Malaysia Airlines : Ready To Become Big Again

It has been a busy, sometimes confusing few years for Malaysia Airlines (MAS) with the national carrier transforming itself from a full-service premium carrier into a hybrid "five-star value carrier" and then back to a premium carrier as it tries to find the perfect business model to cope with the unpredictable cost of fuel, high operating expenditure and low yield from increased competition.

But MAS is ready to expand again following a route rationalisation exercise in January 2012 that saw it become a smaller airline.

And this time MAS is confident its business model will work as it ploughs ahead with its growth strategy by bringing in more aircraft to modernise and grow its fleet and focusing on fast-growing regions.

"The plan for MAS would be to continue growth and put more focus on regions which grow the strongest. And that may be true for the next four to five years, and then another region will grow in strength and then we will divert our resources and start growing there," its director of commercial Hugh Noel Dunleavy (pix) told SunBiz in an interview.

"We are also bringing in more aircraft into our fleet. We will be expanding our flight operations, by increasing the frequency of our existing flights and launching new destinations."

This year alone will see the airline take delivery of 24 new aircraft comprising 12 Boeing 737-800s, two Airbus A380s, four A330s and six ATR 72-600 turboprops, the latter for use by Firefly and MASwings.

For the first quarter of 2013 (Q1), the airline increased available seat capacity by 11% and flight frequencies by 9%.

Aware of the cyclical behaviour in the airline industry, Dunleavy believes now is a good time to explore new markets.

"If times are tough for everyone, now is the time to explore new markets. Because if I focuses only on my existing markets, all I am doing is protecting the markets that I currently have and we know that they are weak. If I go to new markets, it creates new traffic.

"Of course, going into new markets are risky. So, we at MAS will do the balancing act of (expanding) between new markets and existing markets on a schedule by schedule basis," he said.

Still, increasing yields would be one of MAS' biggest challenges. It saw yield decrease 5% to 24.2 sen per revenue passenger kilometres (RPK) in Q1 2013, despite passenger revenue rising 11% to RM2.47 billion.

"When we are trying to get more revenue for a flight, it is not that we change the fares. We actually keep the exact same fares in the market all the time, but we change how many seats we sell at the low-end versus the high-end. If it is a peak period, you don't want to sell too many discounted fares on those flights. (Then) you get a better yield," said Dunleavy, adding that the airline will have multiple fare products available on any given flight.

Dunleavy also notes that the Malaysian airline market is evolving quickly.

"There is a lot of competition in the market, not just from Malaysian airlines but international airlines that operate into Malaysia. The Middle Eastern airlines, for example, fly 10 times a day (to Kuala Lumpur) using wide-body aircraft.

"From a tourism and development aspect, that is good for the country. It creates a lot of competition. And it (competition) is good for us as it keeps us on our toes. MAS will have to continue to evolve its business model to adapt and response to those situations," he added.

"And how much we have grown this year (17% increase in passenger traffic, 14% increase in revenue and a higher seat load factor of 76.6% in Q1 2013) shows you that we are adapting to these challenges," said Dunleavy.

The former executive vice-president of strategy and planning of Canada's WestJet Airlines, one of the world's most profitable airlines, said MAS' fleet of superjumbo Airbus A380 has also worked well for the airline, judging from the higher passenger traffic its flights have garnered.

"We are now replacing all of our older 737-400s with the next generation 737-800s. They are much more fuel efficient, they reflect the brand and image of Malaysia and MAS, and we support this with our marketing and branding campaigns as well as advertising.

"In addition, our entry into oneworld (airline grouping) has also allowed us to now expand our network to match a global network of over 840 cities in 160 countries. It has also allowed us to put a world-class product out there," he added.

On the entry of low-cost carriers (LCCs) such as AirAsia and Malindo Air into this formerly full service carrier-dominated market, Dunleavy said LCCs are here to stay.

"It is just a natural evolution of the aviation space. If it wasn't Malindo Air, it would have been someone else.

"(Long haul LCC) AirAsia X had also explored travel into many destinations in Europe and India and then pulled (the routes) back because the mix of traffic, the volume and the fares passengers were willing to pay, didn't allow them to make profits.

They were making economic decision. And that is the right thing to do.

"Similarly, if we don't make money on a route, we would withdraw it. We do it carefully because we are all part of brand Malaysia.

As the flag carrier of Malaysia, Dunleavy said there is a continuous issue of balancing requests from cities for MAS to fly there and the realities of what the actual market demand is.

"Ultimately if they (routes) are not profitable, we owe it to our shareholders to withdraw from those markets and redeploy our assets (aircraft and crew) somewhere else. Now the markets that we withdraw from will not be happy with us. But the challenge we face is that, "It is difficult to be unhappy with us if there is no one travelling from your city. These are expensive assets and when this market doesn't work, I really do need to move it to somewhere else"," explained Dunleavy.

"But we will do everything in our power to see whether we can make that route work. But if we tried everything and it still doesn't work, we owe it to our staff and our shareholders to move that assets to where it makes money. And what we have found is that when we move those assets to places where it works for us, we then expand into those services," he added.

However, Dunleavy stressed that MAS does not suspend its service to a destination quickly.

"Quite rightly, MAS not only looks at it from a pure commercial viewpoint, it also takes a second look and says, what does it look like from a brand Malaysia viewpoint? And is this an area where MAS will continue to invest in that market to see whether we can do some other things like working with Tourism Malaysia for that region or city to help promote extra growth in that market?

"We make sure we invest sufficiently in that market to give it every opportunity to succeed," said Dunleavy, as he believes that MAS plays a role as an agent for the Malaysian government in terms of introducing more international travellers into Malaysia for tourism and development and business reasons.

Dunleavy also said there are people in some quarters who think MAS prevents other carriers from flying into cities in Malaysia.

"No, we don't. We have no right to do so. We are not even asked if an airline wants to fly to a certain destination, let's say Miri.

And if international airlines want to fly into those destinations, they have all the rights to do so. We are not asked or told. It is totally up to them.

"So, if they are not flying into these cities, it is because these airlines independently make a decision not to fly based on the demand they see in that market and what fares they can charge that are reasonable," he added.