Malaysia could struggle to preserve some domestic air links if low-cost carrier AirAsia is forced to scale back operations, analysts have warned, as rival airlines would have little commercial incentive to take over unprofitable routes.
That reality could leave the government facing a stark choice: allow domestic flight services to shrink or step in with subsidies for essential routes, rather than assuming competitors will automatically fill any void left by the country’s largest budget airline.
The concern has taken on added urgency as AirAsia seeks fresh financing following a sharp rise in jet fuel costs, which contributed to heavy losses across its wider airline group.
The government had already sounded out full-service flag carrier Malaysia Airlines and hybrid operator Batik Air on whether they could expand into AirAsia’s domestic routes should its financial position worsen, Reuters reported on Wednesday.