FLAWED BUSINESS PLANS
Mavcom initially awarded MYAirline an air service licence in November 2022, essentially concluding it had sufficient capital, sound shareholders and a viable business strategy. It is questionable whether MYAirline met these requirements, and prior to its launch, many industry observers thought its business plan were unrealistic.
The biggest flaw in the business plan was a misguided assumption that AirAsia was in a weak state following the pandemic, leaving a void in the market.
AirAsia, which has an over 50 per cent share of Malaysia’s domestic market, is not as financially strong as prior to the pandemic, but was still able to fight back. A weak gorilla is still a gorilla.
AirAsia dumped fares and capacity on all MYAirline routes – which should not be a surprise as this is how AirAsia also responded to new competition prior to the pandemic.
AirAsia was not making money on any of the 11 routes that MYAirline operated – despite load factors of virtually 100 per cent – but it was able to cross-subsidise due to profits on non-overlapping routes.
The AirAsia strategy worked and MYAirline was extremely unprofitable as its airfares were too low to cover costs. MYAirline’s initial tranche of capital, which it thought would be sufficient for at least one year, ended up running out after only six months.
Over the last few months MYAirline realised its domestic operation was bleeding and was trying to pivot to the international market.
MYAirline cut two of its nine domestic routes earlier this month and was working on launching several new scheduled international routes, including Chiang Mai, Da Nang, Ho Chi Minh City, Medan and Phuket. It was also working on launching charter flights to Bangladesh, China and Saudi Arabia.
However, the pivot required significant investment and the airline ran out of time. MYAirline also failed to secure slots at some of the international airports it was targeting for several months, including Singapore.
Even if MYAirline had secured the capital to implement a new business plan, it would have been an uphill battle given intense aviation competition in Malaysia and regionally.
Ultimately, Malaysia’s market is simply not large enough for more than three main competitors. In addition to the AirAsia Group, Malaysia Airlines Group and Batik Air Malaysia (formerly known as Malindo Air) are well established, leaving little room for new entrants.
However, there always seems to a steady stream of entrepreneurs wanting to start an airline, not realising how much capital is required and how difficult it is to achieve profitability.
Source: CNA
