Introduction
Mavcom's powers
Flight cancellations caused by covid-19 pandemic
Comment
On 12 November 2021, Malaysia's economic aviation regulator, the Malaysian Aviation Commission (Mavcom), issued a media statement regarding the ongoing debt restructuring exercise by AirAsia X Berhad (AAX) and, in particular, the airline's proposal to classify its air travel consumers as creditors and to pay only 0.5% of the value of tickets purchased.
Mavcom stated that AAX should instead reimburse its air travel consumers. Failing this, Mavcom will not hesitate to exercise its powers under the Malaysian Aviation Commission Act 2015 (the Act). Mavcom further stated that it was committed to discharging its duties under the Malaysian Aviation Consumer Protection Code (the Consumer Protection Code). However, Mavcom did not specify exactly which powers it would exercise under the Act and/or the Consumer Protection Code in the event that AAX decided not to reimburse its air travel consumers.
Established on 1 March 2016, Mavcom's goal is to promote a commercially viable, consumer-oriented and resilient civil aviation industry that supports the nation's economic growth. To achieve this goal, Mavcom has been empowered under the Act to regulate several key areas of the aviation industry – most notably, competition matters, about which section 59(1)(c) of the Act grants Mavcom considerable power to impose financial penalties of up to 10% of the worldwide turnover of an enterprise during the period in which a competition infringement occurred.
Mavcom's oversight of consumer protection matters is governed by Part X of the Act, wherein section 69(1) prescribes for the creation of a consumer protection code. The Consumer Protection Code, which was produced by Mavcom shortly after the regulator was established in 2016 and was later amended in 2019, comprehensively details the rights of air travellers in relation to flight cancellations and other common passenger grievances, such as flight delays, denied boarding and compensation for mishandled baggage. It further specifies the minimum service levels and standards for airlines and airports, which include the full disclosure of air fares, a prohibition on post-purchase ticket price increases and the non-discrimination of persons with disabilities.
Mavcom's powers in relation to consumer protection are more subdued compared with its powers in relation to competition infringements. Section 69(4) of the Act prescribes that, in the event of any non-compliance with the Consumer Protection Code, Mavcom may impose a financial penalty of up to 200,000 ringgit in the first instance and, in the case of any subsequent non-compliance, an amount of 10 times the financial penalty that was imposed for the first non-compliance. Mavcom has exercised these powers in the past, most notably against AirAsia Berhad and AAX in September 2019 for charging credit card, debit card and online banking processing fees to passengers separately from their base fares, which Mavcom deemed to be in contravention of the provision requiring the full disclosure of air fares prescribed in section 3 of the Consumer Protection Code.
Flight cancellations caused by covid-19 pandemic
Under normal circumstances, pursuant to section 12(1) of the Consumer Protection Code, an airline must offer compensation to its passengers in the event that a flight is cancelled. As specified in the First Schedule of the Consumer Protection Code, passengers should be offered the choice of compensation between the following options:
- reimbursement within 30 days of the full cost of the ticket; or
- re-routing, under comparable transport conditions, to the passenger's final destination at the earliest opportunity or at a later date at the passenger's convenience, subject to the availability of seats, at no extra charge.
However, section 12(5) of the Consumer Protection Code specifies that the operating airline shall not be obliged to pay compensation if it can be proved that the cancellation was caused by "extraordinary circumstances" that could not have been avoided even if all reasonable measures had been taken.
Although the precise definition of "extraordinary circumstances" was deleted from the Consumer Protection Code in 2019, Mavcom issued a statement on 8 April 2020 to say that the regulator has deemed the covid-19 pandemic to be an extraordinary circumstance given that the outbreak has resulted in national quarantines and global travel bans with which airlines must comply due to security and safety measures.
Further, Mavcom also released an FAQs document in 2020 on flight disruptions caused by the covid-19 pandemic, which states that the refund options offered to passengers for flights cancelled by the covid-19 outbreak is a commercial decision that airlines may make, given that such cancellations were beyond their control.
Based on Mavcom's own earlier statements, it would appear that airlines such as AAX are not bound by the Consumer Protection Code to reimburse any amount to their passengers for flights that were cancelled due to the covid-19 pandemic. If so, and assuming that a majority of the flight cancellations by AAX were occasioned due to the effects of the covid-19 pandemic, it is doubtful that Mavcom will be able to exercise its powers to impose a financial penalty against AAX under section 69(4) of the Act because AAX has not actually infringed the Consumer Protection Code by proposing to pay only 0.5% of the value of tickets purchased by its air travel consumers.
On 15 November 2021, AAX issued its own statement to say that, if successfully restructured, the airline firmly intends to provide travel credits to its passengers once international borders reopen, in addition to the 0.5% repayment for tickets purchased. It will be interesting to see whether Mavcom finds this arrangement suitable or whether the regulator will seek to take this matter further.
For further information on this topic please contact Shannon Rajan or Eric Gabriel Gomez at SKRINE by telephone (+603 2081 3999) or email ([email protected] or [email protected]). The SKRINE website can be accessed at www.skrine.com.