Wednesday, October 12, 2011

MAS Must Sell Firefly To Protect Competition

Under the share swap signed on August 9 2011, AirAsia’s main shareholder Tune Air Sdn Bhd will swap 10 per cent stake in the budget carrier for 20.5 per cent share of the ailing flag carrier in the agreement called a “Comprehensive Collaboration Framework.”

The situation in MAS was so bleak that the Finance Ministry had in Parliament last week argued that the government had no choice but to go ahead with the share swap between AirAsia and Malaysia Airlines (MAS) to allow the national carrier to move forward, especially since the latter made losses of RM770 million for the first half of this year.

There were many critics, especially from the Barisan Nasional backbenchers had argued that the deal is against national interest. The Member of Parliament for Kinabatangan and BN Backbenchers deputy chairman had for example likened the deal to “ikan bilis makan ikan jerung”, where “small fry” Air Asia should not be allowed to swallow up “big fish” MAS.

The critics seem to have forgotten the fact that Air Asia has overtaken MAS in terms of stock market capitalization on Bursa Malaysia since October 2010. The gap has since widened to the extent that Air Asia is now worth RM8.8 billion practically double the size of MAS at only RM4.5 billion.

The key issue in the exercise is not the fact that our national interest in MAS has been compromised. The real concern for the rakyat is the fact that the public interest will not be protected with the share swap between the 2 key domestic airlines in the country.

Over the past 10 years since Tune Air took over the management of Air Asia from DRB Hicom, Malaysians in nearly all major cities have enjoyed spectacular benefits from the competition created with MAS. The prices for domestic and regional flights were reduced by more than 50% allowing travel for millions of Malaysians resulting in exponential increase in domestic tourism as well as hundreds of millions of ringgit in travel expenses.

The competitive scene however, changed drastically when the share swap took place resulting in the creation of a collusive duopoly which will naturally seek to protect the interest (profits) of each other, instead of being dictated by market forces to lower prices.

Since the swap is now a fait accompli, there is little or no likelihood of reversal. Hence what is more important will be the actions of the Government moving forward to ensure that competition is protected in the Malaysian airline industry.

Pakatan Rakyat has in its Alternative Budget for 2012 called for the break up monopolies and block cartels so as to ensure lowest possible market prices for ordinary Malaysians. In line with the Pakatan Rakyat agenda, I have called for the Government to compel MAS to sell its budget air service, Firefly Sdn Bhd to the highest available bidder in my speech to debate the Budget for 2012 yesterday in Parliament.

This will ensure that competition and real alternatives are available to ordinary Malaysians when seeking to travel domestically and regionally especially in the budget sector, which allows more people to fly. Competition in the airline industry had benefited Malaysians and our economy immensely over the past decade. Therefore competition must be preserved, cartels and collusions crushed to ensure that all Malaysians and our economy continue to benefit.


Anonymous said...

Government intervention is never a good idea as it really discourages the management from acting on behalf of the shareholder's best interest. Since the Government is the biggest shareholder, I believe, I think the government have no choice but to use this tactic instead of restructuring the company. Like I said, the government's act is proctecting MAS and will discourages the management from doing good as they don't have to worry of takeovers, thus, there is no incentive for management to do better. Again, government should not intervene in a company's affair. Letting go of MAS and expose them to takeover risk, I'm pretty sure they will recover in the long run.

Alan Tan said...

I prefer open skies to recreate the competition. It will be another Wimbledon effect.