AirAsia Group Chief Executive Tony Fernandes announced recently to reporters in Bangkok that he abandons the idea of creating an affiliate in Myanmar for the time being. He, however, confirmed the launching of an affiliate in Vietnam by year-end or by early 2019.
Myanmar affiliate sudden stop
Last March, Tony Fernandes had told Reuters that AirAsia Group would look for the creation of a budget carrier in Myanmar. During the interview, he declared to be in talks with a potential partner to open an airline serving this growing market. The Myanmar affiliate would help Asia’s largest group of low-cost airlines to cover up to 95 percent of the Southeast Asian travel market.
However, a few days ago Reuters quoted Tony Fernandes during a recent AirAsia event in Bangkok: ”the negotiations have stopped. We are not moving ahead with Myanmar at the moment… We might revisit that but we have decided not to go into Myanmar just yet.”
While nothing over the name of the partner or elements of the negotiations have been publicly displayed, AirAsia withdrawal also underlines the difficulty to create an airline in Myanmar.
The country has seen air transport booming in recent years but competition remains hard while the market is still in its infancy due to a relatively small tourism market —3.4 million tourists in 2017, up 18% over 2016— and low spending power for locals.
Despite its small size, Myanmar has one of the largest numbers of airlines of any country in Southeast Asia. There are currently 10 airlines based in Myanmar, which are barely profitable. Financial difficulties are also due to the high cost of operations and high fares fixed by the government, making flying not attractive. Many local airlines stopped serving domestic flights recently due to the high costs of flying.
Foreigners pay even twice as much as locals for the same fares. According to the Department of Civil Aviation, less than 20% of all tourists to Myanmar used a local airline in 2016. This represented some 300,000 international travellers only.
Last November, Japanese carrier All Nippon Airways dropped a plan to form a joint venture in Myanmar with a partner after its application for an air operator certificate (AOC) had been rejected by the DCA. The joint venture called Asian Blue was due to serve international routes.
Vietnam affiliate goes on
Tony Fernandes said however that he expected AirAsia’s Vietnam joint venture to be flying by the end of the year or early 2019. AirAsia Vietnam is the second attempt of the low-cost airline group to enter the Vietnamese market after failing to take a stake in VietJet Air back in 2005.
According to the group, Vietnam provides an opportunity for AirAsia to potentially operate domestic and international underserved routes, primarily providing domestic connectivity between key cities in Vietnam, as well as flying from Ho Chi Minh, Hanoi, and Da Nang to other destinations in ASEAN, China, Korea, and Japan.
Last year, Bloomberg reported that AirAsia Group had announced a shareholder agreement and a share subscription agreement with Gumin Company Limited and Hai Au Aviation to establish a joint venture in Vietnam. Partners invested US$44 million for the airline which should start operation by the end of the year or latest by early 2019, most probably based in Ho Chi Minh.
Baolau integrates domestic and international flights in Thailand operated by Thai AirAsia (FD), domestic and international flights in Malaysia operated by AirAsia (AK), as well as international routes served by Indonesia AirAsia (QZ) and Philippines AirAsia (QZ).