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Will passengers get lower fares due to competition among Firefly, MAS and AirAsia? [06-01-2011]  
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Firefly's expansion into the domestic market using jets would no doubt give travellers another travel option but analysts say the entry will put pressure on both AirAsia and Malaysia Airlines (MAS) as all three are after the same market.

They expect Firefly to cannibalise on MAS routes while AirAsia will feel the heat from a new competitor in the low cost segment.

But the airline bosses of AirAsia and MAS are refuting the analysts' claims.

“How will they steal market share? They have only two planes and we have 100. Three flights to Kota Kinabalu (KK) is insignificant and it does not affect our fares. We are on our way to having 24 flights to KK and Kuching,” AirAsia group CEO Datuk Seri Tony Fernandes said.

To provide increased facilities and expecting more passengers, Firefly opened a new sales counter at the Kuala Lumpur International Airport on Tuesday. - Bernama

“But we welcome competition and we have no issue with Firefly. Competition only makes it better and more efficient and we are where we are because we competed, in many instances, against unfair competition. But the Government has to be fair and open up routes for AirAsia X now that MAS has been allowed into the low cost fare market with Firefly,'' he added.

Firefly is a wholly-owned unit of MAS and it would begin mounting flights from KL International Airport to Kuching and KK using the B737-800 jets on Jan 15. It will operate on a low cost model and still maintain its turboprop operations at Subang.

AirAsia currently flies 10 and 11 times daily on the KL-KK and KL-Kuching routes respectively and MAS flies 8-10 and 8 times respectively.

“We may fly the same destinations but we (cater) for different market segments. For us, Firefly is actually complementing us rather than cannibalising us. It is an enhancement of the MAS products,'' MAS managing director Tengku Datuk Azmil Zahruddin said.

He does not expect full service passengers to migrate to low cost if cost is not their major consideration.

“What percentage of passengers considers price a factor? If it is 90%, then there will be a danger of cannibalising. But I do not think many passengers will decide to migrate,'' Azmil added.

He felt that MAS, with Firefly, had a full suite of products to offer every market segment, be it for full service or low cost. The entry of Firefly “gives more flexibility to consumers to travel.”

“Both Firefly and MAS are catering to the (group's) growth and it would be naive to say that the full service segment will not grow (because of us),'' added Firefly managing director Datuk Eddy Leong.

The real fight for passengers intensifies when a third player enters the market and the first domestic sector with a third player are the KL-KK and KL-Kuching routes. A clear example of how competition brought fares down was when the KL-Singapore sector was liberalised from a two-player environment to five. This forced fares to drop and today one-way fares are as low as RM2.

In the short term, analysts believe the “fight in the domestic market will not be intense'' since the market is big enough for three players.

“Inevitably some routes will experience more pressure than others when Firefly gets more aircraft, say six or 10. There will definitely be a fundamental drop in average fare pricing at some point in time but it will still be profitable albeit lower margins,'' said an analyst from Maybank Investment.

He added that new airlines were instinctively attracted to the “low hanging fruit” to launch routes and Firefly's target would be routes where AirAsia had the largest number of flights. Kuching and KK are clear examples of that.

A check on the respective airline website revealed that Firefly is offering an all-in-one-way-fare of RM59 to either Kuching or KK from KL. AirAsia has also reduced its fares for the sector and its one-way fares are as low as RM66.40, while MAS' offer is RM238 for one-way to KK.

Source:THE STAR
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