Malaysia’s AirAsia wants to set up budget carrier here

Malaysian low-cost airline AirAsia has made a strong pitch to set up a budget carrier in Colombo with a 51 percent stake for the Sri Lanka Government. But Public Enterprise Development Minister Kabir Hashim, in charge of SriLankan Airlines, claimed he was completely bypassed.

A team from AirAsia made an hour-long presentation to the Cabinet Committee on Economic Management (CCEM) on Wednesday. While Minister Hashim is a member of the group, he said he had neither been informed such a pitch would be made nor sent any background information. It had, however, been included in the agenda. He did not attend the meeting.
“I am not opposing it but I am concerned,” he told the Sunday Times. “Proposals of this nature have to be carefully evaluated to determine the viability and ramifications on the bleeding national carrier.”

The CCEM meeting was headed by Prime Minister Ranil Wickremesinghe. Among the team that made the presentation was Dilhan Haradasa, who is AirAsia’s Group Head of Network and Regulatory Affairs. An attendee called the pitch “impressive”. The Malaysian carrier pledged substantial returns at no cost to the Sri Lankan Government.

“Every button was pushed,” he said, on condition of anonymity. “Everything will be privately funded. They will bring in five aircraft in the first year, and twenty five in five years. There will be two in Jaffna and two in Mattala. They said they will bring in tourists to meet the Government’s five million target and they showed glowing statistics of other places they operate in. Each tourist they flew in now had a daily spend of US$ 160. They promised to raise it to US$ 200 in two years.”

The AirAsia presentation was heavy on numbers and showed huge potential inflows of capital into Sri Lanka via the airline’s operation. It pledged low ticket prices, thereby making foreign travel accessible to middle class Sri Lankans. Civil Aviation Minister Nimal Siripala de Silva raised objection saying the Bandaranaike International Airport had no terminal space to support the number of aircraft AirAsia hoped to bring in. But the Malaysian company said low cost aircraft had different terminal requirements and that it was willing to commit to help build a terminal. “The airline said it had the expertise and template to put up prefabricated structures within a few months,” another source said.

In return for its investment, AirAsia Sri Lanka will have a Sri Lankan air operator’s certificate and exercise the unused bilateral rights out of the country. “We have negotiated these pretty well and have unlimited rights to India, Male, Kuala Lumpur, Singapore and Bangkok,” an aviation industry official said. “This should be a wake-up call for SriLankan Airlines.” There are reports that AirAsia has already started head-hunting SriLankan Airlines staff in a recruitment drive in preparation for a possible entry into the local market. At the same time, the prospect of attracting more tourists and running a budget carrier at zero Government investment is now under serious consideration.

“They have the capital, the aircraft and the expertise,” the official said. “This will increase arrivals, foreign investment and allow Sri Lankans to travel while posing a massive threat to SriLankan Airlines. They will compete directly on many routes.” Minister Hashim, meanwhile, told the Sunday Times he had not known about AirAsia—something other sources speculated was unusual. “The ministry was not informed,” he maintained. “Before going to the CCEM, they should have spoken to me. This has implications for SriLankan and it is worrying me.”
“SriLankan’s air operator’s certificate is important,” he said. “I use it as leverage whenever I try to partner the airline with another entity. When this happens, it can become a problem. They should have a proper process.”

“I will probably take it up at the next meeting but I don’t even have a piece of paper to go on,” the minister continued. “They should have sent it to the line minister or ministry and I would have asked SriLankan for a note on the implications. I can’t object without a piece of paper.” The Minister reiterated that he was not writing off the AirAsia initiative but that it must be preceded by an evaluation, done jointly with SriLankan. The proposal also comes amid the ongoing liquidation of Mihin Lanka and a cabinet decision to absorb its towering debts. Its permit is also to be sold. Several other international budget carriers are servicing Sri Lanka.