The end of Air Macau’s monopoly is coming soon. Members of the aviation sector say it is an opportunity to increase the number of routes, expand tourist markets, and make prices more attractive. But there are doubts about the attractiveness of Macau International Airport at this time. Airlines are still recovering from accumulated losses and there are not enough studies on the airport’s ability to compete in the region
The conversation does not come from now. It was in 2019 that the Civil Aviation Authority informed Air Macau that its monopoly would end. But the pandemic forced the authorities to take a step back: on November 9, the concession was extended for another three years, or until a new competitive exploitation regime was implemented.
Meanwhile, the Macao SAR Government has already finalized the bill that will end the airline’s monopoly and it should be submitted to the Legislative Assembly in the coming weeks, as reported by Rádio TDM Macau.
The public service contract for the air transport of passengers, luggage, cargo, mail and postal parcels to and from Macau was signed on March 8, 1995. It was valid for 25 years from the start of operations at Macau International Airport. .
This more than two-decade agreement ensured that Air Macau had exclusive franchise rights as the only local company authorized to operate at the airport.
In comments to PLATAFORMA, Samuel Tong, director general of the Civil Aviation Policy Research Institute of Macau, considers that by breaking Air Macau’s exclusivity rights, local authorities are expanding the possibilities of operating the local airport.
According to the specialist, the development of modern routes for civil airlines is based on the “hub-and-spoke” model, that is, on the combination of prices between market operators, indirectly, through common suppliers. As in the Macao SAR airlines could not operate as domestic carriers, this model was never applied and Macau International Airport was never attractive.
“In the future, when Air Macau’s exclusive right ends, it will be more attractive for a new competitor to establish itself at Macau International Airport to develop new routes, which will benefit the diversification of tourist sources”, he points out.
“It creates more opportunities for Macao citizens to be able to depart directly from Macao International Airport. At the same time, more tourists can come to Macau through direct flights”, says Stanley Kan, president of the Greater Bay Area Aeronautics Exchange Association.
Competition would not only create new routes, but would also lead to a reduction in prices charged by Air Macau. This is said by a former employee of the company, who requested anonymity to our newspaper. “It is also likely to increase frequencies and reduce air fares on any route with new competition. See how Air Macau took back Singapore after Scoot operated a route during the pandemic”.
“It is also a good approach for local and international employment, such as crew, engineers and mechanics, as well as for expanding the airline business, which includes ground handling, engineering, catering, IT, airport handling, etc. We can expect that the overall quality of passenger services and assistance will be improved, ticket prices will become more competitive, and product selection will be more varied in order to adapt to individual passenger needs.
It will also be a good opportunity to look at the training part, which is further exploration to promote local aviation talent,” adds Stanley Kan.
However, Tong warns that it is still necessary to assess the overall competitiveness of Macau International Airport in the region, including its ability to market passengers, goods and whether the level of service charges is attractive.
Failed subconcessions
The concession contract provides that Air Macau may assign, in whole or in part, the traffic rights, provided that it obtains authorization to do so. So far, Air Macau has held three sub-concessions, all with an inglorious end.
These included contracts with Macau Asia Express – a ‘low-cost’ airline resulting from a ‘joint-venture’ that resulted from a partnership with the China National Aviation Corporation and the Shun Tak group – and with Golden Dragon Airlines, owned mostly by Stanley Ho.
While these two projects never reached a good (air)port, Viva Macau took advantage of its sub-concession between 2006 and 2010, until it finally declared bankruptcy. With a new licensing regime for local companies, new doors for exploring the Macau aviation market are opened.
Many airlines have resumed operations at the local airport since the reopening of borders in February this year, including operators such as AirAsia, Scoot, Spring, Shenzhen, EVA, Starlux, China Eastern, Air China, Xiamen, Bamboo, VietJet, Juneyao, Hainan, Jin Air and Air Busan.
The Malaysian low-cost operator, Air Asia, has so far been the one that most clearly revealed intentions to try its luck and establish a branch in Macau. Although the company chooses not to disclose its plans for the Macao SAR to PLATFORMA, the director general of Air Asia China, Frank Tang, shows interest: “We are always open to any possibility of providing greater connectivity between the Greater Bay Area and Macau in the appropriate commercial and regulatory conditions.”
Defense of the territory
The former Air Macau employee emphasizes to PLATAFORMA that despite the airline having accumulated considerable losses in the last three years, it has already managed to recover almost its entire network of pre-Covid connections.
In the three years of the pandemic, Air Macau suffered total losses of 2.46 billion renminbi (about 2.89 billion patacas), according to reports by Air China.
In 2022 alone, the local airline closed the year with net losses of more than one billion patacas, an increase of 29 percent compared to the previous year.
According to this former employee, the airline’s management is under pressure to restore the pre-Covid network as quickly as possible.
The operator has been committed to gradually increasing the frequency of routes and the network of international flights from Macau to Northeast and Southeast Asia, contributing to the plans of the Macao SAR Government to expand the international market.
This includes increased routes and frequency to destinations such as Japan, South Korea, Thailand, Singapore and Taiwan.
The former worker, who knows the company’s operation well, explains that Air Macau is now facing several difficulties in recovering the operation completely. There are aircraft that are not in Macau and there is a lack of qualified workers in certain areas – something that is currently happening all over the world. “The frequency of some routes has been reduced, causing some aircraft to be currently based in Chengdu and reserved for Air China. On the other hand, many employees left for reasons related to Covid-19. The aircraft will return eventually, as will the base of employees. It is also important to note that there is a global shortage of airport handlers and air traffic controllers, which is also hampering the recovery of airlines around the world.”
Our newspaper also explains that potential competitors can be attracted by air fares, which tend to be high, but the undercapitalization of the vast majority of airlines can discourage new losses in the short term. “The biggest argument against new competition is that most airlines are undercapitalized after three years of Covid-19 losses. Few airlines will have the desire to absorb years of initial losses.”
As for likely candidates for a licence, China Eastern, Juneyao and other low-cost airlines such as Spring are touted.
“In 2019, Air Asia did not hide the desire to have a base in Macau. But the fact that Air Macau quickly obtained a three-year extension of its monopoly suggests that AirAsia is not the preferred choice of local authorities. In addition, Air Asia is still finalizing its own restructuring”, he stresses.
“Air China, the main shareholder of Air Macau, should also not accept any new competition. It has multiple ways of applying competitive and political pressure.” According to this source, Air Macau could try to prevent any new competitor from operating on the main profitable routes, such as Beijing and Shanghai, “as it did with Macau Asia Express”.
