KUALA LUMPUR: The recent approval given to the two new airlines - SKS Airways Sdn Bhd and MYAirline Sdn Bhd - to operate in Malaysia could be a boon to rejuvenate the local commercial aviation sector, said, aviation analysts.
However, they have mixed views over the approval due to market saturation and intensified competition from existing airlines that still operate in a tepid environment.
Winair AS founder and aviation consultant Hans Jørgen Elnæs said there was room for more competition in Malaysia as the new airlines could offer attractive fares that might stimulate demand for air travel.
"The new airlines may be at an advantage with relatively limited debt or zero-debt, operating in low-cost base. This will trigger the competition to become more efficient and lower cost, which could result in lower fares," he told the New Straits Times (NST) recently.
According to the International Trade and Industry Ministry, the two new airlines were expected to help the airline industry recover from the impact of Covid-19, besides promoting "healthy" competition.
Hans believed the government would want more airlines to secure enough capacity while keeping airfares at an attractive level to boost domestic and international travel demand once the travel restrictions are fully relaxed.
"The regulatory framework such as the free competition on equal terms, together with charges the airlines have to pay to the government and airports, should be relaxed to allow airlines to build up capacity and expand routes," he said.
Hans said this, in turn, would allow airlines to be more financially sustainable and help Malaysia reap the spillover effect from airlines network expansion and capacity, a significant contributor to the country's gross domestic product (GDP) and jobs creation.
International Civil Aviation Organisation (ICAO) air transport officer Rosida Ismail said the entry of new service providers would allow for a possible increase of connectivity that shall benefit not only travellers.
This includes inter-related industries, namely tourism, ground handlers, airport operator, maintenance, repair and overhauls (MROs), local economies at the points of operations that offer jobs to locals and enable the industry's revolution – the Industry 4.0 that depends heavily on connectivity.
"The civil aviation regulators evaluated any application for a new airline to operate within their regulated market, after taking aspects of the proposed business plan, financial viability, strategic planning, competition within the markets and impact to consumers/passengers," she told the NST.
Rosida said the magnitude of the newly "injected" capacity and the type of market planned to be served by the recently approved airlines needed to be considered before making any decision.
"Perhaps the issue of overcapacity is none existence, if there is a minimal to zero overlapping between the markets served (points operated) and the injected capacity (via aircraft type, frequency of operations and other third-party arrangements such as codesharing)," she added.
Rosida said opening international borders and increasing tourism sector promotions might contribute to increasing demand, adding that the density of passenger demand should influence how air services were supplied might influence the costs.
"An understanding and evaluation of the demand for air transport lead to the provision of services which themselves then affect the demand. New adjustments to the supply would then take place to meet changes in the demand. The more competitive and liberalised the market, the more dynamic the interaction becomes," she said.
She believes that several key elements are needed to ensure a healthy and robust aviation industry in any market with good governance that consists of transparency, just and effective management (in terms of implementation and monitoring/enforcement).
"Airlines and all aviation industry players should be accorded with a healthy environment to operate and dedicated their focus to maximise their financial returns - be it to expand, to sustain, to compete or even to restructure."
She said regulators and policymakers should ensure that all policies and regulations (air transport services) are formulated orderly, regular, efficient, economical, harmonious, and sustainable manner to provide equal opportunity and economical operation for the general interest of the nation and travellers.
"Liberalisation of market access and ownership of airlines are also amongst key air transport economic initiatives that may be given due consideration, as it shall equip airlines with better and broader access to demands (markets) and capital.
"Regulators and policymakers are also encouraged to promote, to the greatest extent possible, a harmonised and inclusive approach to facilitate international travel to enable airlines to recover and to rebuild better," she added.
Sobie Aviation consultant and independent analyst Brendan Sobie said the recovery could be gradual, suggesting that it would take several years for the aviation and tourism sectors to recover fully.
"The total pie (market) for airlines will be smaller for at least a few years and potentially several years," he told the NST.
Sobie cautioned that Malaysia would have more airlines fighting over what was deemed a smaller "pie".
He was sanguined about how the smaller slice of the pie and less overall revenues might help airlines to recover.
"SKS Airways is in a different category as at least for now they are focusing on an uncovered segment of the market (small islands with no scheduled air service)," he said.
Sobie also cautioned that the local market would have five narrow-body operators in the domestic market, adding that the market was not big enough even in the best of times for that many competitors.
"It may be great for consumers as competition, which was already very intense before the pandemic," he said.
However, Sobie said it might not be sustainable over the long run as the overcapacity and "irrational" competition was already an issue in Malaysia before the pandemic, leading to losses at every airline in 2019.
"The Malaysian airline sector needs to restore profitability to be viable over the long run, but the prospect of that happening anytime soon is now out the window," he added.