What can MAVCOM do if AirAsia X does not reimburse its passengers for the value of tickets purchased?

On 12 November 2021, the nation’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.1
MAVCOM stated that AAX should instead reimburse its air travel consumers, failing which the regulator would 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.
MAVCOM’s powers under the MAVCOM Act and the Consumer Protection Code
Established on 1 March 2016, the goal of MAVCOM is to promote a commercially viable, consumer-oriented and resilient civil aviation industry which supports the nation’s economic growth.2 To achieve this goal, MAVCOM has been empowered under the Act to regulate several key areas of the aviation industry, most notably competition matters wherein section 59(1)(c) grants MAVCOM the considerable power to impose a financial penalty 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 regulator was established in 2016 and was later amended in 2019, comprehensively details the rights of air travellers in relation to flight cancellation as well as other common passenger grievances such as flight delay, denied boarding, and compensation for mishandled baggage, to name a few. It further specifies the minimum service levels and standards for airlines and airports, which includes the full disclosure of air fare, 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 to 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 RM200,000 on the first instance, and in the case of any subsequent non-compliance, an amount ten times the financial penalty which 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 separate from their base fares, which MAVCOM deemed to be in contravention of the provision requiring the full disclosure of air fare, which is prescribed in section 3 of the Consumer Protection Code.3
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: 

  1. Reimbursement within 30 days of the full cost of the ticket; or 

  2. Re-routing, under comparable transport conditions, to the passenger’s final destination of the earliest opportunity or at a later date at the passenger’s convenience, subject to 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 has been caused by “extraordinary circumstances” which 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 travel bans all around the world to which airlines must abide due to security and safety measures.4
Further, MAVCOM also released an FAQ last year on flight disruptions caused by the Covid-19 pandemic which states that the refund options offered to passengers for flights cancelled by the outbreak is a commercial decision by the airlines, given that the cancellation of the flights were beyond the airlines’ control.5
Based on the above, by way of 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 which 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.
AAX has recently issued its own statement on 15 November 2021 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.6 It will be interesting to see if MAVCOM finds this arrangement suitable or whether the regulator will seek to take this matter further.
This Alert is prepared by Shannon Rajan (Partner) and Eric Gabriel Gomez (Associate) of the Aviation Practice Group of Skrine.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.