‘Various factors’ led to AirAsia calling off China LCCT plan

This article first appeared in The Edge Financial Daily, on September 4, 2018.
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KUALA LUMPUR: AirAsia Group Bhd’s decision not to renew the agreement to build a low-cost carrier terminal (LCCT) in China was due to “various factors”, including a failure to secure a domestic operating licence in the country.

“We couldn’t get a proper [Chinese] airline that is suitable for our joint venture, be it from a financial or operational standpoint, AirAsia X Bhd co-group chief executive officer (CEO) Datuk Kamarudin Meranun told reporters yesterday.

He said the plan to develop a LCCT in Zhengzhou, Henan province has been put aside for the moment, although this would not prevent it from continuing to grow its presence in China.

“We are only restricted by [being unable to offer] domestic flights, but we’re still a significant player in China and will continue to remain so,” he said, adding that AirAsia’s current priority is the vibrant Southeast Asian market.

Last Thursday, AirAsia announced that its preliminary agreement signed with the China Everbright Group and the Henan government last year to build the low-cost aviation base had lapsed and was not renewed.

However, Kamarudin did not discount that the carrier may reconsider the plan in the future, given the higher demand there.

“Once we’ve built all the bases, we’ve got the right infrastructure, maybe that’s the right time to come back to China,” he said.

Separately, he said that the group is targeting to raise its ancillary income to mitigate thinning margins due to high fuel prices.

“We strongly believe that the fuel price is unrealistically high. But it is what it is, we all have to live with it. We are taking steps, margins may be squeezed, but so long as we stay relevant and sustainable, that is key,” he said.

Yesterday, Kamarudin witnessed the signing of a memorandum of understanding (MoU) between AirAsia Indonesia and the Malaysia Healthcare Travel Council (MHTC) to promote Penang as Malaysia’s top medical tourism destination.

The MoU will see AirAsia Indonesia providing direct flights to Penang, while MHTC is offering to arrange medical services for these travellers. Penang is chosen as it accounts for more than half of Malaysia’s total medical tourism activities.

The goal is to provide a seamless experience for medical travellers, including transportation services from the airport, shared MHTC chief executive officer Sherene Azli.

“[Malaysia’s] hospitals can cater for 3.1 million medical travellers by 2020. We currently only have 1.05 [million travellers],” she said.

According to Deputy Finance Minister Datuk Amiruddin Hamzah, Malaysia’s medical travel earnings are targeted to reach RM2.8 billion in 2020 from RM1.3 billion in 2017.