Rayani Air denies asking for compensation

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RAYANI AIR SDN BHD, a budget airline poised to operate out of Melaka International Airport (MIA), has denied that it is requesting compensation from the Melaka government in the event that there is a shortfall in passengers, as reported by several news publications in August.

According to Ravi Alagendrran, CEO and major shareholder of Rayani Air, the company has not entered into any agreement with the state government concerning compensation for operating scheduled flights out of the airport in Batu Berendam.

“We did not ask for any assistance from the state government, although we plan to offer it a stake in Rayani Air. We can sustain operations with 70% passenger loads, and we believe we can achieve this,” says Ravi in an exclusive interview with The Edge.

During the Melaka International Tourism Show and the Malaysian Association of Tour and Travel Agents Fair 2014, Chief Minister Datuk Seri Idris Haron said the state government would not take up any stake in the new airline. However, it will consider requests for compensation.

Idris was reported as saying that the airline needs at least 35 passengers on a 50-seater aircraft per flight to be viable and sustainable. The reports state that Rayani Air will fly Fokker 50s out of MIA.

However, Ravi says Rayani Air will start operations with two Boeing B737-400s, to be acquired from Penerbangan Malaysia Bhd, a company owned by Khazanah Nasional Bhd. The aircraft typically has the capacity to carry at least 85 passengers.

Melaka’s transport and project recovery committee chairman Datuk Lim Ban Hong has confirmed with The Edge that the state government did not have negotiations or arrangements with Rayani Air to compensate the airline for any shortfall in passengers.

Idris did not respond to The Edge directly.

Umad Suhaili owns 51% of Rayani Air while Ravi’s wife, Datuk Karthiyani Govindan, holds the remaining 49% stake, according to the Companies Commission of Malaysia’s data. Ravi plans to raise RM40 million for the purchase of the aircraft through bank borrowings.

The company has a paid-up capital of RM400,000, and Ravi says he will come up with RM10 million to fund the acquisition.

The fact that an airline will be operating out of Melaka has surprised many, as the state is just a 1½-hour drive from Kuala Lumpur International Airport, which connects Malaysia to more than 50 international destinations.

Also, with the federal government planning to build a high-speed rail between Kuala Lumpur and Singapore with one of the stops to be in Melaka, many are sceptical about the viability of air travel for the historical state.  

MIA is also seen as a white elephant, as no commercial flight has taken off or landed there since March this year, despite the federal government having spent RM240 million on upgrading the terminal building and lengthen the runway.

The state government had previously set up Melaka Air to fly to Penang and Medan, Indonesia, but the service was terminated due to poor demand. Firefly Sdn Bhd, the regional low-cost subsidiary of Malaysian Airline System Bhd, stopped its services there two years ago.

Firefly is said to be resuming operations there by the end of the year, with three flights a week. The destinations have not been determined yet, but the airline will focus on serving the domestic sector first, CEO Ignatius Ong told the media.

Nevertheless, Ravi is unperturbed by the scepticism. As Melaka is a major tourist destination in Malaysia, and with more investments flowing into the state, he is convinced that Rayani Air can take off without the state’s assistance.

“No one is operating from Melaka. The government has expanded MIA for RM240 million, and its location is very good to get to destinations in Sumatra and Java, besides domestic ones. And many tourists come to Melaka from locations, such as Langkawi and Penang, by bus,” says Ravi.

“According to our survey, people from northern Johor prefer to go to Melaka instead of Senai International Airport to catch a flight. Every day, eight busloads of people go to Kota Baru from Melaka, and tourists going to Langkawi and Penang would like to visit Melaka as well.”  

Rayani Air is in the midst of submitting an application for an air operator certificate to the Department of Civil Aviation. The company expects to obtain the permit by end-January 2015, says Ravi.

Rayani Air will start serving domestic routes, such as Penang, Kuching, Langkawi, Kota Baru and Kota Kinabalu, before expanding to regional destinations, such as Pekan Baru and Medan in Indonesia, and Phuket in Thailand.

Ravi says there is also demand from southern China to fly into Melaka as many investors from that country are buying properties and setting up businesses in the southern part of Peninsular Malaysia.

“The tourism department of Melaka has proposed to me [about connecting the state directly with southern China], as there are many tourists from China coming to the state. By the second or third month after Rayani Air begins operations, we will start serving international destinations,” says Ravi.

Another airline serving the domestic market would be positive for consumers, as there would be more choices. But for airlines, competition is tough enough in an already challenging operating environment.

The entry of Malindo Air last year immediately sparked a price war with AirAsia. If Rayani Air proves to be a challenger to the other airlines, will it start another price war in the Malaysian air travel industry?

This article first appeared in The Edge Malaysia Weekly, on October 20 - 26, 2014.