Question

Question 2 (50 marks)

Read the articles below. Airlines to seek MAHB compensation for delays, losses, Tuesday, 27 August 2019, by B.K Sidhu.

PETALING JAYA: Airlines will be seeking compensation from airport operator MALAYSIA AIRPORTS HOLDINGS BHD (MAHB) after more than four days of disruptions and delays that caused the airline industry to lose tens of millions of ringgit. One airline CEO, who declined to be named, said the cost to his airline during the four days was easily over RM6mil, while another airline is seeing losses of above RM10mil. Some passengers had also cancelled their flights and are asking for refunds. This does not include the undue stress and waiting time thousands of passengers had to endure since Wednesday night. A systems failure caused major flight delays over the past few days, with MAHB having to resort to manual means to get passengers on their flights. Flights were delayed for long periods of time, causing the airlines to incur cost to accommodate the wide-spread delays. There has been no official reason why the systems failed, but sources indicate that the core switch that links all the information systems at the KL International Airport (KLIA) broke down because it had passed its current lifespan. “There were still intermittent disruptions up to midday yesterday, especially at the back-end even though the IT experts, including those from Cisco, were still trying to change the hardware and stabilize the network, ’’ said an expert. The source said the core switch is part of the Total Airport Management System, which is an integrated airport management system used to interface and integrate the majority of electronic information within the airport for services such as check-in, baggage, WiFi, flight information display systems, communications systems and several others. He added that it was an old system that was due for an upgrade in 2012-2014, but was not approved despite several requests. A back-up is in place but could not withstand the overloading, adding to the chaos, the source said. According to a media report on Monday, the board did not approve the upgrade despite several attempts by management to get it upgraded. The cost of the core switch a few years ago when it was due for an upgrade was said to be about RM50mil, but now it would be much higher. MAHB in several statements said that the upgrade of network equipment was progressing. In a statement yesterday, MAHB hinted at sabotage as a reason for the airport’s system to fail. The government said it would form a task force to investigate the systems failure. Coupled with the compensation that MAHB has to fork out to airlines and even passengers, its overall cost, including the hardware change after the recent disruption, could run into hundreds of millions of ringgit. Some felt that if the upgrade had been done in a timely fashion, MAHB would have avoided the recent disruption and extra cost it could be incurring. “Malaysia had the foresight to build an international airport, but 20 years later, it is not well maintained even though airlines pay substantial charges to the airport operator to use its services. Any delay at the airport is a cost to the airlines and they will have to compensate airlines and passengers, ’’ said Philippine Airlines chief commercial group adviser Datuk Bernard Francis. A source said: “Just like the core network switch, the next upgrade that is long overdue is that of the total baggage system. Even though it has been highlighted several times that the baggage system needs to be upgraded, as it is as old as the airport, it has not been done. This is yet another disaster waiting to happen. “The problem is that there are just too many committees and layers of decision-making within MAHB, and combined with over-governance and little empowerment, decision-making takes far too long and that is why several upgrade projects are still waiting for approval.” Experts said that for an airport operator that manages 39 airports and especially KLIA, which is an international gateway, something needs to be done fast to avoid any future problems. The prolonged disruption does not bode well for the country at a time when it is promoting Visit Malaysia Year 2020, as the systems failure could have an adverse impact on tourist arrivals. The Malaysian Aviation Commission said it had also commenced an official inquiry into the recent disruptions at both KLIA and KLIA2. It added that based on the Airport QoS Framework, a financial penalty of up to 5% of the airports’ aeronautical revenues could be imposed on the airport operator if it does not meet with the services and standards. The disruptions over the past few days are said to be the longest for an international airport. As at press time, MAHB had not responded to queries from StarBiz. Its share price fell 14 sen to RM8.49 a share yesterday.

1. Identify any FIVE (5) problems that you had analyzed in the article above. Then, discuss each problem that were compromised during the crisis which could have been avoided earlier.

[25 marks]

Answer 1

Five problems that were analyzed in the article above:

1)Loss of tens of millions of ringgit to the airline industry:

• Looking at the disruptions and delays for the past four days,passengers would not want to make any bookings.Some passengers who had their bookings already done ,were cancelling their flights and were asking for refunds.

2)System failure at MALAYSIA AIRPORTS HOLDINGS BHD (MAHB) which led to manual means to get passengers on their flights.

• MAHB system was an old system that was due for an upgrade in 2012-2014, but was not approved despite several requests. A back-up being in place was of no help as it could not withstand the overloading.Even resorting to the manual means added tot he situation and delay.
• The cost of the core switch a few years ago when it was due for an upgrade was said to be about RM50mil, but now it would be much higher.If the upgrade had been done in a timely fashion, MAHB would have avoided the recent disruption and extra cost it could be incurring.

3)There are just too many committees and layers of decision-making within MAHB, and combined with over-governance and little empowerment, decision-making takes far too long and that is why several upgrade projects are still waiting for approval.

• As the hierarchy of decision making was too complex and long,it wasted a lot of time for the approval of the upgrades to be done.As a result the upgrade which was much needed ,was never done and now is costing much more.

4)The prolonged disruption does not bode well for the country at a time when it is promoting Visit Malaysia Year 2020, as the systems failure could have an adverse impact on tourist arrivals.

• Looking at the disruptions & delays tourists will not be keen to travel to Malaysia ,which in turn will have an adverse effect on tourism.

5)Share price of MAHB fell 14 sen to RM8.49 a share:

• Looking at the performance the investors will never want to invest ,which will further have a drop down in the share price.