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Regional Competitors Set to Challenge Domestic Airlines

Kyaw Hsu Mon by Kyaw Hsu Mon
October 10, 2013
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YANGON — Myanmar’s domestic airlines face challenges in coming years as foreign players are expected to take a larger slice of the aviation market as the country opens up.

Alongside Myanmar Airways International (MAI)—which is majority owned by Kanbawza Bank chairman U Aung Ko Win, with the government holding a minority stake—and domestic counterpart Myanma Airways, there are six other domestic carriers.

Ownership of the domestic industry is concentrated in the hands of the well-connected businesspeople who thrived under the country’s crony-favoring military junta.

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U Aung Ko Win also owns Air KBZ and Golden Myanmar Airline is owned by KMA Group’s U Khin Maung Aye. Yangon Air has been linked to the United Wa State Army (UWSA) and is blacklisted by the US Treasury Department.

U Tay Za, chairman of Htoo Group, owns Air Bagan—which is also on the blacklist—and reportedly at some time held a stake in another local carrier, Asian Wings Airways. The sixth local airline, Air Mandalay, is a joint venture involving the government and Singapore and Malaysian companies.

Industry sources say these carries should prepare for disruption, since they are currently seen to be offering a service below the level of regional competitors. There are also safety concerns, with the possibility that Air Bagan’s crash in Heho, Shan State, which killed two people in December, will turn tourists off local carriers.

Slicker regional carriers, which come with large networks linking far-flung destinations, will be given a boost by ambitious regional plans to open Southeast Asia’s aviation market.

The 10-member Association of Southeast Asian Nations (Asean) is attempting to bring in an “Open Skies” policy in 2015, part of a broader plan to integrate the region’s economies.

Open Skies will mean Asean member states must open their airports to flights from regional airlines, giving local carriers less of an advantage.

Preparing for the increased competition of a liberalized aviation market, Asian Wings agreed in September to team up with All Nippon Airways (ANA), selling 49 percent of its shares to Japan’s largest airline for US$25 million.

“The thing we have to be cautious about is that international airlines could bring many passengers to all entry points [in Myanmar] in two years,” U Lwin Moe, the executive director of Asian Wings, told The Irrawaddy.

“We, domestic airlines, have a chance to bring more passengers. That is a benefit. But if such international airlines operate on local routes, our domestic share could fall.”

Whether it turns out to be a positive or a negative development, the regional agreement was the key factor behind the ANA deal, U Lwin Moe said.

“[Asean Open Skies] is the main reason why we’re working with ANA,” he said.

Under the companies’ agreement, ANA will lease aircraft to Asian Wings and provide training to its pilots.

Daw Aye Mra Tha, an executive at MAI, said it was too early to assess what impact the deal would have on the local aviation industry, since it was not clear whether ANA would codeshare with Asian Wings.

Codesharing allows airlines to sell tickets on each other’s flights, effectively combining their networks and the capacity of flights they can offer customers.

“We have to wait and see the exact law about this by the government. ANA has now just bought shares. It’s not a codesharing agreement, so it’s too early to say how it will impact on the local sector,” Daw Aye MraTha said.

A bad omen for local carriers may be that Myanmar’s international flag carrier, MAI, has already been pushed off a route by a regional competitor. In March, Thai Airways began flights between Bangkok and Mandalay and just a month later, MAI ceased its flight between the two cities.

Bangkok Airways also announced in September it would begin flying between Mandalay and Bangkok—one of a number of new routes into Myanmar opened up by regional airlines that are taking advantage of soaring visitor numbers.

A manager at Columbus Travels & Tours said passengers will choose whichever airline offers the most convenient option. During the peak tourism season, between October and April, she said, local carriers are already struggling to offer enough flights to meet demand.

“During the peak season, there are about between 10 and 15 flights a day for an airline, depending on the number of passengers. But the problem is most of the airlines’ flights don’t arrive on time,” the manager said.

Local airlines would have to change their business practices to compete, she said.

“Some domestic airlines are now preparing to launch e-ticketing systems so passengers don’t need to get a paper ticket, making it more convenient for them. If some don’t upgrade their system, they will be left out of the game,” she said.

Frequent fliers already say domestic airlines’ flights are overpriced and buying tickets is inconvenient.

U Zin Min Swe, managing director of Mandalay-based construction and decoration firm C.A.D, said local airlines have to learn how to deliver a better service and offer customers more choice.

He said flying with Air Asia, for example, which has stopped a flight it used to run between Bangkok and Mandalay, contrasted with the experience of using a local carrier.

“The service is quite different. The check-in time is short [with Air Asia]. So they, local airlines, have to prepare to operate like this,” he said, adding that 24-hour booking and the option to book online, now expected of airlines, are not offered by any local carriers.

U Zin Min Swe also pointed out that flying between Yangon and Mandalay with a local carrier costs about the same—around $80—as flying from Yangon to Bangkok with regional carriers.

“The price [of domestic flights] shouldn’t be that much,” he said.

A senior official at state-owned Myanma Airways, who declined to be named, said if international airlines get into the local market, domestic airlines will be pushed out, since they will struggle during times of low demand.

In order to avoid this, the official said, carriers should try to take advantage of regional liberalization themselves, and fly routes out into the region.

“I would prefer the domestic airlines to attempt to fly regional routes,” he said.

Additional reporting by Yan Pai.

This story first appeared in the October 2013 print issue of The Irrawaddy magazine.

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Kyaw Hsu Mon

Kyaw Hsu Mon

The Irrawaddy

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