The Competition Commission (MyCC) will be fining MAS and Air Asia RM 10 million each for breaching competition laws when they collaborated under a share swap deal two years ago.
In undertaking this action MyCC is giving a clear signal to the market that it means business; anti-competitive behaviors in the market will have serious consequences. FOMCA lauds the MyCC for taking decisive action against these major players in the market. Malaysian consumers have been waiting too long for MyCC to show that it indeed has teeth; that it will punish anti-competitive behaviors. This action by MyCC provides clear proof that the Commission will take stern and definite action against any anti-competitive behaviors in the market.
Anti-competitive behaviors will not be tolerated. It will have serious consequences on the Company or Companies practicing it.
FOMCA hopes and believes that this is the beginning of the actions against the many companies and agencies in the market who are practicing anti-competitive behaviors that is causing negative consequences to the consumers. Consumer suffer through higher prices, lower quality and less choice.
Fundamental to the agreement was a share swap in August 2011 that entailed AirAsia’s major shareholder, Tune Air Sdn. Bhd. holding a 20.5% stake in MAS and MAS’ major shareholder, Khazanah Nasional Bhd. taking a 10% stake in AirAsia. As a result of this, key executives were sitting on the boards of the companies including, notably, AirAsia group CEO and deputy executive director Tony Fernandes and Kamarudin Meranun who sat on the MAS board whilst some of Khazanah’s representatives did the same on the AirAsia board.
Needless to say, that as a consequence of this collaboration, it came as no surprise that key flight services were terminated since the agreement had taken place. Firefly, which is MAS’ lower-cost carrier jet service, ceased to operate routes to East Malaysia (Sabah and Sarawak). AirAsia X, AirAsia’s sister airline, which was originally incorporated to provide low-cost long-haul flight services, terminated its services to London, Paris, New Delhi and Mumbai.
The impact on consumers in this regard is quite direct. By carving up particular consumer sectors amongst themselves, the two airlines have effectively limited consumer options for travelling within the country, particularly to East Malaysia, and low-cost international options. The net effect of the Share Swap Agreement, although it has been substantially aborted, remains that AirAsia X no longer provides long-haul flights to key destinations (i.e. London, Paris, New Delhi, Mumbai) and Firefly does not provide flight options to East Malaysia.
On the 24th February, the Federation of Malaysian Consumers Association (FOMCA), submitted a complaint to MyCC about the potential anti-competitive implications of the collaboration between two of the nation’s air travel service providers. FOMCA had stated clearly in its statement that there appeared to be collusion on routes judging from the termination of flight services and had strongly urged the commission to take the matter seriously and investigate the issue. FOMCA had also raised the issues surrounding growing numbers of complaints against AirAsia in particular where customer services and frequent flight delays were concerned with the company generally showing poor responses to resolving disputes with its customers.
Share swaps in cases such as these cannot be justified by synergies or improved efficiencies as proponents of the collaboration seem to suggest. Profits or revenue will invariably come from highly anti-competitive behaviour. The collaboration between the two dominant air travel service providers in the country would have been akin to a duopoly of collusive partners which would have been in control of most of the domestic market. This inevitably results in competition being eliminated providing collaborating partners ample opportunity to collude on prices, capacity, services and marketing. There would be little to no incentive to compete aggressively thereby offering consumers fewer choices as can be seen with the termination of routes between Peninsular and East Malaysia and less varied, low-cost options for direct international flights. The consumers most affected by this reduction in flight are often low-income flyers returning home to the family and loved ones.
Substantially, the collaboration was called off around April 2012. This was probably due to the investigation that was going to be carried out MyCC looming on the horizon as a result of the complaint filed by FOMCA. Another reason was that there was a huge public outcry as well as disagreement of the powerful Malaysian Airlines System Employees’ Union (MASEU). The share swap was effectively reset and no cash had changed hands except for the respective resignations of the ‘exchanged’ executives from the MAS and AirAsia boards. However, some of the effects of the collaboration had not been undone including for instance, the termination of AirAsia X’s long-haul flights.
It is to be noted further that if such market conduct is not checked and properly reprimanded, going forward, collaborations of this nature may take place and have the potential to undermine competition on a regional scale. This will especially be so when the ASEAN “Open Skies” policy that is set to be effective from 2015 onwards which, will entail the lifting of nearly all regional aviation restrictions that are currently enforced by member countries.
On a broader scale, the action taken by MyCC against these major players sends a strong signal to the market; anti-competitive behaviors are unacceptable. If companies persist, there will be consequences. Syabas MyCC.
Dato’ Paul Selva Raj
Secretary General, FOMCA