New refund rule likely to encourage airlines to be more efficient

Transport Minister Anthony Loke.

PETALING JAYA: The impact on airlines following the Transport Ministry’s rule on refunds will be manageable, according to analysts.

However, with refunds being a dreaded cost for airlines, there is a likelihood for flight ticket prices to be adjusted to manage the impact.

Transport Minister Anthony Loke announced yesterday that airlines would have to fully refund passengers of flights delayed by at least five hours effective Sept 2.Prior to the new rule, a refund or alternative flight was provided only if it was cancelled.

For flight delays of more than five hours, affected passengers were given hotel accommodation if an overnight stay was required, and transport between the airport and place of accommodation, in addition to meals, Wi-Fi access and phone calls.

Flight refunds and delays have been a critical issue for a long time.

About 20% of the complaints received by the Malaysian Aviation Commission in the second half of 2023 (2H23) were related to refunds, followed by flight cancellations (13%) and flight delays (13%).

Complaints related to refunds increased by 62.3% year-on-year (y-o-y) in 2H23. AirAsia contributed 36.4% of the complaints, followed by Batik Air (27.3%).

As for flight delays, complaints rose 70.1% y-o-y in 2H23.

Malaysia Airlines registered 39.6% of the complaints followed by AirAsia at 23.3%.

Capital A Bhd chief executive officer (CEO) Tan Sri Tony Fernandes has declined StarBiz’s request for comments on the announcement.

Datuk Capt Izham Ismail, CEO of Malaysia Airlines Bhd, had not responded to queries at press time.

Rakuten Trade head of equity sales Vincent Lau said the new refund rule is positive for consumers and fair to both parties, considering the minimum five-hour threshold.

“The impact will not be too critical on the airlines. They will find a way to manage the impact on their financials,” he told StarBiz.

Aviation consultancy Endau Analytics founder and analyst Shukor Yusof, however, questioned whether airlines should bear the responsibility for delays not caused by them.

They include weather conditions and other external factors.

“Airlines in Malaysia are already struggling amid intense competition.

“Such a move may pacify travellers but hurt airlines’ balance sheets when they are barely recovering from Covid-19,” he said.

Another aviation analyst said the refund rule would incentivise airlines to make their operations more efficient.

“You only have to provide a refund if you delay the flights for too long. If the airlines can better manage their on-time performance, the impact of refunds will not be significant.

“Anyway, airlines may factor this latest development into their pricing mechanism. Whether we will see higher ticket prices, we have to wait and see,” the analyst said.

According to Loke, airlines can also offer refunds in alternative forms like travel vouchers or credit shells.

“Consumers, however, have the choice to decide on their preferred refund method,” he said.

In a separate development, Loke said Malaysia Airlines will have to provide monthly reports to the Civil Aviation Authority Malaysia, following the recent spate of technical issues plaguing the national carrier.

Loke added that the renewal period of the carrier’s Air Operator Certificate had also been reduced from three years to annually.