and focus on the really pertinent. Full of flavour, lots of crunch, this is the concise snapshot to help Malaysians keep abreast of the issues of the day.”

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[Original REFSA Rojak issue here. PDF version available here.]

REFSA read with dismay news of the abrupt resignation of Firefly managing director Datuk Eddy Leong.  Eddy, as he is popularly known, has been said to be instrumental in the success of Firefly and turning a profit. He will leave in less than 3 weeks on 10 Dec.

 

REFSA is even more distressed to learn that Khazanah Nasional is facilitating Eddy’s startling departure. Eddy will be joining Destination Resorts and Hotels, a unit of Khazanah, as COO. We wish Eddy every success in his new role. But we wonder at the maladroit rush by Khazanah to move Eddy away from Firefly.

The clever minds at Khazanah surely know that any change in the top leadership of any organisation is unsettling. A rushed departure like this can only severely impair the morale of the remaining staff at Firefly. Khazanah also has interests in Firefly which a more orderly and timely transition would protect.

As it is, the dramatic resignation of Eddy has thrown further doubts on the future of the company. Indeed, the Sun reports speculation that Firefly could cease to exist by April next year, and that Firefly’s current air services license, which allows an airline to operate scheduled air services, could be transferred to the new super-premium full-service carrier that AirAsia group CEO Tan Sri Tony Fernandes is looking to set up[1].

REFSA reiterates its belief that at least some of the synergies and savings to be reaped by the MAS-Air Asia ‘collaboration’ will be at the expense of ordinary Malaysians in the form of higher ticket prices, less frequent flights, poorer service levels and reduced job prospects.

Indeed, Firefly has been reducing its operations ever since the ‘collaboration’ was announced in August. Datuk Seri Shahrir Samad, MP for Johor Bahru, has spoken out in parliament on behalf of thousands of Johoreans stranded by flight cancellations. Passenger traffic at Subang Airport, one of Firefly’s main bases, has reportedly fallen some 30% in September, compared to July, before the ‘collaboration’.

The government continues to stultify the rakyat with platitudes that the ‘collaboration’ is necessary for MAS’ health, and that passengers will not be adversely affected. In the meantime, the facts are:

1. Flights have been reduced and passenger traffic fallen;
2. Experts suggest MAS is moribund while AirAsia gains and ordinary Malaysians lose. RHB Research recently said “We did not find any traces of ‘entrepreneurial spirit’ (in MAS)… supposed to come with the entrance of Tune Air”.

While stopping Firefly Jet saved RM75 million of losses, RHB was “..inclined to see the losses as start-up losses and we believe Firefly Jet could have eventually rivaled Air Asia if it was not nipped in the bud”[2].

The ramifications of fewer flights and less passenger traffic extend far beyond less choice and convenience, and perhaps, higher fares for air travellers. The implications extend across the broader economy:

1. Fewer flights means less work for airline crew and airport ground personnel. Which leads to less employment and smaller incomes and less spending power;
2. Fewer travellers also means less income and employment opportunities for taxis, hotels, cafés, hawkers and all the businesses that provide the services that travellers need;
3. Less tangible, but in the longer-run, just as importantly, fewer flights also means fewer opportunities for people to meet, collaborate, innovate and generate economic activity.

Increasing connectivity, lowering costs, encouraging competition and widening consumer choice are all stated government policies. We concur that these are crucial for Malaysia to grow and develop.

Ironically, however, GLCs Khazanah and CIMB are leading this collaboration that allows a previously fierce competitor in the form of Tan Sri Tony Fernandez  into the fold of MAS to ‘collaborate’.

We call upon the government to cancel this monopolistic collaboration before tens of thousands more Malaysians are affected by flight cancellations, lower incomes and poorer job prospects.

Malaysians and MAS would be better served if Air Asia and Firefly remained as competitors, and newly appointed MAS CEO Encik Ahmad Jauhari be unfettered to pursue the best interests of MAS.  Let the talented Tan Sri Tony Fernandez and Encik Jauhari compete head-to-head.

The economy will be more vibrant, ordinary Malaysians will benefit, and competition can only make Air Asia and MAS stronger.

 

Teh Chi-Chang, CFA

Executive Director

[email protected]

 

Appendix: Another licence from MAS to Tan Sri Tony?

If indeed the reported speculation that Firefly’s air services licence will be transferred to the new super-premium full-service carrier that AirAsia group CEO Tan Sri Tony Fernandes is looking to set up comes true, it would be the second time Tan Sri Tony takes a license originally held by Malaysia Airlines. [3]

AirAsiaX’s air services license was from FlyAsianXpress (FAX), which was the airline set up by Fernandes to operate several domestic services when Malaysia Airlines was required to withdraw from serving rural routes in Sabah and Sarawak in 2006. Subsequently, when Malaysia Airlines took over the rural air services again following complaints of poor service under FAX, FAX changed its name to AirAsiaX and switched its focus to the lucrative low-cost long-haul flights segment.

The government provided close to RM250 million in subsidies to bear the operational losses of rural air services in Sabah and Sarawak conducted by FAX for 14 months from Aug 1, 2006, parliament was told in Nov.  MasWings has since managed to reduce the amount of subsidy by half with its efficient service and less maintenance on newer aircraft, said Deputy Transport Minister Jelaing Mersat in a reply to a question from Datuk Dr Mohd Hayati Othman (PAS-Pendang). [4]

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