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ROS Lboard

‘MAS still not out of the woods’

January 16, 2013

The national carrier needs to form strategic alliances to tap market outside Asia.

KUALA LUMPUR: For Malaysia Airlines System Bhd (MAS), the way to continuing competitiveness and revenue streams may lie in forming alliances with other airlines with greater reach, especially outside Asia.

MAS, which is a full-service carrier, has been focusing on growing its connections in the Asia-Pacific and Asean regions, where it currently derives 60% of total revenue.

However, research house Frost & Sullivan said the marketplace is becoming more crowded with competition for passengers coming not only from traditional airlines but also from a host of low-cost carriers.

“To secure future growth it would be prudent to look at global passenger and revenues from non-Asian markets,” Sagar Sahane, Frost & Sullivan consultant, Asia Pacific Aerospace & Defence Practice told The Malaysian Reserve.

MAS is also scheduled to formally become a member of the OneWorld Alliance by Feb 1, which would open up possibilities of code-sharing with other members to gain access to destinations not covered by the national carrier.

Sahane said analysis of MAS revenues shows that the two regions where it would like to increase its presence is Africa and the Americas and that code-sharing would certainly be an option.

“MAS currently serves only Los Angeles and has no connectivity in the eastern US.

“MAS will not be able to form partnerships with either British Airways (BA) or Japan Airlines due to an anti-trust immunity joint-venture agreement of these airlines with American Airlines. However, the possibility exists with either FinnAir or Royal Jordanian,” Sahane said.

While these airlines focus on the European and Middle Eastern markets, any alliance with them would enable connectivity to the east coast of the US, especially since Royal Jordanian provides connections to key eastern US cities like New York, Chicago and Detroit, he said.

Restructuring still ongoing

Sahane said the OneWorld Alliance would open up opportunities for MAS, but since only three OneWorld carriers serve Kuala Lumpur, the airline should hedge its bets on other alliances.

“With the benefits from One-World not likely to come in the short term, MAS needs to focus on further reducing costs and fully implementing the latest version of its business plan. The carrier’s restructuring is still a work in progress and by no means is MAS out of the woods,” said the Centre for Asia Pacific Aviation (CAPA) in an analysis review.

CAPA is a leader in global aviation knowledge, delivering market analysis, data and information services to support strategic planning at blue chip international aviation organisations worldwide.

Further, CAPA said there have been several major adjustments to the MAS business plan over the last several months, including a reversal of capacity cuts and dropping plans to establish a new shorthaul premium carrier.

“But the core component, a focus on premium services, remains the same. MAS is still investing significantly in fleet renewal as well as product enhancements to reinforce its premium position.

“The original version of the new business plan, which was unveiled just over one year ago in December 2011, also outlined network changes which in hindsight were too drastic and sudden,” the CAPA report said.

It said the new MAS management team took a slash-and-burn approach, implementing a route rationalisation exercise that quickly cut available seat kilometres (ASK) by 12%.

Interestingly, CAPA said MAS is now more likely to pursue a relationship with One-World member BA as the British carrier could become an important partner for MAS in the UK-Asia market as well as in the UK-Australia market as BA ends its joint venture with Qantas.

Ticket yields

BA has been considering resuming services to Kuala Lumpur and could potentially change the stop of its London-Sydney service from Singapore to Kuala Lumpur to leverage a potential codeshare with MAS, the CAPA report said.

Alternatively, Sahane said BA thus will be looking at options to improve their proposition at providing the Australia connectivity for UK travellers.

“This is where MAS can significantly help as it has nearly 9,000 weekly seats between Kuala Lumpur and Sydney and 8,000 odd weekly seats between Kuala Lumpur and Melbourne,” he said.

He said while MAS has a daily A380 service between London to Sydney, stopping at Kuala Lumpur, BA, on the other hand, does not serve direct flights on the London to Kuala Lumpur route as its existing service to Sydney has a stopover in Singapore.

“Thus in order to integrate MAS in the equation, BA will have to change its London to Sydney stopover from Changi Airport in Singapore to Kuala Lumpur International Airport (KLIA).

“This would mean an additional influx of travellers from the UK and possibly Europe to KLIA, who would then be able to travel in Asean on MAS’s network, suggesting an increase in passenger movement in international as well as regional and domestic routes,” he said.

Focusing on the MAS new strategic plan, Hong Leong Investment Bank Bhd (HLIB) said with a new management team in place, MAS is improving its customer’s experience.

“Benchmarking against the passenger growth in KLIA for domestic and regional destinations of 7%-11% year-on-year, we believe that the additional number of aircraft into the Malaysia market will be overwhelming in 2013.

“Therefore, we expect ticket yields to be pressured in 2013 due to intense competitions between AirAsia, MAS and Malindo Airlines,” HLIB said.

This content is provided by FMT content partner The Malaysian Reserve.


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