The Malaysian Aviation Commission (MAVCOM) recently undertook a study to analyse the pricing patterns of airfares for domestic flights in Malaysia, particularly during selected peak seasons. Using a “price multiplier” methodology, MAVCOM study also considers the experiences of other countries in regulating or deregulating airfares.
In the context of MAVCOM’s analysis, the price multiplier measured the ratio of the maximum airfare during a peak season over an average airfare.
In general, average one-way domestic airfares in Malaysia have declined 15% from MYR251 (USD61.3) in Jan-2011 to MYR214 (USD52.2) in May-2018. Of course, this trend varies between routes, in tandem with demand, supply, distance, and level of competition amongst airlines.
MAVCOM’s analysis encompassed 46 domestic routes. 39 routes had airfares during peak seasons with price multipliers of between 0.8x and 3.0x, while price multipliers above 3.0x were also observed during the Chinese New Year period. This was only on certain routes within West Malaysia, as well as, between West Malaysia and East Malaysia. In most cases, such airfares were recorded between one and four days within each peak season.
Above shows Malindo Air’s Ipoh-Johor service as being subject to the highest multiplier, reaching 5.7x.
However, MAVCOM argues that price multipliers for the peak seasons were driven primarily by high passenger demand, rather than the number of operating airlines for the routes. For example, the Penang-Kota Bharu route – solely operated by Firefly – recorded a 0.8x multiplier during the 2018 Hari Raya Aidilfitri period.
Comparatively, the Kuala Lumpur-Penang route, operated by Malaysia Airlines, AirAsia, and Malindo, recorded price multipliers of between 1.2x and 2.9x for the 2018 Chinese New Year period.
MAVCOM believes the findings on domestic airfares during peak seasons in Malaysia are comparable to those in Indonesia, Thailand and the Philippines.
MAVCOM also went so far as to compare the Malaysian domestic fare market with the United States, drawing some interesting similarities. In Malaysia, 80% of the routes analysed had price multipliers of between 1.0x and 3.0x. In the other countries listed, including the USA, 88% of the routes were within the same range of price multipliers.
Despite the multipliers, MAVCOM reasserts that in general, average domestic airfares have generally been on a declining trend since 2011. As a result, a key conclusion drawn by MAVCOM is the belief that deregulation of airfares and liberalisation of the airline industry generally have had positive effects of reducing airfares and increasing competition. Globally, many countries have moved away from enforcing price regulation.
This conclusion is reinforced by MAVCOM’s assessment of the Indonesian aviation market, with the country strictly regulating airfares by imposing a floor price, a ceiling price and a surcharge rate for each of its domestic routes. “Indonesia’s strict airfare regulation had the unintended negative consequence of higher airfares in general”, MAVCOM said, while suggesting that the imposition of floor and ceiling prices may also discourage competition between airlines.
Ultimately, MAVCOM’s study measures how airlines dynamically price fares as part of their overall revenue management strategy. Airlines should be free to charge airfares according to demand and market conditions – the negative impact of fare multipliers in periods of high demand simply pales in comparison to the benefit gained when a deregulated market stimulates competition.