Government Role and Programme Privatization The privatization of Malaysia Airlines (MAS) aimed to help finance the airlines

expansion plans. However, privatization was arguably not feasible in terms of attractiveness to the private sector given the significant industry challenges, MASs low profitability and institutional constraints arising from its role as national carrier. It was also not feasible for the government because the substantial capital costs involved were prohibitive for any potential private investor. It appeared to have been motivated by political considerations related to state efforts to promote Malay entrepreneurs.

Privatization may improved productivity in certain areas, but MAS remained inefficient by regional standards. This ongoing inefficiency compared to its regional competitors, and its debt burden, had a negative impact on the airlines financial performance, and the government was forced to intervene when the new owner, faced with mounting company and personal debts, was unable to continue financing the airline. Privatization offers the possibility of financing an airlines capital expansion and improving efficiency of MAS. However, the airline industry is characterized by substantial and increasing capital costs, low profit margins, and periodic downturns. This has led to regular bankruptcies and mergers, and necessitated state subsidies and bail-outs because of the economic cost of failure.

Open skies policy The Asean open sky policy will benefit local airlines especially Malaysia Airlines (MAS) when it is fully implemented in 2015, said Deputy Transport Minister Datuk Abdul Aziz Kaprawi. The policy will enable local airlines to increase flight frequency, open new routes, and fix fares at current market rates without getting approval from aviation authorities .

Open skies policy is a much simpler form of deregulation as it marked a first approach used in the deregulation initiative in the United States (Button, 2009). In the move for liberalization of the international air transport market, open skies agreement have been used as a tool to pursue the initiative of liberalization in air transport to the level today. It does not convey that the air transport market is free from regulations but rather it means that some of the

obvious issues which were used to be tightly controlled by the government before are now relaxed for example the issues of routes served, capacity and service levels, and double approval of fares to double disapproval. These measures improved the efficiency level of the carriers involved.

Open skies agreement may lead to a more relaxed restriction on issues like capacity, air fares, routes etc as postulated in Button (2009). Asian region will only benefit from the open skies ties with the U.S. when the air transport market in Asian itself is not restricted (Kim & Ha, (1998); Tae & Yeong, (2002)). Failure to liberalize the whole air transport markets in Asia entails that airlines in Asia are likely to lose to its partner namely the U.S. In a way, there is a need to form a strong trading block within the region to raise the efficiency levels of all airlines in Asia before engaging in any open skies agreement with other party who has a liberalized air transport market (Oum & Lee, 2002).

Upgrading works for seven airports The government plans to upgrade several airports, including Langkawi, Kuantan, Kota Kinabalu, Sandakan, Miri, Sibu and Mukah. The government has allocated RM312m for this purpose in Budget 2014. In principal, if the government incurs capex for commercially-viable airport projects, its share of MAS revenue will be increased by 0.3% for every RM100m spent .On the balance of probabilities, MAS believe that the RM312m capex to be incurred for upgrading these airports will increase the governments share of MAS revenue. A bigger budget to promote tourism The government will be spending to promote tourism in Malaysia, with 2014 earmarked as Visit Malaysia Year and 2015 as the Year of Festivals. These programmes succeed in increasing tourist flows into Malaysia and consequently, demand for travel within Malaysia, it will be positive for both MAS and the airlines.

Cut in corporate income tax rate In conjunction with the implementation of GST, the corporate income tax rate will be reduced from 26% to 25% in 2016 onwards. This will benefit MAS as it pays the full corporate tax rate on its Malaysian-sourced income. There will be no material benefits to AirAsia, AAX, or

MAS. MAS will likely be shielded from taxes by its losses, even after its 10-year tax-exempt status ends in 2015.

Airside capacity at KLIA and Subang airport to be increased Part of Budget 2014, the Malaysian government will replace the existing 20-year old air traffic control management system at Subang airport and will also build a new RM700m air traffic management centre at KLIA that will allow simultaneous landings and takeoffs on all KLIA runways. All the expenses will be borne by the government as air traffic control is traditionally the responsibility of the Department of Civil Aviation. At the moment, KLIA is able to handle a total of 68 aircraft movements/hour on its two runways. This will rise to 108 aircraft movements/hour once the third runway and the new air traffic system is in place. In the immediate future, there will not be a significant positive impact to aircraft movements as KLIA is presently facing minimal airside capacity constraints. The current capacity of 68

movements/hour is more than enough to handle the typical peak-hour demand of 60 movements/hour.

From a longer-term perspective, the increased airside capacity will be beneficial to MAS as it allows more planes to land at KLIA, leading to higher potential revenues from landing fees and passenger service charges. For the airlines, more runway capacity may or may not be a good thing. While it allows for more growth headroom, it may also increase competition among the carriers. For example, it allows start-ups like Malindo Air and foreign carriers to secure favourable time slots more easily.

REFERENCES

Button, K 2009, The impact of USEU Open Skies agreement on airline market structures and airline networks. Journal of Air Transport Management,Vol.15, No.2, pp.5971.

Kim,J & Ha, H.K 1998, Liberalization in Korea's airline industry and current concerns. Journal of Air Transport Management, Vol.4, pp.145-154.

Oum,T.H. & Lee,Y.H. 2002, The Northeast Asian air transport network: is there a possibility of creating Open Skies in the region? Journal of Air Transport Management, Vol.8, pp.325337.

OConnell, J.F. and Williams, G. (2005). Passengers perception of low cost airlines and full service carriers: A case study involving Ryanair, Aer Lingus, AirAsia and Malaysia Airlines, Journal of Air Transport Management, 11(4), 259-272.

MAS , 2013, Company annual report year "Malaysia Airlines Business Turnaround Plan"(PDF). Malaysia Airlines. Retrieved 2014-03-20.. The Malaysian Insider 18 Nov 2013 (18 November 2013). " Asean open sky policy to benefit MAS, says Transport Ministry. My.news.yahoo.com. Retrieved 2014-03-20.