Unable to break protectionist curse, FMI bites the dust

FMI Air became the third domestic airline to throw in the towel on July 20, after more than five years in operation. Amid the winding up of joint venture proposals and local firms, this is the latest alarm that businesses are running out of patience with the government’s rigid protectionism in the aviation industry.

“Operating in Myanmar’s aviation sector has become increasingly challenging and after much deliberation, we have decided to temporarily suspend the operations of FMI Air,” FMI chair Serge Pun said in a press statement released last Friday. The suspension has led to the redundancy of 134 jobs.

Launched in 2012, Yangon-headquartered FMI Air operated domestic scheduled and charter services, covering Yangon, Nay Pyi Taw, Dawei, Myeik, Kaw Thaung and Thandwe. Having sold a 40-percent equity stake to Yangon Land, a subsidiary of Serge Pun and Associates, in 2015, First Myanmar Investment Co., Ltd. holds a 10 percent stake in FMI Air.

It is the third domestic airline in Myanmar to wind up, following Air Bagan and Apex Airlines. To date, three out of a total of 10 domestic players have given up.

Protectionist curse

The company attempted to launch a budget airline with Malaysia-based AirAsia. A while back, Mr Pun met AirAsia’s CEO Tony Fernandes in Sydney to explore the possibility of a joint venture. But Mr Fernandes said on May 15 that the negotiations had halted and AirAsia decided not to enter Myanmar “at the moment”. Had it taken off, the new company would have operated international and domestic flights. However, the Myanmar authorities continue to block any attempts to run domestic flights in order to protect the local players.

“When we talked to AirAsia regarding their new airline in collaboration with FMI Air, they said they planned to run local flights as well. If we allow this, our local companies will be affected a lot,” U Ye Htut Aung, deputy director general of the Department of Civil Aviation told The Myanmar Times in an earlier interview. The proposal was blocked in May. That came merely months after Japan’s largest airline ANA Holdings dropped its Asian Blue JV with Golden Sky World, owned by local conglomerate Shwe Than Lwin, after the government turned down its application for an air operator’s certificate without providing an explanation. It was ANA’s second attempt to enter the market after scrapping a JV with Asian Wings Airways in 2014.

In particular, the rejection of JVs contradicts the government’s pledge to open up the sector for more foreign involvement and make aviation more competitive in order to improve tourism and attract inward investments. Despite purportedly opening up the aviation section for foreign investments since 2013-14, Nay Pyi Taw has not followed up its rhetoric with actions.

In its 2016 Myanmar report, aviation industry consultancy CAPA-Centre for Aviation noted that the domestic market is crowded with “a staggering 10 competitors” and that then-newcomers APEX and FMI “have not been growing”. U Ye Htut Aung has in the past urged the loss-making carriers to merge and consolidate in order to remain competitive, but offered little remedy beyond that piece of advice. CAPA’s report said despite the slowing of domestic growth, consolidation remained “elusive”.

The government plays a heavy role in the sector. Except the state-owned Myanmar National Airlines, other domestic airlines are listed as private. But it is common that “these will have some links to government, evidenced by significant licensing and administration fees levied by the state,” according to CAPA. The problem is that the remaining players are not doing well either, and most are running a loss, including Air KBZ.

“We made a loss of 25-30 percent last year as fewer foreign visitors are coming to Myanmar. This year, between January and May, we are already running a loss of 30pc,” said Daw Aye Mra Tha, general manager of Myanmar Airways International and Air KBZ, adding that they have no plans to halt the operations.

A tourism sector issue note released in March by the European Chamber of Commerce observed that “expensive” internal flights lead to the majority of foreign tourists visiting the same group of destinations in the heartland (Yangon, Bagan, Mandalay, Inle Lake and Kyaiktiyo), while beach resorts are hard to access. Given that FMI Air covered Dawei, Myeik, Kaw Thaung and Thandwe, tourists will find it even more difficult to travel to those parts of the country.

Source: Myanmar Times

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