Question

Malaysia Airlines, AirAsia, Malindo need different action by govt amid Covid-19 pandemic — Mustapa Mohamed

KUALA LUMPUR (March 30): Airline companies including some of the most well-known in the industry are facing their biggest challenge due to Covid-19 pandemic, Minister in the Prime Minister's Department (Economy) Datuk Seri Mustapa Mohamed said.

According to him, this is a global phenomenon with giant airlines such as Emirates and Singapore Airlines have also been affected, not to mention Malaysia Airlines, which has faced various challenges before the outbreak.

Although there was no announcement in terms of assistance for airlines in the Prihatin Rakyat Economic Stimulus Package (PRIHATIN) announced by Prime Minister Tan Sri Muhyiddin Yassin last Friday, the sector would need action, he said.

“Companies like Malaysia Airlines, AirAsia and even Malindo Air are big employers. Certainly (it) requires a different action,” Mustapa said on Bernama TV's "Ruang Bicara Khas" last night.

However, he did not elaborate on the timing and actions the government would take to help Malaysian airline companies.

Leading low-cost carrier, AirAsia has temporarily suspended all international flights for operations in Malaysia, Thailand and the Philippines due to the Covid-19 outbreak.

AirAsia Malaysia has also temporarily suspended all its international and domestic flights from March 28 to April 21, 2020.

The national carrier, Malaysia Airlines has also significantly reduced its overall network, due to the nationwide MCO from March 18 to 31.

(a) Discuss factors that have affected AirAsia Group Bhd. in their business over time. How have these factors affected pricing decisions among airline operators?

(b) What general pricing approaches have AirAsia pursued?

(c) Do you think that AirAsia will be able to overcome this amid Covid-19 pandemic? What recommendations would you give to its management?

Answer 1

1. Companies like Air asia have faced turbulent times in past with high leverage due to crude oil prices at 70 dollars per barrel in past and low destination routes causing high turnaround time coupled with organisation bureaucracy and lastly the Coronavirus outbreak has caused complete standstill and thus other airlines operators too have suffered colloquial losses and shutdowns bringing down prices substantially.
2. Air Asia has approached low cost pricing with higher volumes and occupancy both in corporate customers and retail individuals with advanced booking features and discounts.
3. AirAsia will overcome definitely in long run as crude prices remain benign within 35 dollars thus improving profit margins and since electricity vehicles are in market the demand for crude oil shall remain subdued causing prices at rock bottom giving profit maximizing returns for Airline industry as whole.

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