New regulations in store for aviation industry

  • Azmir: The airport operators will be clear about what service standards they need to adhere to and what are the financial implications if they don’t meet them
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This article first appeared in The Edge Malaysia Weekly, on March 27 - April 2, 2017.


A new set of regulations will come into force next year that will penalise airport operators for poor service levels, but reward them for exceptional performance.

Malaysian Aviation Commission (Mavcom) chief operating officer Azmir Zain says the regulatory framework will be completed in the third or fourth quarter of this year.

The independent civil aviation regulator has been engaging with stakeholders in drafting the framework, which sets out the financial incentives or penalties on airports based on their service performance.

“Everyone, including Malaysia Airports Holdings Bhd (which manages and operates 39 airports in the country) will know the exact scope of the new framework by 3Q or 4Q of this year. For example, we will make clear to the airport operators the parameters under which we will be monitoring them such as the cleanliness of the toilets, the availability of trolleys and the immigration queue management,” Azmir tells The Edge in an interview.

“The airport operators will be clear about what service standards they need to adhere to and what are the financial implications if they don’t meet them,” he adds.

Azmir says the increases in the passenger service charges (PSC), or airport tax, for domestic and international passengers from this January, must commensurate with the service levels at airports.

“We are now discussing with industry players such as airlines, airport operators, and ground handlers [in preparing the framework]. We will also engage with passengers to better understand what are the most important services they would expect at airports,” he says.

While such a framework is new for Malaysia, Azmir points out that it has been adopted by other airports around the world, including Dublin and Heathrow, and that it has resulted in improved service levels.

It has been exactly a year since Mavcom was formed and, according to Azmir, this year is ­going to be largely a continuation of ­efforts, which the commission had undertaken last year.

PSC is paid by departing passengers and collected by airlines upon the purchase of tickets. It is only paid to MAHB after the completion of a flight.

In December 2011, AirAsia Bhd — the largest tenant at klia2 — had demanded that MAHB sign a service level agreement with it, formally defining the level of service the airport operator is to provide at klia2, before it would agree to relocate its operations to the new terminal from the old low-cost carrier terminal in Sepang.

Mavcom will continue its efforts to make PSC the same for all airports. In the first round of revisions, the PSC for all domestic passengers departing from any of the 42 commercial airports in the country, including klia2, was raised to RM11 starting January. Domestic passengers previously paid RM6 out of klia2 and RM9 out of the Kuala Lumpur International Airport (KLIA) and the other airports.

The PSC for international flights at KLIA and other airports was also increased from RM65 to RM73 and from RM32 to RM50 for klia2. At the same time, a new PSC of RM35 was introduced for Asean this year.

In the second round of revisions, the PSC of RM50 for klia2 will be standardised to RM73 come Jan 1, next year.

Mavcom will also be taking steps to make the current requirements for applying or renewing an air service licence (ASL), or an air service permit (ASP), into law “very soon”, Azmir says.

“The new regulations will stipulate precisely some of the criteria the applicants need to adhere to. Currently, what is in place is a set of guidelines available on our website. So, the new regulations are going to mirror what is already on our website,” he adds.

“We are still monitoring the [aviation] industry to ensure that [the players] follow the licensing guidelines and standards we have put in place.

“As a result of our monitoring work last year, actions were taken against Rayani Air Sdn Bhd, Suasa Airlines Sdn Bhd and Eaglexpress Air Charter Sdn Bhd. We hope there won’t be more of such cases this year,”Azmir says.

In June last year, Mavcom revoked Rayani Air’s ASL after it was found to lack the financial and management capacity to continue operating as a commercial airline.

The following month, it launched an investigation into Suasa Airlines for operating a commercial airline business without a valid ASP. The airline subsequently pleaded guilty to the offence and was fined RM380,000 in January this year.

Then, in December last year, Mavcom revoked Eaglexpress’ ASP for failing to comply with specific conditions imposed by the commission within the stipulated timeframe. All three airlines have since ceased operations in Malaysia.

On whether Rayani Air, Suasa Airlines and Eaglexpress would be allowed to resume their operations, Azmir says: “They can apply for a fresh licence, but we will need to evaluate their application according to the criteria we have put in place.”

An ASP allows an airline to operate charter flights, while an ASL allows it to conduct scheduled passenger services.

According to Azmir, three airline groups, namely Malaysia Airlines Bhd (including its subsidiaries FlyFirefly Sdn Bhd and MASwings Sdn Bhd), AirAsia (including AirAsia X Bhd) and Malindo Airways Sdn Bhd currently hold an ASL. In addition, there are about 20 companies holding an ASP.


Is the Malaysian sky crowded?

Azmir says it is difficult to determine whether there are too many ASP holders because these operators serve different segments of the market.

“On the number of scheduled carriers, three is a relatively low number compared with Myanmar, the Philippines, Indonesia or Thailand. Even matured markets such as the UK has more scheduled carriers than us.

“However, this analysis should be done based on the size of the market because other markets are larger than Malaysia’s. Besides, market fragmentation should not be analysed at a total country level, but route-by-route level. So, it is difficult to say whether the Malaysian airline market is saturated,” Azmir adds.

Although there is no freeze on the issuance of ASLs for new airlines, he says Mavcom needs to ascertain whether the market can take on an additional player. “If there are indications that the market in Malaysia is clearly too crowded, then [we might not grant an ASL]. On the other hand, if an ASL applicant chooses to operate routes that are not operated by others, [then we may consider granting it an ASL].”

Mavcom will also release regulations for the allocation of air traffic rights this year.

“We have already put in place an air traffic rights allocation process, which was agreed to by all the major airlines [Malaysia Airlines, AirAsia and Malindo Air],” Azmir says.

He adds that Mavcom will try to be “fair and transparent” when allocating traffic rights, but it cannot please everyone all the time.

Given that Mavcom was established a year ago, he says one of its initial challenges has been to educate and create awareness among industry players and consumers on the commission’s roles.

“We have been undertaking various initiatives such as engaging with players in the industry and consumers. For instance, we tell the operators that they must meet the requirements for an ASL or ASP to ensure better corporate governance and improved financial standing,”Azmir says.

“It is necessary for airlines to have all regulatory approvals in place before they start operations. This is required not only by Malaysian laws but according to international standards and practices.”

The commission is also formulating an economic masterplan that will set out the long-term economic direction for the aviation sector.

“The masterplan is envisaged to be implemented over 10 years [from 2021 to 2030],” Azmir says, adding that work on the masterplan started in January this year.

“The focus for this year will be on building databases, taking into account regional and global trends. We will be submitting recommendations to the Transport Ministry on our goals for the aviation industry.

“We will be publishing position papers related to the work being conducted,” he adds.

This year, Mavcom will also come up with regulations for ground handlers. “We are looking to implement a robust licensing process for them. We hope to see them becoming commercially and financially stable,” Azmir says.

On the outlook for the industry this year, he says most industry players are looking at expansion.

“We have approved more air traffic rights applications this year compared with last year. As at March 1 this year, Mavcom had approved 27 international air traffic rights, mainly for China and Asean compared with 70 international and 33 domestic air traffic rights for the whole of last year.

“From last year to March 1, airlines have launched new routes such as Malindo Air (28 new routes), Malaysia Airlines (11), AirAsia X (10), AirAsia (four) and MASKargo Sdn Bhd (one).

“Based on our discussions with industry players, the fleet delivery for this year will be 22 aircraft. We are hopeful of a positive outlook for this year,” Azmir says.